Over the last few years, publications just like this one spilled a significant amount of ink, whether the old-fashioned kind or the digital kind, on the digital mortgage revolution, that is the effort to take the cumbersome, paper-intensive mortgage process online.
Innovations like Quicken Loans’ Rocket Mortgage show the mortgage industry is undergoing a technological shift, but just how many hurdles still need to be cleared before the industry can go fully digital?
Quite a few, according to survey results published this week by Fannie Mae and Freddie Mac.
To gauge the mortgage industry’s view on the adoption of digital mortgages (or eMortgages, in the government-sponsored enterprises’ parlance), Fannie and Freddie reached out to 130 “key industry stakeholders,” which included lenders, technology solution providers, warehouse banks, servicers, and title/settlement providers, to discuss their perceived obstacles/barriers to broader industry adoption of eMortgages.
According to the survey, the GSEs received 87 responses, representing a 66% response rate – well above what is reportedly the typical 5% to 20% survey response rate, reflecting the importance of this feedback tool to participants.
Specifically, the GSEs reported that 54% of the lenders surveyed responded, along with 53% of servicers, 75% of warehouse lenders, 83% of technology solution providers, and 70% of title/settlement companies.
And the results of the survey show that the industry still has a long way to go to reach full adoption of the digital mortgage.
“We found that eMortgage adoption continues to gain traction with lenders; however, the adoption has been slow due to various factors,” the GSEs state in the survey results. “Ultimately, the survey showed that lenders are willing to spearhead the process while warehouse banks, servicers, and title/settlement partners will adopt when requested by lender partners.”
The survey identified a number of concerns that many companies in the mortgage business share, including:
- Acceptance by a limited number of investors
- Warehouse line availability
- Lack of key stakeholder readiness (servicers, document providers, custodians, title/settlement agents, etc.)
- Implementation complexity
- Inadequate return on investment based on industry volumes
- Lack of uniform adoption of eNotarization and eRecording
- Resource/financial constraints
- GSE policy alignment
The GSE survey broke up the sections of the digital mortgage into two specific categories:
- eMortgage, which is a mortgage loan where the critical loan documentation – specifically the promissory note (eNote) – is created, executed, registered, transferred and ultimately stored electronically, and
- eClosing, which refers to electronic closings involving parties applying eSignatures to electronic closing documents. This is often a hybrid process in which certain key documents (e.g., Note, Security Instrument) are printed to paper and traditionally wet-signed. Therefore, an “eClosing” produces an “eMortgage” only if an electronic promissory note was signed electronically
According to the survey, for lenders, one of the main perceived obstacles for full eMortgage adoption are the lack of availability of warehouse funds for eNotes, which the survey results deem to be a significant issue to lenders looking to enter this space.
The survey lists several quotes from the survey respondents that provide more clarity into the issues each company is seeing.
In terms of the relative lack of warehouse funds, the lenders stated: “Only a few warehouse lenders allow eNotes resulting in an added hurdle…the warehouse lenders will delay as long as possible since this changes their revenue model.”
Additionally, the lenders note the lack of investor outlet and varied investor requirements and policies. “Currently this is an agency-direct product only; there’s no active investor appetite in the secondary market,” the survey states.
Lenders also reported a need for turnkey implementation options to offset for the varying pace of adoption among key stakeholders.
Conversely, warehouse lenders state there is a lack of customer demand, lack of investor outlets, and technology requirements that are “too difficult” as major pain points.
“The initial estimate to implement eNotes is a significant six-figure amount,” the warehouse lenders noted. “No one on our staff is familiar with the concept or IT architecture,” another lender stated.
For technology solution providers, limited investor outlets/varied requirements and lack of warehouse lines were the top pain points, similar to the lenders.
The technology solution providers also listed the “lack of readiness of settlement services” and the limitations of “eNotary and eRecording” as concerns.
In terms of the level of readiness of settlement services, the survey lists three quotes from technology service providers that show the gulf between where the industry wants to get to and where it is now:
“Each settlement company may use a different solution and approach. This makes it difficult for the lender as now they have multiple closing settings and methods and must train their closing department.”
“Depending on the transaction, refi or purchase, the lender may or may not control who the settlement provider will be.”
“The lack of willingness of settlement service providers to conduct eClosings is closely tied to the lack of title insurers willing to ensure an electronic notary process.”
For servicers, the servicing technology requirements of eNote servicing is a major pain point. “As a sub-servicer without a direct relationship with an eVault and MERS reporting vendor, a financial and audit investment needs to be made to facilitate a total eNote servicing solution,” one servicer noted.
“eNote vault is the biggest obstacle at this point,” another servicer said. And another servicer said: “Not enough clear documentation of the process to set up a vault, the requirements and the flow of information through the process. We had to build it ourselves.”
And as for title/settlement providers, the issues surrounding the eMortgage lie with the lenders, not with their own systems.
For title/settlement providers, the major pain points to eMortgage adoption are the fact that there are multiple eClosing solutions, a situation that is “difficult to manage.”
The title/settlement providers stated:
“I see real difficulty if each lender has a different eClosing system, then we must learn and navigate numerous types of systems.”
“Each system has different software, hardware requirements, and training needed. In addition, most have costs to us to sign up.”
“These vendors should not only have the technology to execute the eNote and any accompanying documents, but also be tightly integrated into settlement systems.”
The title/settlement providers also state that there is a lack of demand from lenders. “Haven't seen a lot of other lenders using eClosings yet,” one settlement services provider noted, while another said: “There is not an understanding among lenders regarding eNotes.”
As for what’s next, the GSEs state that they will do what they can to help. Specifically, the GSEs say that they will “analyze the data collected to identify the most impactful way to address barriers and provide recommendations in order to alleviate some of the challenges the industry faces.”