Borrowers can have a 10-minute closing appointment when reviewing and electronically signing documents in advance

DocMagic, Inc., the premier provider of fully-compliant loan document preparation, regulatory compliance and comprehensive eMortgage services, announced that retail mortgage lender Guaranteed Rate can now cut closing time by electronically signing mortgage closing documents in advance.

Guaranteed Rate has branded the solution FlashClose, which allows customers to opt-in, review and complete most documents in advance of the notary arriving, saving an hour or more at the closing table – with some averaging a mere 10-minute appointment to provide inked signatures.

“Guaranteed Rate is always looking for ways to simplify the process using innovative technology to enhance the customer experience,” says Jim Hettinger, executive vice president of operations for Guaranteed Rate. “With the successful launch of FlashClose, powered through our partner DocMagic, this tool adds speed, convenience and accuracy to the closing process.”

“Guaranteed Rate is a leader in mortgage technology innovation and collaborating with them on this project has created a solid hybrid eClosing approach that saves a lot of time for both borrowers and closing agents,” stated Dominic Iannitti, president and CEO at DocMagic. “The fashion in which Guaranteed Rate is leveraging our technology has resulted in the successful adoption of a sound, compliant, secure hybrid eClosing that is unique to their retail lending business strategy.”

Of note is that DocMagic offers a comprehensive eClosing solution called Total eClose™ that delivers fully paperless closings from start to finish. DocMagic’s proprietary eSign platform is a component of Total eClose and can be accessed and implemented by lenders to help automate the closing process.

For more information about FlashClose, visit https://www.guaranteedrate.com/flashclose.

About DocMagic:
DocMagic, Inc. is the leading provider of fully-compliant loan document preparation, compliance, eSign and eDelivery solutions for the mortgage industry. Founded in 1988 and headquartered in Torrance, Calif., DocMagic, Inc. develops software, mobile apps, processes and web-based systems for the production and delivery of compliant loan document packages. The company’s compliance experts and in-house legal staff consistently monitor legal and regulatory changes at both the federal and state levels to ensure accuracy. For more information on DocMagic, visit  https://www.docmagic.com/.

About Guaranteed Rate:
Guaranteed Rate is one of the largest retail mortgage lenders in the United States. Headquartered in Chicago, the company has approximately 210 offices across the U.S. and Washington, D.C., and is licensed in all 50 states. Since its founding in 2000, Guaranteed Rate has helped hundreds of thousands of homeowners with home purchase loans and refinances and funded nearly $19 billion in loans in 2017 alone. The company has become the Home Purchase Experts® by introducing the world’s first Digital Mortgage technology and offering low rate, low fee mortgages through an easy-to-understand process and unparalleled customer service.

Guaranteed Rate won an American Business Award for its Digital Mortgage technology in 2016, ranked No. 1 in Scotsman Guide’s Top Mortgage Lenders 2016, was chosen as Top Lender 2016 and 2017 by Chicago Agent magazine, made the Chicago Tribune’s Top Workplaces list seven of the past eight years, and was named Best Overall Online Lender and Best Lender for FHA Refinance by NerdWallet in 2018. Visit https://www.guaranteedrate.com/ for more information.

The Whole is Greater than the Sum of its Parts When it Comes to Digital Mortgage Solutions and eNotes

By Tim Anderson,
Director of eServices, DocMagic, Inc.

Having worked in the mortgage industry for over 30 years, I’ve pretty much seen it all. As a mortgage technologist, I’ve watched vendors and lenders alike create hype around various technologies and new buzz words over the years, only to see so many of them never gain adoption or provide value. Sometimes, the rollout is flawed or it’s an outright failed go-to-market strategy. I recall when the likes of Service Oriented Architecture (SOA), Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), cloud-based computing, and so many others instantly became attractive terms and acronyms with mortgage technology vendors flocking to incorporate them into their marketing speak—whether they delivered on their promises or not.  

Collaborating closely with the GSEs, investors, lenders, servicers, warehouse lenders, and many other industry participants, I’ve worked to forge ahead and evangelize the far-reaching benefits of a comprehensive “eMortgage” process, a term that has essentially been replaced by “digital mortgage.”  No matter what you call it, it’s always been about replacing and automating paper-based processes with automation.

Now we’re living in a world of digital mortgage. We’ve seen many new and small software companies pop up, driving hard to attract lenders with slick marketing speak and often low price points for what is sometimes immature, unproven technology.  

Many of these newbies don’t have the much-needed mortgage industry domain experience needed to succeed, as some vendors stumble once they become immersed in the overwhelming minutia, nuances, and complexities of the mortgage manufacturing process. On top of that, even some well-established mortgage technology vendors have jumped on the “me too” digital mortgage bandwagon.

Who can blame them? It’s a shiny new object that lenders are naturally drawn to. How can we forget TRID readiness? Remember when so many tech vendors became TRID compliant virtually overnight, offering some sort of solution—of varying degrees? However, that was far from reality; it was mostly just vendor marketing speak.

The mortgage industry has slowly but surely been working to achieve a true end-to-end digital mortgage process that is fully integrated and 100 percent paperless. But the reality is that, while progress has been made over the past few years, the industry as a whole still isn’t fully grasping everything that is needed to create a total, seamless, comprehensive and scalable digital mortgage solution. Many vendors are still falling short.

Of note, however, is that some of the new entrants that automate the point-of-sale have, in fact, done an outstanding job. Being able to instantly pull and validate things like VOE, VOI, VOA/banking information, IRS/tax returns, etc. while at the point-of-sale has definitely been a huge help to supporting the digital mortgage cause to elevate the borrower experience.  But there is a lot more that needs to happen thereafter, such as a full eClosing.

Is digital mortgage about the borrower experience?  In part, yes. But it also encompasses so much more. Value is gained for nearly all the participants in the digital mortgage process, but only if it’s done right.  What do I mean by right? The technologies cannot be siloed, poorly integrated, or offer just enough automation to address bits and pieces of the process in order to get by for now. Digital mortgage for the consumer is starting ‘e’ and staying ‘e’ with the same common and consistent end-user experience.

