Nobody wants to turn business away. But during last year’s record refi volume, some lenders found themselves limited by their own capacity – or that of their warehouse lines of credit. To avoid turning away business, lenders had to get creative about clawing back capacity, and many found it in an unexpected place: their eClosing solutions.
More opportunity than lenders could chew
Extraordinary volume has a tendency to create a run on mortgage talent. Recent data from LBA Ware’s Loan Compensation Report shows that for every two loan processors lenders had on staff in 2019, they hired a third loan processor in 2020. That’s a 51% increase. Lenders reported paying huge premiums for seasoned underwriters and processors last year, and as much as these personnel were needed, their salaries and hiring bonuses grew at a much higher rate than their productivity. Simply put, there is a limit to the number of loans a human being can work in a day, while the salaries demanded by experienced underwriters seem almost unlimited.
At the same time, independent mortgage banks were drawing every last dollar from their warehouse lines of credit. Expanding those line limits is not as easy as asking your credit card company for a higher spending limit — in fact, getting a bigger warehouse line is akin to moving mountains even at the best of times. And recently, bankers’ banks have been stretched thin, making it even more difficult to secure extra cash.
The net result of these staffing and capital capacity issues is that while U.S. mortgage lenders were posting record revenues, they were missing opportunities to capture even more business.
Meanwhile, the COVID-19 pandemic and associated social distancing measures were putting huge numbers of deals at risk of dying on the vine simply because lenders and borrowers couldn’t get in the same room for a closing. Sensing the opportunity, fintechs invested heavily in eClosing technology last year, leapfrogging the product category far ahead of where it stood just 12 months prior. With major platform improvements and seriously impressive newcomers to the space, lenders began fast-tracking their eClosing strategies, often starting with hybrid eClosing as a “bridge” that can be implemented quickly and without much regulatory risk.
Wire fraud threats have greatly increased since the COVID-19 pandemic began. Using Consumer Wire Account Verification Service protects consumers when wiring down payments and allows lenders to process loans safely.
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In a hybrid eClosing, borrowers electronically sign home loan documents that do not require notarization before meeting with a settlement agent or notary to finalize the closing. As a result, the closing appointment involves signing only a handful of documents and takes only a few minutes instead of an hour or more. Hybrid eClosings are approved throughout the U.S.; 38 U.S. states also allow full eClosings in which all loan closing documents are eSigned and eNotarized.
Simple and convenient for borrowers, eClosing has enabled lenders and settlement agents to finalize tens of thousands of transactions that might otherwise have fallen apart during the pandemic. Andnow, lenders – many of whom tried eClose on a large scale for the first time over the past year – are discovering that eClosing delivers more than the necessary utility of enabling socially distant closings; it also delivers measurable improvements in mortgage fulfillment and warehouse line capacity while eliminating a lot of risk exposure.
The lesser-known benefits of eClosing
eClosing, particularly when deployed in conjunction with electronic disclosures, can free up a ton of capacity for loan teams. Less paperwork means less time spent generating and managing documents — not to mention fewer errors. Moreover, front-line originators can free up hours every month by replacing physical closings with full or hybrid eClosings.
Perhaps even more significantly for IMBs, eClosing frees up warehouse line capacity. By crafting loans that can be sent off to investors sooner and with fewer errors, eClosing shrinks the gap between loan funding and shipping. This, in turn, allows lenders to save money by reducing their dwell time on warehouse lines of credit and eliminating the need to rely on more expensive, back-up lines of credit. Another secondary market benefit is the ability to take shorter-term rate locks, avoiding possible pair-off fees. We’ve even seen lenders negotiate better loan pricing with investors based on the high quality of loans they are able to deliver through eClosing.
Finally, eClosing solutions offer smart handling of re-drawn closing packages for streamlined delivery to settlement agents. Maintaining an audit trail while replacing only those documents that have changed since the last package was delivered makes life easier for lenders and settlement agents alike and reduces compliance and re-purchase risk.
A silver lining
Lenders that fast-tracked their eClosing strategy with the single-minded purpose of conducting socially distant closings are now finding themselves the benefactors of eClosing’s unexpected rewards. A more efficient loan process, increased warehouse line capacity and reduced risk are worthwhile benefits in any rate environment, pandemic or no.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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