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E-Disclosures Take Flight in the Mortgage Industry

JUN 5, 2014 11:47am ET

So, I was on several plane trips recently. Not shocking, since I am a consultant and our life is flying around the country to help clients with issues. As one of our senior partners puts it, “you have to fly to the sound of the gun.”

Lately, clients are shooting off flares all the time, and sometimes you just try not to get caught in the line of fire. I am traveling so much, this column was actually written while I traveled to three different states. I started writing in Fort Lauderdale (stone crabs), wrote the middle section in Baltimore (crab cakes) and finished it in Kansas City (barbeque). I suddenly find myself confused on both a literary and culinary level.

Of course, during my travels, I do more than just eat. I also spend a lot of time standing in airports, watching the inefficient process of handling large crowds, and how people are herded through tight lines. It’s rather like the mortgage refinance process. I was pleased to see that the concept of electronic documents has made its way into the airline industry, and in fact the airlines seem to have adopted them even faster than we have in mortgage. But in some ways the implementation of e-docs for air travel has been inhibited by a government rule, which also sounds like the mortgage business. Let me explain.

Over the last few weeks, I have watched several folks stand in the TSA line with their boarding passes loaded electronically on their cell phones.

The problem is that the big magic scanners that TSA uses to see through your clothing do not accept handheld electronics. It’s just you, your clothes and your private parts. You can board a plane with an e-pass, but you can’t walk through the little scanner with your phone. That seems problematic.

So, invariably the TSA agent standing guard over the magic people scanner needs to review the boarding pass, which is now on the phone that is going through the X-ray carry-on scanner. So frequent flyers, who think they’re saving time, end up dancing from one TSA line to the other in order to make their way through security screening all because they were trying to use the airlines fancy new e-boarding pass option.

It feels convenient to have a mobile boarding pass on your phone, and it feels good to save the planet from printing yet another piece of paper. Though, I guess if we really cared about the planet, we’d save a few thousand gallons of jet fuel and have our meeting online. I digress.

The airlines implementation of electronic boarding is actually a mismatch of government requirements and technology. We have faced the same issue in mortgage banking. We like the idea of electronic documents and, in fact, we sometimes embrace them at the company level. Think of all the money we will save.

But if the secondary market investor does not accept the docs, or the regulator does not approve the method, then you have no chance to board—that technology is not yet ready for takeoff. But that may be changing.

Every year, Stratmor conducts a number of workshops where we talk to lenders about best practices and how they are tackling evolving industry issues. Two years ago, at our annual Consumer Direct Focus Group, we learned that very few lenders were using e-disclosure. Last year, the percentage of lenders had risen to 50%.

This year, every single lender in attendance was either using electronic disclosures for application documents or was very near to doing so. Nearly twice as many direct lenders are offering electronic disclosures to consumers now as they were only one year ago, and most of the consumers are opting to use them.

This is huge and it's all a result of our industry working around a government speed bump. We’ve always sent out our statutory disclosures within three days of the application, but we didn’t really care whether our customers read them or not.

Now, the government wants proof that the borrower actually receives and looks at these documents. That’s a huge hurdle in a paper-based world, but with e-disclosures, we can send a link to the borrower, who can then hit accept, accept, accept, and submit. Done.

The other interesting trend we identified was that when those same lenders were asked about their mobile strategy, no one had an answer. Our industry hasn’t figured out mobile yet, so I guess we are a lot like the TSA in that regard. As an industry, we don’t have a credible strategy for meeting our borrower’s needs with the tools they have embraced faster and more completely than any other technology in history (with the possible exception of the commercial aircraft).

We need a strategy for providing price, product, loan status and collection of documents from borrowers via mobile. After all, borrowers have this device in their hand, so we may as well use it to get the loan process moving. Then, those weary travelers can use their phones to get a mortgage instead of just to trying to board a plane.

Garth Graham is a partner with Stratmor Group.