“What is the single greatest factor standing in the way of remote online notarizations?” Even as I asked it, I knew the answer.
“I can answer that in one word, and then I’ll explain.”
Regulations. He’s going to say state regulations. I knew what the answer was, I just wanted to hear him say it. I was wrong.
As it turns out, state regulations, while a major factor, are not the greatest holdup to universal acceptance of RON. In fact, over the past year COVID-19 has spurred many states to rush through emergency bills allowing for the use of RON.
No, the greatest holdup actually lies in the hands of lenders: eNotes.
Traditionally, promissory notes are wet signed. They are the “golden ticket” when it comes to mortgage transactions and without it, the deal wouldn’t exist. It is the legal note where one party in the transaction promises in writing to pay a fixed amount of money to another party under specific terms.
There were instances in 2008, for example, where if the note was lost or stored away in a bank’s basement, lenders couldn’t foreclose on a property until the note was located. Notes can’t be sold unless they are physically located.
But RON can turn this promissory note digital, and that changes everything.
If banks need to sell millions of dollars in mortgages to the secondary market, using eNotes they would just need to pass along the digital keycode, Aaron Davis, CEO of one of Florida’s largest RON providers, Florida Agency Network, told HousingWire.
Because of this accessibility, the secondary market has increased its demand for RON closings and eNotes.
Lenders, also, have increasingly begun to call for RON capabilities as they get a taste of the transformation it brings to cost savings, process improvement and quality control.
“In the old world, from the time I close, have a closing package signed on my table, it was almost like 30 days before that paper made it to the secondary market,” Davis said. “In the eSign world, it takes about 10 minutes because everything is digitally moved right through the process because everything is accurate.”
As the demand from lenders grew, the Mortgage Bankers Association worked together with the title industry to create a standardized certification for RON providers. To date there are now four providers with the MISMO RON Compliance Certification: Pavaso, eNotaryLog, Notarize and Signix.
With the onset of COVID-19 and stay-at-home orders, that demand soared. Consumers could no longer go to an office to physically wet sign a closing, unless they chose a drive-thru closing option.
Consumers afraid of catching COVID-19 and title companies all too happy to protect their own staff began increasingly embracing eClosing and RON technology.
There is just one holdup: lenders.
Lenders hold the key to RON tech
A RON closing is simple for home sellers. They sign a deed, a few closing documents and they are done, Knight Barry Title Chief Operating Officer Craig Haskins explained in an interview with HousingWire.
“The holdup right now are the lenders,” he stated.
“A lender has a more sophisticated process, they’ve got a promissory note that has to be digitized and stored in electronic vault, because the promissory note, on any type of loan, that’s like gold,” Haskins continued. “That piece of paper is really important – that original wet-ink signed paper is very important.”
“In a digital closing, there isn’t that very important piece of paper so it has to be converted to an electronic wallet,” he said.
And that is where the key lies – converting the promissory note.
While many lenders want to convert to complete eClosings, they must first digitize their process and convert their promissory notes to eNotes before a complete RON transaction can be performed. It is not as simple as choosing a title company or provider that has RON and using them on the closing transaction.
Even if the entire transaction were done through RON, HousingWire sources explained that lenders would still need to find a way to get a wet signature on the promissory note if their systems are not set up to convert the documents to a digital wallet.
When COVID-19 hit and many lenders, borrowers, sellers, title agency and others across the home closing process were forced to stay at home, lenders wanted to quickly shift gears to a digital closing. To their surprise, many quickly found out that in order to do that they would first have to create eNotes so that the promissory note could be digitized and added to the RON transaction.
National acceptance of RON has come a long way this year as more and more states allow for remote closings and remote notarizations, but beyond regulatory acceptance, much more work is yet to be done to make RON a reality for real estate closings.
“Transformation is difficult, and it doesn’t happen all at once,” Eddie Oddo, First American Title Insurance vice president of corporate business solutions, wrote in a blog. “Transforming an industry process requires thoughtful planning, cost and lots of effort. It’s a culmination of deliberate changes in pieces and parts. But, in the end, it results in something better – different, but better – which is the whole idea, of course.”
We are closer, but lenders must begin digitizing their process and documents in order to make the final leap and fulfill what consumers and industry professionals alike are now demanding – an end-to-end digital closing process.