The Digital Mortgage Challenge
There is no way to say this tactfully. It’s the tech vendors that created the problem and continue to create confusion in the marketplace. I can’t be more pointed when I say that the mortgage industry, for the majority of vendors, is a big, fat fail. It isn’t the lender’s fault.

Many digital mortgage technology providers (both newbies and established vendors) are offering one-off pieces of the overall process. These solutions are merely workarounds that most often create inefficient stopgaps in the workflow, communication challenges, integration breaks, compliance risk, solution deficiencies, and other problems.

Use of an eVault Isn’t a Digital Mortgage
Some applications create initial excitement and address components of the overall problem. For instance, lenders can jump into the digital mortgage arena and store their loans in an eVault, but that doesn’t mean the promissory note includes all of the necessary documents to ensure a legally compliant closing.  

Some solutions just OCR docs and store them in an eVault, which isn’t always 100 percent accurate; anytime you are manipulating a source document, there is always the risk of errors and omissions that could easily get lenders into trouble at a later date. And what if something changes? How are they adjusted and properly tracked to ensure a full audit trail and electronic evidence of compliance within an eVault?

A Complete Digital Mortgage Solution
Put simply, make sure that you are dealing with a vendor that has a proven, single-source solution that supports all documents and functions that you need to deliver a complete digital/paperless process to the consumer and across multiple lending entities.

This all starts at the time of application with MISMO SMART Doc creation and management (TRID compliant initial disclosures to the borrower and the LE/Loan Estimate). You, of course, need eSign technology to securely and compliantly allow the borrower to sign all documents throughout the mortgage process.

Lenders must also implement a comprehensive eClosing technology platform, where the LE/Loan Estimate and CD/Closing Disclosures are automatically compared and matched for any change of circumstance and TRID compliance. eNotarization capability needs to be integrated into the documents and the process as well. MERS eRegistry of the note is a requirement. All documents, signatures, and proof of compliance must be stored in a certified eVault.  

Also, seamless integrations must exist with the lender’s LOS platform to auto-generate smart documents (embedded signatures and notary tags) from the start, as well as integrations with the title company software platforms to do the same with their documents. Delivery of not only the eNote but all critical closing documents to investors/GSEs is made to be quick and easy. A fully integrated platform and process includes everything from the warehouse lenders to eMods and refis within the servicing system as well as what I consider a cradle-to-grave, lights out digital mortgage technology solution.

It’s a total, fully paperless digital mortgage—one that doesn’t involve lots of different vendors doing their best to work together—whether it’s de novo software providers, aggressive fintechs, on down to the long-time mortgage technology incumbents.

We need to deliver actual, comprehensive solutions to the industry that are fully integrated and scalable, not bits and pieces/hybrid offerings. Put simply, they just fall short of achieving a total solution. It’s a menagerie of vendor hodgepodges, which are mostly light applications that only address parts of the overall digital mortgage process.

Digital Mortgage Hype versus Reality 
Beyond a shadow of a doubt, I feel that the mortgage industry was steered in the wrong direction from the beginning by tech vendors that were all too eager and rushed to launch and market some sort of digital component offering. By and large, many tech vendors did so in order to effectively compete. Marketing puffery can easily trick unsuspecting ultra-busy lenders.

Going completely paperless really boils down to two factors:  

1. Implementation of a comprehensive digital mortgage technology solution; and
2. lender adoption of e-automate everything, not just pieces of the process. The mortgage industry still faces an uphill adoption curve.  

There are, however, some complete end-to-end solutions available on the market today from single-source vendors. Those lenders that implement the right end-to-end digital mortgage technology now will have a significant competitive advantage over those who remain in a wait and see mode or those that merely dip a toe in the water, adding a multitude of different hybrid vendors. It just doesn’t work well and by no means is it a long-term digital mortgage loan production, workflow, and back-office business strategy.

Before buying any type of digital mortgage technology, be sure to fully educate yourself and conduct deep-dive due diligence on everything you will need to implement a successful total digital mortgage solution from soup to nuts. Think of where you want to be 18-24 months out. Implementing a short-term solution will likely later need to be replaced by a complete solution. Your long-term viability and success depend on making the right choice the first time.

As featured by MReport, April, 2018

About Tim Anderson

Tim Anderson is the Director of eServices for DocMagic, Inc. He has held executive management positions with LPS, Stewart, Fidelity, FreddieMac and HomeSide Lending where he ran the eCommerce Division and worked at technology companies like Dexma, Microsoft and Tuttle Information Services. He was also the original founder of the eMortgage Alliance which promoted MISMO standards for delivering legal paperless processes.

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TORRANCE, Calif., March 29, 2018  — DocMagic, Inc., the premier provider of fully-compliant loan document preparation, regulatory compliance and comprehensive eMortgage services, announced that Deutsche Bank has successfully implemented and is actively utilizing its proprietary eVault technology.

“Deutsche Bank has an international footprint in multiple forms of lending and servicing, and having a company of their size select our eVault to safely and securely store sensitive loan documents speaks volumes about the bank’s confidence in our technology,” said Dominic Iannitti, president and CEO of DocMagic, Inc. “We are very pleased to partner with Deutsche Bank on a long-term basis to help achieve its servicing goals with our eVault.”

Using the DocMagic eVault, Deutsche Bank’s document custody group is now empowered to take full possession of electronically originated assets for clients as the loan market continues to transition to a paperless process. DocMagic establishes a legally compliant method to securely move original electronic files from one custodian to another, while preserving unique authoritative digital ownership.

Further, the eVault ensures authentication of original documents passing between owners, irrespective of how many duplicate electronic files there may be of the same record. The repository system within DocMagic’s eVault relies upon digital tamper-proof seals and a detailed, well-documented audit trail that ensures compliance and provides detailed reporting.

