The legal landscape for use of electronic records and electronic signatures has long-since been solidified, with passage of the federal Electronic Signatures in Global and National Commerce Act in 2000 and widespread adoption among states of the Uniform Electronic Transactions Act.
Clinging to paper for mortgage originations makes less and less sense when highly secure E-signature and digital transaction management software is readily available and already in widespread use across the real estate and mortgage industries.
But, despite its obvious benefits, e-mortgages have made little progress since Fannie Mae first announced it would accept them back in 2002.
It’s time. The Consumer Financial Protection Bureau has been supportive of going digital for the whole mortgage process, even beyond the new consumer-focused rules for disclosure. It even hosted a pilot this year to showcase e-closings and labeled its final report, "Leveraging technology to empower mortgage consumers at closing."
There is a vast array of documents on the origination side – from the initial loan application until just before you get to the settlement table – that are still largely handled with paper. Moving to digital transaction management and eSignatures will speed that process dramatically – and create a much better experience for all involved who can now deliver, view and sign off on disclosures whenever, wherever convenient.
Further, using an electronic system with mortgage originations brings several benefits. The documents are delivered instantly so there is no delay, and the recipient can't make any mistakes because the workflow includes guard rails as the document moves along. With electronic document management for mortgage originations, for instance, you can set up a workflow that shows when a loan officer delivers a document and when a customer actually sees it and signs it – allowing the disclosure process to be fully automated with records kept showing compliance of when documents were delivered and viewed, all within an electronic audit trail.
Last year, a Fannie Mae team estimated that an electronic mortgage process could shorten the time it takes to close an average loan by 30 days and save about $1,100 per mortgage, or about $1 billion year.
Familiar forms and disclosure-notice timelines changed in October with the Truth-in-Lending Act/Real Estate Settlement Procedures Act integrated disclosure implementation, administered by the CFPB as part of a mandate under the Dodd Frank Financial Reform act of 2010.
The more consumer-friendly disclosure forms mandated by TRID clearly lay out mortgage terms for a home buyer. But the forms also come with new requirements for lenders that bring a higher risk of delays at closing.
Up front – in fact three business days after home buyers apply for a loan and again three days in advance of closing in the Closing Disclosure document – lenders will have to tell home buyers how much a loan will cost them. And lenders must give consumers more precise figures than they were required to before.
Handling these documents with paper means building in time to make sure they're sent through the mail expeditiously, as well as using delivery tracking mechanisms to ensure proof of receipt. And it can mean more delays before closing if anything material changes in the loan terms. A change in the interest rate, say, or something that turns up on a final home walk-through that gets added to the Closing Disclosure could push out closing to ensure the three-day advanced disclosure rules are met.
In effect, there are only two ways to shorten the mortgage closing timeline should any of that occur: hand-deliver the Closing Disclosure or do it electronically.
As the industry works toward the future, the final mile – the actual signing and closing of the loan – is an even more distant electronic dream, in part because of all of the recording requirements.
Imagine – in 2015, title offices across the country are still drowning in paper.
Tom Gonser is the founder of DocuSign.