Editor’s Note: This blog contribution is in response to the story “International Mortgage Technology” in the August edition of Mortgage Technology.
The mortgage settlement/closing (post-approval) process in Australia is antiquated, lengthy and at times just simply frustrating. All four interested parties, incoming mortgagee (the lender), outgoing mortgagee and the purchasers’ and vendors’ representatives (mostly lawyers and their agents) attend a physical settlement with bank cheques and executed documents in hand. They stand around a table and check everything and once everyone is happy, they exchange. The incoming mortgagee takes all the associated risk, collecting all the documents (discharge of mortgage, transfer of land, etc.) and handing over hard-earned funds. Then, the mortgagee must walk to the land registry and lodge these documents for registration, after paying government taxes and closing costs.
It sounds very 1980’s, doesn’t it? Well, lenders are now looking for a solution. They have finally identified that they need to find efficiencies in this archaic and arcane process. Their systems are outdated. Their lawyers—whom the lenders outsource the process to—are also outdated, slow and nontransparent.
These large law firms have their own in-house systems that are in reality, multiple systems coupled together. What happens when something goes wrong? Who has control of that valuable data? To answer these questions simply, the solicitor will typically takes its lender client out for lunch to smooth things over because we all know that the solicitor is the one who controls this data. But times are changing and lenders are starting to push these law firms into creating a solution.
The majority of the firms involved in this process are still very heavily reliant on phone calls and facsimiles. They don’t have an online presence. Yes, some have an online booking system. This is great if you know a deal is ready to book for closing. But how do you know when it’s ready to close? That’s right; you have to ring them up.
Let’s be honest, booking the settlement is the easiest part. The challenge is getting to that point. What’s involved in rallying all these parties together to the point where we can book a closing? Rather than the current system of phone calls and faxes, what’s required is a system that allows all the parties to communicate in a secure environment online, saving everyone time and money.
There have been companies that have tried and failed and some companies that have designed prototypes that haven’t been pushed off the ground. They are failing because they don’t have the legal knowledge that’s required for this arcane process. The banks don’t really know what goes on because they outsource their settlements to a law firm or a settlements provider. And the law firms are running such tight document preparation and closing margins that they can’t afford to invest.
So we have software companies trying to dip their toes into this secretive mess. Yes, they tried and yes, they failed. From the outside looking in, it looks simple enough, but once you start, you soon realize that there is so much involved.
Our state-level governments in Australia have also tried and failed at creating an electronic settlements/conveyancing system. Each state government has its own land registry where they stamp and register documents. But the states are not the lawyers and settlement agents running around the streets of Melbourne and Sydney on a daily basis trying to make it to the next closing. They don’t understand this process.
So it was decided (with great wisdom), that a state government department—with very little legal and practical knowledge—would try to create a settlement solution. Think it worked? One particular state failed so dismally that it spent over $50 million (US$51 million) creating something that no one used. It seems unfathomable to spend that amount of taxpayer’s money on a system that nobody wanted in the first place.
This is the issue in Australia, apart from our governments spending large amounts of money on useless systems, the big banks steer their own ship and all the smaller players follow. The big banks didn’t want to use this state-level system because what’s the point? They need something national. The banks are not going to spend their time and money assigning resources to a system implementation when it will only affect one out of the eight states and territories in Australia. The white elephant is walking straight through the door!
A national system is the only logical approach to fixing this problem. The steering committees have been formed, managed by a second committee and eventually a leading board that will decide on its fate.
This looks oh so familiar. Can I hear an elephant starting to stomp its feet through those boardroom doors? Honestly, I really hope not. But after the previously failed attempts, it seems more and more likely.