DocMagic also made available to Deutsche Bank the ability to leverage a unique dual-option solution that accesses its on-premise eVault installation to provide a gateway to seamlessly and securely connect to MERS via any browser, as well as by way of a direct VPN connection.

As a result of partnering with DocMagic, Deutsche Bank is now well-positioned to easily, compliantly and securely service loans housed in the eVault, creating newfound efficiencies and a competitive advantage for the bank. By providing eVault services to Deutsche Bank’s clients, they further cement themselves as a leader, innovator and provider of excellence in loan servicing.

Of note is that DocMagic has been at the forefront of developing award-winning technology that facilitates a complete eMortgage solution for the entire supply chain that fully supports an end-to-end, completely paperless digital mortgage process. This includes from the point-of-sale through eClosing, eWarehouse lending, secondary marketing and even servicing.

DocMagic’s eVault has been thoroughly vetted and officially approved by Fannie Mae, Freddie Mac, and MERS® to compliantly support eVaulting services.

About DocMagic:

DocMagic, Inc. is the leading provider of fully-compliant loan document preparation, compliance, eSign and eDelivery solutions for the mortgage industry. Founded in 1988 and headquartered in Torrance, Calif., DocMagic, Inc. develops software, mobile apps, processes and web-based systems for the production and delivery of compliant loan document packages. The company’s compliance experts and in-house legal staff consistently monitor legal and regulatory changes at both the federal and state levels to ensure accuracy.

For more information on DocMagic, visit https://www.docmagic.com/.

Milestone results from increased adoption of several DocMagic technologies

TORRANCE, Calif., Jan. 24, 2018 — DocMagic, Inc., the premier provider of fully-compliant loan document preparation, regulatory compliance and comprehensive eMortgage services, announced that it has processed more than 300 million mortgage-related electronic signatures.

This milestone achievement is the direct result of increased adoption of several DocMagic technologies that feature its comprehensive eSigning platform, which can be accessed as a software-as-a-service (SaaS) or on-premise enterprise platform. Each of DocMagic’s digital platforms reports a significant increase in volume, which the company attributes to lenders’ growing need to prove a TRID-compliant, 100 percent paperless mortgage process.

“Borrower demand is driving the increase in eSignings, and lenders are choosing DocMagic to get a consistent, compliant eSigning solution that spans the original LE [Loan Estimate] to the final CD [Closing Disclosure],” said Dominic Iannitti, president and CEO of DocMagic. “Lenders know DocMagic is the go-to choice for compliance. We reached 300 million eSignatures because we have solved lenders’ number one burden for the past two years—electronic evidence of TRID compliance—while enabling them to stay competitive and enhance the overall borrower experience.”

DocMagic reports significant volume increases for SmartCLOSE™ and Total eClose™, two award-winning technologies that enable lenders to comply with TRID and UCD (Uniform Closing Dataset) guidelines. SmartCLOSE is a collaborative closing portal offering one system of record that assures accuracy, completeness, consistency and compliance of the data before final documents are drawn and the borrower electronically executes the documents using DocMagic’s integrated eSign technology. Total eClose, a complete paperless, digital closing solution with integrated eSignature and eNotarization capability, provides continuous compliance checks to assure all documents are complete, current, consistent and compliant.

“A lot of existing DocMagic customers adopted our eSign technology because it’s so much easier to access and use than other platforms,” said Iannitti. “We were already integrated with the vast majority of LOS systems, so providing eSigning functionality was a logical extension of our service. We also added new integrations, which brought onboard new eSigning customers. Having an eSign technology that can draw new customers while expanding use among existing customers shows the ubiquitous need for the functionality DocMagic’s technology provides.”

DocMagic provides the most commonly used eSignature technology in the mortgage and financial services space and is the leading provider of eClosing technology for the majority of state-sponsored eClosing pilot programs to support 100 percent paperless digital mortgage transactions.

Written by Nathan Batts. This is the part 2 of a blog series. Click here to read part 1.

What is Driving the Transition

North Carolina is not the first state to begin offering electronic mortgages, but it is the first state in which the government has taken an active role in the development and rollout. The decision by the Secretary of State to begin a pilot project, convene various market participants together for a discussion, and form an advisory committee with the goal of developing best practices and standards now positions North Carolina to help form the national model for such transactions.

The groundwork began many years ago. The legal basis for digital signatures and documents has existed at the federal level, through such laws as the Electronic Signatures in Global and National Commerce Act (E-Sign Act), and at the state level in North Carolina, through such laws as the Uniform Electronic Transactions Act found in Article 40 of Chapter 66, since at least the year 2000. Similarly, North Carolina has had a structure for electronic recording and electronic notarization in place since 2005. The North Carolina structure includes safeguards such as a requirement that the electronic notary must be physically present with the borrower so as to protect against fraud or impersonation and duress.

In the years since then, advances in technology and encryption have made more secure transactions possible and have added the capability to detect when tampering is attempted to electronic signatures and documents. Changes affect the “hash value” which operates like a cryptographic and tamper evident seal.

From the standpoint of compliance with the Consumer Financial Protection Bureau’s TILA-RESPA integrated disclosure rule (TRID), an electronic mortgage also has many advantages. One of these is the ability to easily retain and store records and produce audit logs. Every digital signature is logged when made and the reports generated can become an important tool in showing good faith compliance.

As we look at the development across the state of capability to accept eRecording, additional counties are quickly coming online. In North Carolina, an estimated 77 out of 100 counties now accept secure eRecording, with 74 having full capability and three accepting mortgage satisfactions only. Electronic documents coming in are of higher legibility, and staff time and operating costs are reduced as scanning and other responsibilities are diminished. As more counties accept eRecording, travel to go out and do the filings in person and shipping costs can be reduced or eliminated, saving time, money, and reducing carbon emissions. 

