The industry has made significant progress in digitalizing mortgages, transforming it from start to finish. However, the closing process is proving to be one of the most difficult parts to make digital, as the secondary market isn’t as keen on the idea of an eClosing.
Back in August when mortgage technology provider Pavaso announced that Nevada started to allow residential hybrid eClosings, Nancy Pratt, Pavaso vice president of partner relations and government affairs, explained that while a program for eNotarization is underway, a hybrid closing was necessary since many investors still require a physical, rather than digital, signature for certain closing documents.
The issue wasn’t due to the capability to make the signing process digital but from investors only wanting to accept a wet signature.
In order to better understand the hold-up with digital mortgages, it helps to break down the last digital steps of the mortgage process.
A hybrid closing platform, explained in more detail here, enables the consumer to see the required closing documents online prior to the scheduled closing, as well as digitally sign any documents not required by state law to be wet-signed in person. Meanwhile, eNotarizations allow a remote notary.
From this point in the process, the mortgage gets to the eNote and eVault part. As noted in this blog, the eNote refers to the actual mortgage documentation and is most frequently used in conversations regarding the electronic storage of the digital note or mortgage in an eVault. The eVault is most applicable to the servicing and secondary market stages.
Investors and the secondary market have an issue with this final eNote and eVault part of an executed digital mortgage.
In follow-up interview with HousingWire, Pratt further explained how investors are holding up eClosings and what it will take to change this.
Pratt said that investors know they should be able to go digital but aren’t sure how their back-end operations are going to handle it. And as a result, they are spending too much time wondering how their operations are going to consume the new technology.
Interestingly enough, when it comes to fraud security, Pratt said, “There are so many lenders or investors that impose so many nuances in eClosing when there are so many securities built in, and yet they don’t apply those same standards to paper.”
For both investors and lenders, she said that people are afraid to change their process.
“They think it’s going to be a big IT process, like getting a new loan origination system, but really, it’s nothing like that. It is changing processes, but it’s so easy to take that paper process and lift it and put it into a digital process. It’s not a big huge lift,” she said. “Once they embrace it, time is better spent.”
The mindset toward electronic closings is starting to change though. Pratt said they are just now starting to see some medium-sized investors who are willing to do eClosings, but they are only doing hybrid eClosings.
“Once a real big lender gets on board with eClosings, it will change things,” said Pratt.
While before there would be these pockets of lenders doing eClosings, Pratt said it takes a big lender getting on board for change to happen across the industry.
And that big lender could very well be Quicken Loans, looking over recent news headlines.
Earlier this month, Quicken Loans’ sister company, Title Source, an independent provider of title insurance, valuations and closing services, announced it partnered with Pavaso. Title Source’s partnership with Pavaso allowed Quicken Loans’ clients to finish the mortgage process online, creating a fully digital mortgage with an eClosing.
Quicken Loans announced shortly thereafter that it also partnered with eOriginal. Through the partnership, Quicken Loans’ Rocket Mortgage would be able to digitally create an eNote and securely store it in an eVault.
“eMortgage pioneers have waited many years for a lender with this type of market share and status in the industry to move forward in digital closings,” said Pratt. “It sends a clear message to the industry that growth and success are achieved by being that leader in making the closing process more efficient, transparent and educational for their customers.”