Digital closings boomed in the COVID era, but these pain points remain
While growth of digital closings has been explosive because of the pandemic, the rapid expansion has created some concern for one fintech executive.
The current state of growth could leave development of new products "resource constrained," Kimberley Smathers, head of information security and compliance at Snapdocs, said during a panel discussion at the National Mortgage News Digital Mortgage conference.
"Are there enough engineers to create the product?" she asked. "Is there a rigorous security process built into how that product is developed? I think that you would want to be cautious when thinking about what platform you want to use and investigate them directly with the company."
If anything, digital closings are more secure for borrowers than the traditional in-person, paper-based model, Smathers said.
"When you think of digital signing, because it's in one place, the documents are digitally signed and then stored and then given to the lender and then the lender moves them to an e-vault," Smathers said. "The process from the borrowers' perspective is far more secure in terms of your information being protected."
But the best security system a company can create is one that isn't dependent on the actions of customers to ensure compliance.
"If I'm depending on the borrower to go through three different steps each time they log on to ensure security, I'm depending on them to make sure that security is good. In my mind and in my approach, that's not an overly effective system," she said.
There are other problems around the user experience of digital closings, aside from the security issues, involving a lack of coordination between lenders and title insurer, said Joel Gottsegen, founder and chief technology officer of Qualia.
"The key is for the title company and the lender to work together in order to even enable digital closings in the first place," Gottsegen said. "In order for the consumer to have a good experience you need coordination. The problem historically has been a lack of coordination between those two parties," primarily when it comes to purchase loans.
Rather than the lender passing the transaction on to the title/settlement agent, which is typical for a refi, a purchase loan hand-off often comes from the real estate broker.
"If the lender goes to the title agent and says 'by the way we want to implement a digital closing or a remote closing in this way for this transaction,' the title agent most of the time, almost all of the time basically says 'no,'" and points the lender towards their existing process, he said.
It should be easier for the parties to work together on one platform, Gottsegen continued, giving the capabilities available on Qualia as an example of software that enables that coordination.
The lack of a federal standard for digital closings has made it quite a challenge to improve the experience, the panelists said. Rules not only differ state-to-state, but even among counties in the same state.
"It's not just about what we want to offer necessarily, there are very specific requirements at the state level of what the closing experience should be like," said Gottsegen.
When a lender is evaluating a potential vendor, they should examine how the vender is transmitting data and whether they encrypt it. They should also examine the vendor's security architecture.
"And don't just take yes for an answer," Smathers said, advising that lenders have the vendor show documentation.
"I would add that a good company will have been asked these questions many, many, many times before and will have answers that are documented very likely already," Gottsegen said.