From the closing attorney perspective, after an initial learning curve to use the software and modest investments in equipment like a webcam, electronic signature pads, and a computer, there is the prospect of potentially faster closings, as well as less travel to visit borrowers or down time waiting for borrowers and others to arrive for the closing. Mountains of paper are no longer needed. Much of the eClosing package can be completed in advance and the attorney has the certainty of knowing that all of the documents are on hand and are in the eClosing platform rather than dealing sometimes with the last-minute scramble to collect them from lenders. For an attorney, this could translate into a higher degree of efficiency and the capability to fit more closings in per day. And the closing attorney doesn’t have to lose time tracking down a borrower after closing because a document was left unsigned.

From a borrower perspective, the greater automation means that the time from application to underwriting and approval and closing can be significantly shortened. There is also the convenience factor of potentially eliminating travel, with the electronic notary coming to the borrower’s home or another location. And there is the real prospect of lowering closing costs as such things as mailing costs go away.

From a lender perspective, the essential documents are already in electronic form and are thereby ready much sooner for sales to investors, which can translate into more money per transaction as investors pay a premium for such speed. There is also the added advantage that there are no paper promissory notes to get lost.

Other Considerations

Lenders can choose what portions of the mortgage transaction should be electronic and which should continue to follow a traditional model. If a Register of Deeds in the lender’s market doesn’t accept eRecording for instance, the documents may need to be converted into paper for recording and notarized using the traditional method, but the efficiencies before that step are still realized. Similarly, a lender that wants to continue using paper documents may still want to scan documents and eRecord in some circumstances to save time. And there is nothing that prevents the closing from still taking place in person if that is the most comfortable for the parties.

For millennials and others who place a high value on convenience, electronic mortgages could be a good option. And for those who are buying a second home and don’t want to travel several hours to a closing, the prospect of having an electronic notary instead travel to them to help complete the transaction and to do the closing remotely may be a selling point. 

Future Transactions

While the NCBA is very optimistic about the market potential for electronic mortgages, we are still early from a market adoption standpoint. Federal regulators have been very supportive, particularly the CFPB which conducted a study and has actively encouraged financial institutions to explore the use of electronic mortgages.

Importantly, the servicing process and secondary market are still developing. Fannie Mae and Freddie Mac have taken steps to support the transition but others on the investor side are still building out their procedures. This means in the near term that the number of transactions will tick upward but the tipping point to when the flood begins is further down the road. 

As we go forward in this process, other eClosings have already been scheduled by the earliest adopters of this technology. The beginning of calendar year 2018 is emerging as a time period when some of the larger players in the mortgage industry appear positioned to begin phasing in the technology that underpins electronic mortgages. Once the conversion begins, the enhanced speed, efficiency, and cost savings will undoubtedly drive and accelerate the transformation. 

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Nathan Batts, Senior Vice President and Counsel, North Carolina Bankers Association (NCBA)

Written by Nathan Batts

The mortgage process is time-tested and ancient. While there has been considerable innovation, such as in the ability to shop for rates and apply online, many facets of the mortgage process have remained essentially unchanged. Paper and ink signatures continue to dominate transactions, closings are face-to-face, many documents are mailed, and filings with a local land records office are often still done in person. 

With wholesale transformations occurring everywhere in the banking business, we are at a critical point when changes in both technology and the law underpinning transactions are combining to bring about a new advancement for the mortgage industry. Electronic mortgages are positioned to transition from pilot project initiatives to routine occurrences and finally the new norm. In this article, the focus is on providing a high level explanation of these transactions and how the changes will benefit customers, financial institutions, and other market participants.

eMortgages and eClosings

Let’s start with a few basic terms. In an FAQ entitled “eClosings and eMortgages (eNotes)” last updated on May 18th of this year, the government-sponsored enterprise Fannie Mae includes the following helpful information.

“What is an eClosing? An eClosing is the act of closing a mortgage loan electronically. This occurs through a secure electronic environment where some or all of the closing documents are executed and accessed online (also known as the ‘execution’ phase of creating an electronic mortgage loan). This is often a hybrid process in which certain key documents (e.g., Note, Security Instrument) are printed to paper and traditionally wet-signed while other documents throughout the process are signed electronically.

What is an eMortgage? An eMortgage is a mortgage loan where the critical loan documentation, specifically the promissory note (eNote), is created electronically, executed electronically, transferred electronically and ultimately stored electronically. An ‘eClosing’ produces an ‘eMortgage’ only if the promissory note is signed electronically. Note: This can still include a traditionally wet-signed security instrument.”

“eClosings and eMortgages (eNotes)” Frequently Asked Questions, Fannie Mae, https://www.fanniemae.com/content/faq/emortgage-faqs.pdf. 

Thus, two key terms, eClosings and eMortgages, have emerged. For now, we can use electronic mortgages as a more general term encompassing both concepts. The term digital mortgage is also widely circulating.

Characteristics of the First Transactions

The eClosing for the first documented end-to-end electronic mortgage in North Carolina occurred on May 5, 2017 as part of a pilot initiative by the North Carolina Department of the Secretary of State and North State Bank Mortgage.

The second eClosing occurred on August 10th as a hundred industry and regulatory agency observers, who had signed nondisclosure agreements to protect borrower information, gathered in Raleigh and watched the transaction unfold remotely on video screens. 

For the observers at the second eClosing, the left-hand side of the screen was split between streaming video of the closing attorney sitting in her office and below streaming video of another location where the borrower was seated together with a certified electronic notary. On the right-hand side of the screen, observers saw an open application window displaying the mortgage documents. A sidebar in the document window showed by name which document was being displayed and listed the other documents in the closing package. Thus, video-conferencing replaced a transaction which has traditionally been conducted in an attorney’s conference room, where everyone would gather around a table and sift through a stack of paper documents.

In transactions such as these, the software platform used by the lender and the closing attorney helps to guide the workflow and keep everything organized. The borrower simply goes through a few steps on the screen to consent to electronic records and to adopt an electronic signature which is held in the system. Then, the closing attorney explains to the borrower the mortgage disclosures and loan documents, steadily scrolling forward using mouse clicks and a scroll bar. At intervals a tab pops up on the screen where a digital signature needs to be applied. The closing attorney then temporarily transfers control to the borrower, who in turn with mouse clicks applies the previously selected digital signature to those tabbed places in the agreement or disclosures. After a digital signature has been applied, control transfers back to the closing attorney who continues his or her explanation and scrolls to the next area where a signature is required. One safeguard in the software platform is that documents will not continue to advance on the screen until necessary signatures have been obtained, which prevents many of the mistakes that occur at closings.

