Editor’s note: This piece originally appeared in the June edition of MReport.
It is no secret that title and settlement agents play a crucial role in the execution of the mortgage closing process. However, as the industry continues its push towards widespread e-closing and e-mortgage adoption, this role is often overlooked. That oversight, or failure to account for title/settlement buy-in, can be one of the biggest stumbling blocks to e-closing adoption.
Thanks in part to the elimination of other barriers to entry, such as the legislative momentum behind remote/electronic notarization and wider acceptance of e-recording, the “all or nothing” mentality regarding digital mortgage adoption has largely given way to a more pragmatic, “as ‘e’ as can be” approach. Of course, compressed margins and the rising cost to originate have also pushed lenders to become more practical in their approach to digital mortgages. While estimates from document preparation and e-closing provider Docutech put the savings on a fully digital loan transaction at approximately $244 per loan, hybrid e-closings, which can be done for nearly all loans, still net lenders between $155 and $165 in savings on a per-loan basis.
Because this shift in thinking has accelerated the adoption of digital mortgage strategies, including hybrid e-closings, lenders must start factoring settlement into their digital mortgage plans in order to achieve success. By making e-closing adoption as easy as possible for settlement, lenders can dramatically increase their volume of digitally executed loans, resulting in financial and operational benefits on all sides of the transaction.
Enhancing Customer Experience
Mortgage lenders are not alone in their quest to improve customer satisfaction, drive down operating costs, and increase efficiency. Title and settlement agents share similar aims and despite lingering perceptions of the title industry being “old school” or “outdated,” title professionals are as invested in driving innovation and leveraging technology to solve many of the issues they face on a day-to-day basis. For example, title agents have begun embracing wire-fraud-prevention technology to safeguard consumer funds in the absence of regulatory solutions to address this growing issue.
When it comes to e-closings, there’s a lot to be gained in terms of efficiency on both sides of the transaction. Many lenders are now offering borrowers the option to e-sign ancillary closing documents that do not require a witness. This dramatically decreases the length of the closing ceremony to minutes, rather than an hour or more, allowing title and settlement agents to increase the number of closings they are able to conduct each day.
These efficiency gains also translate into significant cost savings for both lenders and title/ settlement. Slim closings can mean lower notary costs and/ or closing costs, and because e-closings result in a largely electronic closing package, there is usually a corresponding decrease in shipping expenses.
As an added bonus, nearly 85% of the U.S. population is covered by e-recording, which further reduces expenses for title and settlement professionals and streamlines the return of the recorded security instrument and the final title policy and fees back to the lender. Along with these immediate cost savings, e-closings also protect lenders and settlement agents from incurring more punitive expenses that can result from errors in the closing process, such as missing signatures or pages.
E-closings dramatically improve the customer experience, which provides a significant benefit to everyone involved in the transaction. Consumers are accustomed to conducting transactions digitally, including financial ones. As such, many homebuyers, especially millennials and/ or first-time buyers, are going to enter into the mortgage process expecting a digital experience and may be disappointed if presented with a more manual, paper-driven transaction.
Furthermore, e-closings are generally much faster than their paper-based counterparts, which delights both first-time homebuyers and old hands equally, and using an e-closing process also provides continuity in execution, as almost all consumers will complete the mortgage application digitally and e-sign their initial disclosures. Providing the same experience from beginning to end helps drive consumer comfort, which can translate into repeat and/or referral business for everyone involved.
Barriers to Adoption
Given that both parties have equally as much to gain by going digital, it can be hard for lenders to fathom why more title and settlement agencies haven’t jumped on the e-closing bandwagon. However, title/settlement faces some unique challenges in adopting e-closings, and by gaining a better understanding of those barriers, lenders can put themselves in a better position to help address the issues and drive adoption.
One of the biggest e-closing hurdles that title and settlement professionals have to overcome is the technology being used to facilitate them. With multiple e-closing systems on the market today, lenders have their pick of which platform they would like to use. However, settlement professionals often work with a wide network of lenders, and in some cases, they may only facilitate one or two transactions with a
particular lender. This makes the burden of learning each and every e-closing platform on the market seem incredibly unreasonable and creates a major deterrent to e-closing adoption from the settlement perspective.
What’s more, there has been a general lack of focus on settlement in the development of these systems. Almost all the e-closing platforms in the market today utilize some form of e-signature technology, but this feature only comprises a small fraction of total system functionality. In fact, almost all e-closing functionality has been designed primarily with the lender’s needs in mind.
For example, many e-closing systems have been born out of document preparation companies, which makes sense. While lenders are able to electronically draw documents through these platforms with ease, settlement agents are often forced to manually tag the title documents because these documents come from various sources. Accessing the e-closing platform can also be a challenge for settlement agents, and if the professional tasked with carrying out the closing ceremony cannot access the technology quickly and easily, then the simple fact is that
the technology is not going to be used. Additionally, many e-closing platforms charge settlement agents to use the system, creating additional resistance to usage.
By not taking the title/settlement’s role in the closing process into account, many e-closing vendors have inadvertently created a major barrier to adoption. Lack of adoption ultimately leads to a lack of significant volume, which creates a kind of self-fulfilling problem. If title and settlement professionals are only being asked to conduct e-closing on a tiny portion of their overall business, it may simply not be feasible from a financial or operational standpoint for them to do so.
Collaborating for Success
Luckily, there are ways that lenders can address these challenges to bring title and settlement professionals on board with e-closings. First and foremost, lenders need to help address the technology issue. Working with settlement agents to create a single entry point that allows them to easily access the e-closing platform while still operating in their familiar, day-to-day environment eliminates a huge barrier to entry and can help drive momentum for adoption.
In addition, lenders need to work on improving collaboration throughout the loan process, not just at closing. When the topic of lender-settlement collaboration is brought up, the discussion often centers around the exchange of fee data, but there’s more to collaboration than that. Something as simple as delivering every loan package—even the paper-based ones—through the agent’s e-closing access point creates a connection point that makes settlement feel part of the process rather than one outside it. As an added bonus, this helps create familiarity with the system because the agents are engaging with it each time they pick up the closing package through the access point.
Lenders can also help their own cause by utilizing a hybrid e-closing strategy for all their loan production. This helps settlement professionals, as well as the closing departments, as it eliminates the need for both parties to “pick their swim lane.” Instead, the lender simply draws the closing documents and determines just how “e” the transaction can be, preventing e-closings from being a special project or a bifurcated process.
However, the onus isn’t just on settlement agents to be as “e” as can be. Lenders must also do their part by committing to eliminating as much paper from the process as possible and supporting downstream digital processes, like e-recording. Given current market restraints, many lenders may still have to wet-sign the note and/or the recordables. Yet, the wet-signed security instrument can typically be e-recorded, creating a digital post-closing process for the lender.
Regardless of the e-notary status of a county, it is entirely possible to execute the vast majority of the closing package electronically, and doing so goes a long way towards generating enough volume to create muscle memory with title partners to make e-closings the rule and not the exception.
the shift to digital seems inevitable at this point, especially as support for electronic/remote notarization continues to grow, but without buy-in from the settlement professionals lenders could be facing a much longer road then they'd like. By making e-closings adoption easy for settlement and committing to executing a majority of loans as digitally as possible, lenders can dramatically condense the journey while delivering a superior process for all parties involved.