Editor’s note: The paperless real estate transaction is back in vogue. Big companies, trade groups and entrepreneurs are investing in technology platforms, back-end systems and software to automate the home sale. This three-part series looks at new technologies that are streamlining various parts of the real estate process, making it less cumbersome, costly and time consuming. (See Part 1: Innovations in streamlined home sales and Part 2: Paperless Realtor free to roam.)
A Naval officer stationed on a submarine in the middle of the Pacific Ocean could apply for and close a real estate loan without leaving his post by using a paperless mortgage process.
The Navy Federal Credit Union had that scenario in mind when it decided to create a paperless mortgage transaction. With so many of its members on active military duty, the Washington, D.C.-area-based lender couldn’t deny its members mortgages just because they are stationed in a remote place where it’s difficult to receive packages, said Johnna Cooper, associate vice president.
“We decided to focus on closing because of course that’s the point at which all the paper gets generated,” Cooper said.
The digital or “paperless” real estate transaction is back in vogue. Big companies, trade groups and entrepreneurs are investing in technology platforms, back-end systems and software to automate the real estate transaction. The move from paper to electronic mortgages is an integral step to automating the process.
Paperless mortgages aren’t just for lenders with customers overseas. As technology becomes more available and consumers become more tech savvy, the electronic mortgage concept is becoming more favorable to lenders of all shapes and sizes. Lenders already using paperless alternatives cite cost and time savings benefits as well as technology challenges, but they say the push toward electronic mortgages is in the future.
With electronic closings, lenders reduce the quality-control time needed for pre- and post-closing checks. Navy Federal, for example, can save as much as 14 minutes per loan, Cooper said. Lenders also save money because documents are not printed prior to closing. For Navy Federal, that adds up to a savings of about 90 cents per loan.
In electronic closings, closing agents immediately receive closing packages and no longer have to track or worry about lost packages and documents, Cooper said. Loan information is more accurate because there are fewer people touching the file, and there is only one set of original documents.
On the electronic delivery side of the transaction, lenders benefit from immediate delivery of notes when funds are disbursed, no more lost notes and no need to track notes.
Electronic recording also eliminates tracking, cover sheets, rejections and late fees from county recorders’ offices. Last year, Navy Federal filed 7,174 lien releases in four counties, saving about 2,740 work hours of actual labor. That also eliminated the average two- to five-week wait time, she said. On average, the credit union sends about 200 documents at a time to recorders’ offices.
By the end of this year, Navy Federal plans to expand its electronic offerings to include adjustable-rate mortgages and jumbo loans and the ability to electronically record documents in several states.
So far, the credit union has completed about 80 electronic mortgages, averaging about 20 per month. Navy Federal aims to increase the average to 50 per month by the end of the year.
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With electronic processes, Navy Federal saves about $240 per loan and has reduced the time it takes to complete a loan by about 20 to 23 minutes per loan, Cooper said.
Electronic signatures are another aspect in the move toward paperless mortgage transactions. Quicken Loan is one lender that’s started implementing the technology.
The company wanted to decrease application conversion time by one to three days, eliminate partially signed documents and other quality assurance headaches and generally streamline loan processing, said Shiv Vithal, senior systems architect. The company also wanted to “wow” the customer with the technology and be able to close their loans faster.
“We hope to send a message to the clients, ‘Look, there’s a better way to sign your mortgage documents,'” Vithal said.
And most borrowers who used the e-signature function loved it, he said. One even commented that it was similar to a video game. On the back office end of it, Quicken Loans found that packages that are sent out for e-signatures are almost always signed the same day.
Electronically signed loan applications also had a 10 to 15 percent higher closing rate than traditionally signed applications. E-signed packages no longer had missing signatures, initials or documents, Vithal said.
The company also met some stumbling blocks in its use of e-signatures, finding that they are not broadly recognized or accepted by many companies within the mortgage industry. Some banks and other lending institutions create a barrier to e-signatures by requiring a traditionally ‘signed’ Borrower Certification and Authorization to compare with signature cards, Vithal said.
The market for e-signed loans also is limited, he said. Ultimate investors, for example, have to agree to purchase e-signed loans. Investors are beginning to accept e-signed applications, but most still want paper packages.
The cost of using e-signatures also can escalate more than expected because data storage, disaster recovery and backup strategies can be expensive.
Full public acceptance and understanding of electronically signed documents also may take time. Vithal recalled one woman who called Quicken Loans after e-signing a document because she didn’t believe she’d actually signed anything.
The key to gaining that acceptance is to make the technology as easy to use as possible
“If grandma can’t use it, don’t do it,” Vithal said.
Another company making progress with electronic signing is DocuSign, which aims to make the whole experience resemble a paper transaction, said Tom Gonser, VP of marketing and products. Mimicking a paper experience with e-signing makes it less foreign to people. The company provides lenders with a way to package their documents into an “envelope” that opens when the customer clicks on a link they receive via e-mail. Consumers can electronically sign the document with legally binding e-signature places that have already been marked by the sender.
Such technology, however, may not eliminate the desire for paper since some find it comforting to have a hard copy.
“We don’t get rid of paper, we get rid of the need to move paper,” Gonser said.
Reducing the movement of paper, whether through e-signatures or other parts of the transaction that are now electronic, can help reduce human errors and increase the quality of the overall document package.
The “advanced recipe” for paperless mortgages would include data, documents, electronic signing including electronic notarization, electronic recording, electronic vaulting with imaging capacity, said Kim Weaver, director of product development for BCE Emergis. That combination would result in a completely electronic loan file.
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