Once all borrower signatures have been obtained, the closing attorney and the electronic notary can carry out any remaining steps. For example, the closing attorney can pass control to the notary to apply electronic notarizations to the documents, with the notary’s signature and seal being applied in much the same manner used by the borrower to apply digital signatures. The closing attorney can review the documents and, using the dashboard in the eClosing platform, send the documents electronically to the lender for final funding approvals.

When the approvals have been obtained, any documents such as the deed of trust that require local recordation can be sent electronically, along with the recording fees, using an eRecording platform to the local Register of Deeds for the county where the real property is located. What the observers at the second eClosing saw was a software product that integrated both the eClosing and eRecording features. Once received by a Register of Deeds, the documents are reviewed by staff and either approved, with a book and page number assigned, or the closing attorney is notified where there may be any deficiencies that need to be corrected before the recording can be accepted.

Assuming the recordation has been done, the electronic promissory note is ready for eVaulting and registration on the MERS® eRegistry.

Under these steps, ownership can be transferred and view or access rights can be granted to various participants like warehouse lenders and Government Sponsored Enterprises like Fannie Mae and Freddie Mac. While there may be many copies of the documents, the registry is set up so that there can be only one “authoritative copy” of the eNote, with information stored about who is the current controller/holder and the location where the authoritative copy is stored.

Thus, the cycle or workflow is from Pre-Closing (loan origination, title production, and document preparation, with any associated platforms or software systems), to eClosing, eRecording, and finally eAsset Management. Much of the flow can be controlled through simple software dashboard steps through the selected technology provider. 

Secretary of State Elaine Marshall and a team led by Ozie Stallworth, Electronic Notarization and Notary Enforcement Director, have posted an excellent video online that walks viewers through these steps and shows how the transactions look. The video is available on YouTubeᵀᴹ and is entitled “North Carolina Secretary of State eClosing Pilot: From Aspirational Vision to Commercial Reality.”

North Carolina Department of the Secretary of State. “North Carolina Secretary of State eClosing Pilot: From Aspirational Vision to Commercial Reality” Online Video clip. YouTube. YouTube, 15 August 2017. Web. 25 September 2017. 
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We'll continue the 2nd part of the series next week when we dive into "What's is Driving the Transition" and "Future Considerations."

Nathan Batts, Senior Vice President and Counsel, North Carolina Bankers Association (NCBA)

Reposted with Permission from Carolina Banker Magazine. 

By Tim Anderson

The days of no pressure are over. Any lender that hasn’t already waded into the ePool had better be ready to jump. With immense regulatory pressure looming, the old method of just doing something is no longer sufficient. It's time for a new tack.

The recent news about the IRS decision is an ex- ample of this. With all the buzz around this news, we’re already hearing from lenders who are interested in a point solution that will allow them to take advantage of this decision for doing business with the IRS. This makes sense because this is front and center in the news, but since these lenders are not considering how this decision impacts the rest of their business, it’s short sighted.

The 4506-T is just one document and while it makes good sense to make the ordering, accepting, processing, filing and storing that document all electronic, what about all the other documents? The e-signature part of this solution can and should be applied elsewhere in the enterprise. When it is extended, it should be done the same way. If it’s good enough for the goose, it’s good for the gander as well.

Seeking a paperless map. Electronic signatures are more than a digital picture of a signature; they are a process, a ceremony. E-sign is a legal process that includes proof that the borrower actually viewed every document, whether there’s a signature or not. Auditors will demand to know if the borrower actually viewed every document. There are also requirements around whether the signature is embedded or an overlay. There are other requirements around how the lender provides the tamper- evident seal. Investors have a lot to say about what is actually involved.

Providing a common and consistent eSigning experience. These processes can vary by vendor, but using different types of e-sign technology across an enterprise can cause problems with investors, to say nothing of confusing borrowers and degrading the consumer’s experience. Remember, from the consumer’s perspective, there are many other documents they would like to sign electronically. If the lender hopes to get consumer adoption, the same tools should be used across the entire process and borrowers should not be asked to sign some documents electronically and others traditionally.

Lenders no longer have the luxury of gently moving into the paperless world. They need to get in soon and they need to take their entire lending process with them. That means that institutions will be seeking solutions that will get all of the paper out. Lacking that, they will seek out partial solutions that already carry within them the map for the future steps that will get them fully electronic.

The very best way to ensure that is to work with a vendor who can take you down that road as fast and as far as you want to go, but in no case slower than the government requires. Choosing a vendor that can only provide a point or piecemeal solution, without a plan for getting to the next step, will put the institution at risk.

An “e”nterprise solution, from application, to closing, to servicing. A good RFP will go a long way toward separating those players who cannot provide a complete solution from those that can. It will also reveal which vendors understand the nuances—from application all the way to closing and loss mitigation—that could impact the lender’s ability to comply with investor and regulatory guidelines. Moving into electronic lending is no longer a simple, cheap or fast implementation. Like everything else in this business, it requires careful consideration.

This is part one of a two-part article on the industry-wide transition out of paper-based processes to electronic, from application through to closing and servicing. Tim Anderson is the Director of eServices at DocMagic.

Posted with permission from The Mortgage Executive Magazine.

By Tim Anderson

For years a core group of us has been telling the industry that it’s time to get the paper out of our systems. We’ve performed studies that show paper is more expensive, that it takes more time to process, is usually missing pages or signatures, or gets lost. It took the foreclosure crisis to really bring home to the industry the negative implications of lost or incomplete documents. After billions of dollars in settlements to federal regulators and attorneys, it looks like our industry is finally ready to say goodbye to paper forever, or at least a majority of it.

