Opinion: Trusting your data is key to taming origination costs

The ability to electronically sign documents is only part of the battle when it comes to digitizing mortgages

One statistic in the Mortgage Bankers Association’s latest quarterly Mortgage Bankers Performance Report sticks out for all of the wrong reasons. In the first quarter of 2022, the average cost to originate a mortgage for an independent mortgage bank was more than $10,000 per loan, rising for the seventh consecutive quarter and breaking previous report records. 

So, why are production costs so high? A major factor driving non-sales costs is that we continue to re-enter, verify, and validate data at different checkpoints throughout the mortgage lifecycle. Even though this practice is highly inefficient, it happens because we have many parties involved in every transaction and each party has its own unique concerns and requirements. And nobody trusts the data they obtain from others.

One path to bringing production costs down is through a transition to electronic records and the exchange of trusted data. While some lenders are offering, and many customers are availing themselves of, the ability to electronically sign certain documents, mortgage transactions, end to end, remain stubbornly reliant upon stacks of paper.

It’s clear that just being able to electronically sign documents is only part of the battle when it comes to digitizing mortgages. 

So, how can we eliminate the phenomenon of “checkers checking the checkers,” and finally create an environment in which the mortgage industry can translate the promise of electronic records into tangible results, in the form of accelerated cycle times, reduced costs per loan, improved compliance, and enhanced customer experience? 

The answer is to restore trust in data among market participants. And a critical mechanism for restoring trust is the new MISMO SMART Doc Version 3 Verifiable Profile. Not only does this specification contain the expected SMART characteristics of being securable, management, archivable, retrievable, and transferable, but it also creates a truly electronic record with trusted data. 

This new resource is now available to the industry for input and comment, with a final version to be issued once input is incorporated. 

I’m not the only person who thinks this is a game-changer. According to Brett Bode, Analyst, Click n’ Close, Inc., “a key benefit of the new SMART Doc standard is that it instills confidence and trust in data, as it ensures that all records kept by all parties agree with each other. The SMART Doc standard can be applied to a myriad of documents throughout the mortgage process and makes a ton of sense.”

Here are three key takeaways that the industry should understand about the new specifications:

  1. The SMART Doc Version 3 Verifiable Profile delivers the long-sought digital touchdown: data and documents will travel together as a single “trusted data” package that is securable and transferable. The benefits are obvious when contrasted with the inefficient analog process in which data and documents travel separately, requiring users to repeatedly and manually evaluate and source the data.
  2. An essential benefit of this SMART Doc is that the data viewed on a digital screen can be verified that it is the same data a computer system can read, thus creating an electronic record.
  3. The newest Version 3 offers the ability to use PDF as the “view component” within a verifiable SMART Doc, leveraging the mainstream use and popularity of PDFs, so there is no longer the need to make a choice between competing document formats. With the Version 3 verifiable profile, the image component that contains the data is encrypted and verifiable as it is sealed, resulting in a trusted data solution for digital closings. Now we can have an XML document for encoding PDFs.

The fact that the SMART Doc Version 3 Verifiable Profile specification creates a truly electronic record, rather than an electronic image of a document, resonates with Charles Epperson, chief technology officer at Evolve Mortgage Services. “With the Version 3 SMART Doc verifiable profile, you see the biggest lift when ‘getting it right’ at the beginning, doing everything electronically,” says Epperson.

“This delivers benefits throughout the process as all the documents can be read by users and technology. When we maintain continuity of the data collected during the process, there is now a link into the documents’ data points that can be used to fact check and perform quality control. These documents can validate that all the information in the MISMO XML matches what was signed by the borrower and are visible down-stream to investors,” Epperson said.

Another crucial benefit of Version 3 is that you can view the SMART Doc, validate it, and transport it. It is the same physical document from vault to vault. These enhancements improve cycle times, lower production costs and allow the industry to achieve automated “lights out” processing.

According to Christopher McEntee, vice president at ICE Mortgage Technology, “there are more than 1.7 million eNote registrations to date and industry interest in adopting [eNote] technology and business processes to enable a fully digital mortgage has never been higher.”

All eNotes are SMART Docs and the verifiable Version 3 addresses the expanded interest in and growing adoption of eNotes and provides a crucial solution. However, the potential for the Version 3 SMART Doc goes well beyond the realm of eNotes, since the packaging of trusted data and documents together could generate significant benefits when applied to just about any document currently used in the mortgage process.

This new standard from MISMO may well provide lenders with some relief from the ever-increasing loan production costs observed in MBA’s Performance Report. This SMART Doc Version 3 Verifiable Profile, which can be used across the real estate finance ecosystem, will help to accelerate our industry’s digital transformation by restoring trust in data and enabling a needed transition to utilizing electronic records.

Seth Appleton is president of MISMO.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Seth Appleton at [email protected]

To contact the editor responsible for this story:
Sarah Wheeler at [email protected]

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