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The Road to an Electronic Mortgage Process

By: Scott K. Stucky

As banks embrace digital channels — online and mobile banking, remote deposit capture and person-to-person payments — the opportunity exists to also transition other services to digital workflows to increase efficiency, lower costs and improve customer experiences. One of the areas ripe for a digital makeover is in moving to electronic document management for mortgage loans.

The benefits of digital mortgages are profuse: less paper, quicker closing times, enhanced digital tracking and easier file storage. Over the past few years, innovations such as electronic file vaults, e-signature support and Web-based loan origination systems have brought the paperless mortgage process one step closer to a mainstream best practice. For many banks, however, the concept of moving to paperless mortgages might seem overwhelming. The good news is the digital loan document processes can be implemented in stages, with each new stage adding more efficiency and cost-effectiveness.

Understanding the Benefits of a Digital Mortgage

The simplest definition for a fully paperless mortgage is any loan where the initial disclosures and primary loan documents are created, processed, transferred, signed and stored electronically. In a “full” paperless mortgage, not only are the original documents electronic, but also the sale, management and servicing of those.

For most banks, the key to implementing paperless mortgages is understanding electronic documents and the benefits they provide to the lenders and the borrowers. Many loan officers think of eDocs as simple imaging, where existing paper documents are printed and scanned following the signature. However, in a truly paperless mortgage, the documents never exist in paper form.

The benefits:

Integrity: Because an eDoc is accessible to all service providers in the mortgage chain, changes made to the documents are applied instantly to all areas of the closing documents. This eliminates redundant data entry and reduces data errors, which is especially important in light of today’s regulatory environment.

Time: Paperless mortgages enable banks to eliminate much of the manual effort of handling, processing and checking paper documents. By reducing the time spent on each loan document package, the bank can focus its time on improving customer service and increasing loan volume.

Security: Electronic files can be encrypted for secure transmission and storage, preventing unauthorized access to the data. An electronic “seal” can also limit when, and by whom, changes are made to the loan files.

Cost: Integrating all the documents into one digital platform will reduce the need for the expensive transportation, filing and storage services needed by paper documents.  Decreased time in the process means less money spent on each loan.

Today, technology makes it possible to run a completely paperless mortgage. For most banks, though, the best results will come from identifying those pieces of the mortgage process that will reap the most profits and implement them first. With the regulatory pressure and the Consumer Financial Protection Bureau rules surrounding disclosures, the first steps should be embracing e-disclosures, e-delivery and laying the groundwork for e-signatures.

E-disclosures Simplify Compliance

Disclosures are an imperative piece of compliance in today’s mortgage process due to upcoming changes from the CFPB and its efforts to combine the Truth in Lending Act and good faith estimate into one document.

For many banks, e-disclosures are the first step to paperless mortgages. E-disclosures simplify the distribution, generation, tracking and reporting on disclosures. Electronic delivery ensures compliance with regulations and it saves time — borrowers can receive electronic communications immediately. Borrowers are also more comfortable signing the non-binding disclosure forms electronically, compared to the preference for many to use paper-based closing documents.

In terms of complying with the regulations, the most significant benefit in using e-disclosures is that there is a reporting trail for the generation, distribution and receipt of all disclosures. Banks can ensure that borrowers have opened the disclosures, and some systems will even mail a backup paper copy when the disclosure is not accessed, signed and returned in the time required.

Barcodes and E-filing Simplify Records

Another area of paperless mortgages seeing significant growth is the digital storing and filing of loans after closing. Traditionally, banks had to mail or fax loan documents after closing to the servicer or investors. Even if the bank retained servicing, printed closing documents had to be filed and stored throughout the life of the loan.

Finding ways to digitalize post-closing documents makes it easier and more profitable to work with funders, investors and servicers.

E-filing can take many forms. For lenders still using traditional paper-based closing documents, the forms can be scanned and barcoded. Barcoding enables lenders to quickly find and access documents using an online database to track the documents and their locations. Digital-based documents are even easier, because the document was generated in a digital environment and does not require any conversions to file and retrieve electronically.
 
Making the Jump to e-Signatures

Traditionally, a barrier for many banks is the willingness of borrowers to sign digital loan documents electronically. While there are always early adopters, e-signed mortgages still make up a small percentage of the marketplace.

However, each new generation is more comfortable embracing complex financial decisions online. Consumers now embrace online and mobile banking, online stock trading and shopping for car loans.  It is only a matter of time before the tide begins to turn and electronically signed mortgages become more commonplace.

The rise of more mobile technologies may make electronic documents more acceptable as borrowers can review document packages on a tablet at the closing office or within their own homes.

In the meantime, banks should ensure they are prepared to meet the demand when it arrives by making sure the technology platforms and document systems can support e-signatures. Banks can also consider incentives to encourage electronic signing.

What to Look For in Paperless Mortgage Technology

When making the decision on how to implement pieces of the paperless mortgage, there are a few considerations to keep in mind. The most important is compliance. All mortgage document systems — paper-based and electronic — must comply with federal, state, agency and investor requirements. In the case of digital mortgages, banks should make sure that the proper forms will be delivered in the correct format at the right time.

Compliance is not a place to take shortcuts. A compliance failure can result in lawsuits, trouble with regulators, and loss of time and money. Having a trusted document compliance provider can remove the burden of keeping up with compliance updates and allow banks to focus on their customers.

A good service will have a reporting feature that enables lenders to track every stage of the mortgage process to guarantee each and every step is completed on time and in accordance with all regulations. The reporting function could also be tied to a mailing service that would send paper copies of the documents to borrowers automatically when the electronic communication is not completed in time.

The paperless mortgage does not have to be a giant project taken on at once. Begin with those areas where automation and paperless technology can be smoothly implemented into existing technology platforms. Documents are often one of the easiest pieces to begin using electronically and the savings per loan can fuel more profits.

Scott K. Stucky is chief operating officer at Idaho Falls, Idaho-based DocuTech Corp. Stucky can be reached at scotts(at)docutechcorp.com. You can also learn more about DocuTech online at www.docutechcorp.com or on Twitter at @DocuTech.

Copyright (c) August 2013 by BankNews Media



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