Anyone who has yet to be convinced will get all the persuasion they need when the Consumer Financial Protection Bureau implements the Three Business Day Rule for mortgage loan closings. When lenders and their closing agents are forced to deliver a correct settlement statement to the borrower three days before closing, they’ll learn just how difficult it will be to get everything right and on time in a paper world. Taking their businesses fully electronic will be the only way to ensure compliance.
The good news is that the vast majority of lenders are already moving in that direction. In January, the industry got a boost when the IRS announced that it would finally be accepting electronically signed documents for the ordering of 4506-T tax transcript orders. The FHA, one of the very few remaining federal government holdouts, is expected to follow suit later this year.

The worry now is how lenders will go about making that important transition. Pushing the point solution. For much of the past decade or so, electronic lending advocates like myself have been urging lenders to quit worrying about their entire enterprise and just pick a process and take it electronic. By taking out the paper in a piecemeal fashion, lenders would at least be moving in the right direction and selling themselves on the benefits of paperless lending in the process. This tactic worked for a number of reasons.

First, it was inexpensive. When it comes to technology systems, it always costs less, in the short run, to isolate your systems and concentrate on a single process. This kind of razor sharp focus lets technologists create workable solutions more quickly. But if we’ve learned anything from the foreclosure process, it’s that there are no truly unconnected systems in our business (or at least there shouldn’t be). Ultimately, the lower price tag enticed more lenders to dip their toes into the paperless world and this was good news.

Second, when the project is kept tight and focused, it doesn't take long to configure and test a solution. This meant technologists could finalize their work faster on isolated processes and deliver successful pilots to lenders more quickly. In the end, a successful test is the only way to convince an executive to move more deeply into a solution.

The biggest reason that partial solutions were beneficial in the early days is that by getting lenders to experience their business without paper, the benefits that researchers promised proved to be real. It became clear to the industry that it really did make sense to do everything electronically.

This prompted more lenders to take another step into the digital world, and another one after that. Because the industry was under no real pressure to make this shift work, many lenders made a gentle transition toward fully electronic systems and are enjoying the benefits today.

This is part one of a two-part article on the industry-wide transition out of paper-based processes to electronic, from application through to closing and servicing. Tim Anderson is the Director of eServices at DocMagic.

Posted with permission from The Mortgage Executive Magazine.

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This fall, a Massachusetts lender closed on a fully paperless mortgage. The work that led to this rare achievement captures the difficulties originators still face in digitizing the loan process.

Radius Financial Group in Norwell electronically closed six loans beginning in October. The process was created in partnership with the tech vendor DocMagic, the MERS loan registry, Fannie Mae and Santander Bank.

Electronic closings and e-notes have been kicking around for a long time. Fannie Mae and Freddie Mac have purchased e-mortgages since the early 2000s. But they remain rare, partly because there are few warehouse lenders that can handle these transactions. Rarer still are completely paperless loan processes that combine an electronic closing with an electronically signed promissory note and deed of trust.

Lately, however, momentum has been building to accelerate the move toward paper-free mortgages. A report last year from the Consumer Financial Protection Bureau found that transactions were faster and borrowers walked away feeling better when a loan was closed using digital means rather than paper.

While the choice to push for a digital mortgage process was largely a matter of improving the customer experience, it also has bottom-line benefits for the company as well, Radius co-founder and Chief Operating Officer Keith Polaski said.

"The first thing for us was the consumer experience, but without a doubt there are tremendous derivative economic gains and efficiencies," Polaski said. "At the end of the day, decisions are made on surrounding economics. If I can save myself 200 bucks a loan, we should be looking at that."

The first loan done through the completely paperless process was closed on a Friday morning at the closing attorney's office "with cups of coffee and chocolate chip cookies," Polaski said. Radius had its technical staff on-site for the first two e-closings to ensure the process went smoothly.

The documents were signed using a tablet. (Notarized documents were also signed with ink for recording purposes because Massachusetts does not yet allow registries to accept electronically notarized documents, though the note and all other documents were electronic.)

That same day, Fannie Mae purchased the loan from Santander, the transaction's warehouse lender.

"For every [paper] transaction, there's five FedExes for that note — those go away," Polaski said. "How fast things turn around will save money."

More than 3,000 miles away, in Torrance, Calif., DocMagic followed the closing as it happened.

"What was interesting about the transaction was our ability to monitor its progress in real time," DocMagic CEO and President Dominic Iannitti said. "Because we were controlling all of the different web service calls that collectively made up that entire process, we were able to monitor it from our offices and watch it transpire without actually being there."

These half-dozen loans were the culmination of a journey that took more than two years. It began when Radius was approached by an aggregator — Polaski declined to identify the company by name — about working together on an e-note pilot program, having heard of Radius' interest in this area. After a promising start, this project ultimately fell through.

"All of sudden everyone was moving in the right direction and then it stopped," Polaski said.

Still the experience positioned Radius well to keep trudging along. In August 2015, Radius received seller-servicer approval from Fannie Mae, a process that Polaski said took roughly four months. Then, the company lined up its e-note approval from Fannie, which Polaski said took only 45 days thanks to the work already completed in the e-note pilot program.

"We were lucky because we had done a lot of the MERS and e-vault work ahead of time," he noted.

Radius and DocMagic were not the only parties to the closing that had to get the proper technology in place. Massachusetts is an attorney-closing state; Radius' closing agent had to get approved as an electronic notary from World Wide Notary, a vendor. This required him to obtain an electronic signature pad and install and learn software.

Perhaps the biggest challenge throughout the entire process though was securing a warehouse lender that was equipped to do electronic closings; there are only a handful of such providers.

"There are only a few e-warehouse lenders and that is definitely a factor," Iannitti said. "If you don't have a company that's ready to purchase that e-note then you haven't really accomplished anything at all."

Santander did not make executives available for interviews. According to Polaski, the bank had been pursuing the e-warehouse business for more than two years, and company executives even had to travel to the bank's parent company in Spain to receive the OK.

