eClosings are a growing force in the mortgage industry and are helping mortgage lenders become more efficient, transparent and comprehensible for borrowers.
Currently the closing process, when done through wet signing, takes hours just to complete, isn’t flexible and leaves consumers in the dark. Consumers often don’t know what they are signing or why. Consumers might be faced with up to 100 pages when they sit down at the settlement table.
But eClosings change all of that. They create a faster, simpler process that puts the homebuyer or seller first. It also allows for the home to fund faster as the documents are signed and instantly sent off, rather than having to wait for the documents to be uploaded.
Consumers who go through the eClosing process come out much more informed, close on their homes quicker, are happier with the process and report having a better overall experience.
Types of eClosings
There are several different types of eClosings that all boast different levels of the digital experience. While some have full remote capabilities, others are performed at the title company, just on an iPad instead of with pen and paper.
All of them save time, create efficiencies and create a better experience for every party involved, but certain types of eClosings work better for, or are available to, certain types of borrowers.
There are currently three different types of eClosings: an in-person hybrid eClosing, an in-person electronic notarization and a remote online notarization.
- Hybrid eClosing: These closings are performed in person, and contain a mix of wet signatures and electronic signatures. Most companies attempt to eSign the bulk of the closing documents, leaving out only the papers that require the pen to touch paper by either state or even federal law.
- In person eNotarization: This process is similar to the hybrid eClosing. It is also done in-person, but all documents are signed electronically. Through this process, a notary or closing agent is always present with the borrower, but a pen never has to touch paper. Documents can be submitted instantly and it ensures no signature are missed as the program will check and notify the closing agent if it is missing any.
- Remote online notarization: In this eClosing, the borrower or seller never needs to leave their home. They are connected through an online portal to a notary who walks them through each step of the closing process. They are able to sign all documents electronically from their home, office or anywhere that they have access to the internet.
Sounds great – who wouldn’t want to dive all-in with eClosings. So what’s the holdup? Why are eClosings still not the standard in the mortgage industry today?
Often the mortgage industry is behind the times when it comes to technology, but in this case the industry can’t take all the blame. In fact there is a much larger factor that’s slowing the spread of eClosings – the government.
Regulations are preventing lenders in many states from being able to offer eClosings or eNotarization options to their borrowers.
Currently electronic notarization is only approved and authorized in a few states: Arkansas, Colorado, Iowa, Minnesota, North Carolina and Pennsylvania. And remote online notarization is even more scarce. Quicken Loans, one of the largest mortgage lenders according to Home Mortgage Disclosure Act data, only performs remote eNotarization in one state, Virginia, due to regulatory requirements. eNotarization is currently still illegal in 15 states.
And even if eClosings and eNotarization is legal, it takes time for lenders to work through the regulatory details of each individual state since these regulations change from one state to the next, and are not standardized at the federal level.
But despite these setbacks states are slowly starting to approve eNotarization as the push for eClosings continues. In April, Iowa became the latest state to enable fully digital closings for mortgage transactions with the passage of its new eNotary law.
This year, the industry originated nearly 40,000 eNote-based loans, accounting for more than $8 billion borrowed. That marks a 200% jump in just the last few years.
Many companies are moving forward, finding ways to make eClosings accessible to borrowers and sellers who want a more efficient process. Quicken Loans recently announced it now has the ability to perform some kind of eClosing in all 50 states – the first lender to make this announcement.
Since its first eClosing in November 2017, Quicken Loans has completed 96% of all eClosings in the U.S. mortgage industry, according to the company’s volume registered with the Mortgage Electronic Registration Systems eRegistry.
Or take First American Title Insurance Company and Taylor Morrison Home Funding, which completed 500 hybrid eClosings in July using First American’s eClosing solution in Arizona, California, Colorado, Florida and Texas.
The housing industry is clearly moving forward with eClosings, and slowly states are moving to make eNotarization legal in order to meet the growing demand.
Fannie Mae is also helping push eClosings, and published a list of facts on eClosing, including some of the benefits.
Here are five benefits Fannie Mae gives for eClosings:
- Competitive edge: Lenders with eClosing capabilities can offer a more efficient closing process.
- Experience: All parties involved in an eClosing such as borrowers, originators, lenders, servicers, title and real estate agents, benefit from a more streamlined closing experience and shorter funding wait times.
- Risk management: eClosings can reduce the potential for manual operational errors, such as missing signatures or documents, and it improves data quality and validation.
- Costs: Electronic documents are typically less expensive to manage and administer than traditional paper documents and eClosings eliminate associated shipping, copying and storage fees.
- Post-closing processes: eClosings can offer faster turn times in warehouse inventory and liquidity into the secondary market.
The world may not be completely ready to move forward with fully remote eClosings – regulators are still working out the laws to make it happen, lenders are still growing their tech stack and increasing their capabilities – but the mortgage industry is quickly moving in that direction.
It may not happen tomorrow, or even next week. Or maybe it will. Maybe as the industry slowly changes around us we will realize one day that everything has changed, and we won’t even know how we got there.
We need to start preparing for the change today. Modifying our technology offerings, increasing our digital presence. As our world and industry changes, we should be changing with it.