"The stars were aligned and we finally had everybody aboard," Polaski said.

The next step was identifying the borrowers from the large pool of customers who already had a digital relationship with Radius from the application stage and could act as guinea pigs for the new closing process. That included making sure they were "friendly," Polaski said, "because if stuff went sideways we wanted to be able to put a paper note in front of them and have them understand they were part of a pilot."

With a handful of loans closed, Polaski said, Santander is now reviewing the experience before it moves forward with further e-warehouse lines. He expects that his company will move "robustly" into the e-closing space next year.

Radius is close to receiving Freddie Mac seller-servicer approval. Currently, the company hopes to sell roughly 20% of its originations to the agencies annually; the company is aiming for $1 billion in originations total next year. Selling to Fannie and Freddie is one piece of its e-close strategy. One remaining obstacle Polaski sees on the horizon is the lack of aggregators willing to purchase these loans.

"If the only place to sell these loans is Fannie, I just don't have the execution there," Polaski said. "If I had a handful of aggregators step in, I think we would move the entire book of business to e-note if the consumer has e-consented."

DocMagic, meanwhile, came out of the transactions with no items left on its to-do list. And while the move toward greater adoption of e-closings has been a slow one, Iannitti said he is happy with where things are.

"We're very pleased with the rate of adoption and rate of interest that we're seeing right now," Iannitti said. "It definitely took longer than we thought, but now we're seeing the momentum and feel that everything is moving in the right direction."

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New CFPB compliance requirements mandate that it's time for 'e.'

By Tim Anderson

Back in 2002, when Fannie Mae said it would begin buying this thing called a MISMO category one SMART-Doc e-note, some in the industry thought, “If Fannie Mae is mandating it, the world will quickly embrace it.” 

Boy, were those people wrong. 

Fast forward to today, and so far, there have been more than 339,456 e-notes registered on MERS. Fifteen years after the Uniform Electronic Transactions Act and E-SIGN Act passed, which created legal acceptance that an e-signed electronic document is as legal as a wet-ink-signed paper one, it appears that adoption is finally going to happen. 

Think, for a moment, about some of the headlines that have recently hit the mortgage press: “Goldman Sachs Resolves U.S. Mortgage Probe for $5.1 Billion”; “Wells Fargo Admits Deception in $1.2 Billion Mortgage Accord”; and “UBS Blamed in U.S. Trial for $2.1 Billion in Mortgage Bond Losses.” At last count, the penalties and fines in the mortgage meltdown aftermath are an estimated $110 billion and counting. Some servicers are continuing to pay because they have not fundamentally changed their processes - and now, they are going after the rating agencies, too. 

If you saw the movie “The Big Short,” you know it’s about how a few smart guys who, with a bit of luck, accurately predicted the mortgage meltdown and shorted key companies’ stocks that were financing it when it hit. It made them millionaires. Thousands of others were oblivious, and when the music stopped, many were caught holding the bag, or in the case of the mortgage meltdown, bad loans that had flooded the market. 

Now, with the advent of the Dodd- Frank Act and the Consumer Financial Protection Bureau (CFPB), new regs are in place to hopefully prevent this scenario from ever occurring again. Meanwhile, the industry is facing a huge problem in that it is failing to fully embrace technology and automation and is still clinging to manual, paper-based processes.

Ostrich head in the sand response 

One would have thought that with the National Mortgage Servicing Settlement’s requiring the largest servicers to pony up more than $25 million in assistance money and an estimated $110 billion-plus in additional fines and fees paid out since then, it would have facilitated the rush to automate and eliminate the paper cost and risk of robo-signing documents - but it didn’t. Instead, most still took the traditional approach of throwing more people and paper at the problem in hopes that it would eventually go away. But the CFPB’s new “Know Before You Owe” rule - also known as the TILA-RESPA Integrated Disclosures (TRID) rule - dictating new delivery requirements and tracking of consumer disclosures, is finally driving the industry to automate and adopt “e.” 

A new age of compliance 

It’s no longer just about generating “dumb” docs and placing them in a paper file to document compliance. The new regs dictate changes in workflow and relationships and being able to verify that a lender did what it said it did - all along the mortgage manufacturing process. The other requirement of generating a MISMO 3.3 data file - and soon, the Uniform Closing Dataset, so any company can electronically board and verify compliance of the data - is another key change and requirement driving a total paperless process. 

Forms are not data 

Most look at documents as an event in time rather than a process over time. As “Know Before You Owe” became effective, almost everyone in the industry myopically focused on the closing disclosure, as it needed to be delivered three days prior to the closing. Much like the issue with the government-sponsored enterprises’ (GSEs) singular focus on the e-note as the only document that needed to be executed in an e- closing, it’s easy to overlook that there are more documents in the closing package than these two forms. Soon (much like RESPA 2010 with the TILA calculations), everyone was building some sort of closing collaboration tool to integrate the lender’s loan origination system (LOS) to the title system in order to get the fees right. They soon discovered that the reg really started at the time of application with the initial loan estimate form. So, the portals were expanded to handle this, but still, most do not automatically check for compliance, nor do they “rep and warrant” the calculations or documents. 

Fannie and Freddie are leading the way 

With the Uniform Mortgage Data Programs (UMDPs), and now, with the new quality control systems, Fan- nie and Freddie recently announced that they are moving their traditional post-closing, pre-funding reviews to a pre-closing review in which the work- flow is greatly enhanced to fix the problem before a close rather than attempting to go back upstream to fix it once a loan has closed. 

And with Richard Cordray, direc- tor of the CFPB, declaring that the e-closing is his No. 1 signature initiative, it’s easy to assume that this will push the trend further. The requirement of proving receipt of deliv- ery of the three-day delivery rule alone should be reason enough to go “e.” 

Processing at the speed of light 

Quicken Loans created a big stir with the introduction of its Rocket Mortgage, a completely online, automated, paperless mortgage application process that enables a consumer to prequalify for a loan in less than eight minutes. This proves that mort- gage applications can be swiftly and electronically verified for compliance - and that the entire front end of the process can be automated. Instead of requiring borrowers to scan and up- load key mortgage documents as PDFs, things such as employment, income and assets can be automatically verified through integrations with various systems of record, thus greatly expediting the process and ensuring greater data and document integrity. Once again, Fannie and Freddie led the way with their UMDPs. They also created the Uniform Appraisal Dataset to be compatible with the MISMO 2.4 data format so that appraisals could be electronically verified for compliance via the Uniform Collateral Data Portals. 

Electronic vault and audit trail 

In the new data-driven world, the ability to track not only when a docu- ment was delivered, but also what the data payload in it was all along the mortgage process, will be crucial to providing a defensible position on the accuracy of the disclosure for future CFPB compliance audits or if anyone else contests the legality of the loan over time. 

The beautiful thing about an e- mortgage is that one stores not only the document (legal view), but also the data and date stamp of when the document was created and sent, pro- viding a historical record of events that can be played back like a video for proof of compliance. Because the new documents are “intelligent,” the ability to verify compliance of the data within the document provides irre- futable proof of compliance. 

TRID also requires lenders to track and document many delivery milestones. From the original loan es- timate, to intent to proceed, to change of circumstances, to three- day delivery and receipt of delivery verification of the final closing disclo- sure, this should not be a separate system or process from the rest of a lender’s compliance verification pro- cess. The ability to capture the source XML data and the document, along with a date and time stamp of the event, is what the e-vault is really all about. This is really what the CF- PB was thinking when it mandated that the lender implement a compli- ance management system (CMS) to document compliance all along the mortgage manufacturing process. 

The minimum file retention of the closing disclosure is five years. A lender might as well keep copies of everything else to document overall compliance. 

No more passing the ‘hot potato’ 

One other critical requirement of TRID is that everyone who owns the asset must verify compliance, as well. If one originates, sells, buys or servic- es the loan and doesn’t verify compli- ance, then one is at risk, as the CFPB is coming after everyone to ensure full compliance of the loan file. 

To that end, our firm is now get- ting requests from investors to in- clude copies of both the original loan estimate and final closing disclosure, along with the closing documents. But again, that is not near enough to prove compliance of the loan file and process with TRID. 

Online is where the consumer is 

Even if one is still not convinced that an e-mortgage process is superi- or from an efficiency and compliance perspective, one can no longer ignore that in order to do business today, one must go online to capture the consumer. Today’s millennials prefer to start and stay online to complete the mortgage process. They don’t want to have to physically drive to an office and sign a bunch of paper documents. Handling the process face-to- face is totally foreign to them. It’s so much more convenient to send a mobile notary to e-notarize and execute the final remaining documents, with all of the others being executed four to five days prior online in the com- fort of one’s own home. Reducing the actual closing to a 10-minute process is the way to do business with this wave of consumers who are increas- ingly gaining buying power each year. 

Did the industry not learn anything from the mortgage meltdown? Billions were spent in fines and fees be- cause lenders could not document what they had done. Many key docu- ments were lost, and the follow-up in manually processing thousands of modifications was not much better. Providing a total e-closing process is the only way to go. 

Start electronic, stay electronic 

Today, lenders should only need to “paper out” when they want to provide someone with a copy. Taking paper documents and putting them through optical character recognition is not the answer, either. In a full e-mortgage world, the data is input di- rectly into the system of record, and the documents are e-signed and e-notarized in the same system. All of the data in the documents can be verified electronically and can be “rep and warranted” for compliance. 

At this point, there is no benefit to relying on paper - there are only downsides, and significant ones at that. The use of incomplete or inaccurate paper documents can result in the following: 

■ Extended locks;
■ Trailing docs;
■ Manual verification of the closing disclosure;
■ Increased risk of non-compliance and exposure;
■ Increased time and costs for staff training;
■ Reduced transparency; and
■ A lack of control.

Going 100% paperless, on the other hand, yields numerous benefits. Lenders are able to fund with certainty; turn times are improved; shorter closing times and times to close are real- ized; a superior customer experience is established; issues/surprises at the closing table are avoided; compliance is automatically verified, and risk is greatly reduced; a full electronic audit trail is securely maintained in an e-vault, with record retention to satisfy the electronic evidence requirement; investors are able to fund without ex- ceptions or trailing documents; and consumers enjoy a much more expedient process that accompanies much-needed visibility and access to online tools. Simply put, the overall process becomes unprecedentedly consistent and efficient. 

Get ready - it’s really coming this time 

The GSEs have accepted e-notes for quite some time now and are ar- dent proponents of the e-mortgage. Today, lenders not only have enormous responsibility to be compliant at all times, but they also must prove compliance adherence when called upon. Investors and servicers must also verify compliance, as well. TRID dictates that entities directly involved with the loan file must be able to demonstrate full compliance at all times. An e-mortgage solves all of this with a well-documented historical record of events that are time-and-date-stamped to show detailed proof of compliance. 

From a marketing perspective, millennials are quickly gaining buying power and will become a business-critical market to serve moving forward. They want to conduct much of the mortgage process online. Those lenders that don’t have an e-mortgage process in place will be at a competi- tive disadvantage sooner rather than later. 

As the regulatory environment in- tensifies and the CFPB continues its policing, we may reach a point where the LOS no longer serves as the core system of record - at least when it comes to compliance. Instead, the development of a comprehensive CMS will be the ultimate keeper and controller of compliance data, working with the LOS via an integration to share relevant information. 

So what are lenders waiting for? 

The platforms already exist to go “e,” the regs certainly encourage lenders to go this route sooner rather than later, and the customer is online, so what are lenders waiting for? Many refuse to change. Others refuse to educate themselves - or they refuse to see that there are no legal issues with moving forward. Still, others are waiting to see exactly how the CFPB handles its audits in the future. 

With the minimum fine for a minor infraction now at about $5,000 a day, a lender could pay a hefty price for procrastination. Lenders had better get ready now, or some may find themselves in a very precarious situation.