What a difference a couple of months can make. Before COVID-19 knocked down the U.S. economy several pegs, less than half of all U.S. states had enacted laws allowing remote notarizations. But within several weeks of national social distancing guidelines being implemented, more than 10 additional states have implemented emergency initiatives allowing remote notarizations.
The reasons behind this new push toward remote closings could not be more obvious. Closing agents, notaries, and borrowers are all rightfully concerned about the health risks of gathering in an office or in the borrower’s home to sign closing papers. And because health experts anticipate the coronavirus will not disappear anytime soon, playing it safe when it comes to real estate closings could be our industry’s new normal.
The good news is that the technologies and partners already exist that can bring remote notarizations to life. The bad news is that choosing the right strategy—and the right partner—isn’t so easy. With so many options to choose from, how do lenders know where to start?
Remote Closings Take Center Stage
Remote notarizations were already one of the hottest tech trends in the housing industry when the coronavirus pandemic began. By early February, 23 states had enacted laws enabling remote notarizations to take place for real estate transactions. After social distancing guidelines and shelter-in-place orders were implemented, however, several states that had not yet enacted remote online notarization (RON) laws issued emergency orders allowing borrowers to sign their closing papers remotely over the Internet. Holland & Knight issued an alert last month indicating that at least 43 states have authorized notaries to conduct RONs on either a permanent or a temporary/emergency basis.
As of this writing, a full three-quarters of the states have legalized remote online notarizations, also known as RONs. In addition, a new federal bill, “Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020,” is getting support from both sides of the political aisle as well as the Mortgage Bankers Association, the American Land Title Association, and the National Association of Realtors.
But legal barriers have not been the only hurdle to RONs. For remote closings to go smoothly, multiple parties to every real estate transaction must be on board—lenders, title offices, investors, and borrowers. The problem is that not all these parties are prepared for RONs. While it’s true that Fannie Mae, Freddie Mac, and Ginnie Mae all accept remote notarizations in the states in which RONs are legal, many loan aggregators and investors are not ready to accept eNotes.
Because RONs are not yet universally accepted by everyone, lenders are pretty much on their own when it comes to choosing the best strategy. Most currently rely on a piecemeal approach, with different processes and technologies in place for eSignatures, eNotes, eRecording and RONs. There is, however, a better way— one that enables lenders to rapidly implement paperless RONs and facilitate safer, more efficient closings. But in order to get there, lenders need to know whom to trust.
Not All Providers Are the Same
With new social distancing protocols in place, lenders and title companies have been rushing to establish new, safer closing methods that are acceptable to all parties. Amid this mad scramble, a wave of new players has emerged who are heavily advertising their “breakthrough” remote closing solutions.
Lenders need to be aware that many of the providers they may be hearing a lot from right now are offering solutions that are neither particularly innovative nor properly tested by the market. Many do not have key alliances in place that would enable them to scale remote closings, while others rely on multiple vendors to conduct remote closings, creating a chain of technologies and services that is no stronger than its weakest link.
The reality is that the technologies necessary to facilitate RONs and eClosings aren’t new at all. They have existed for years. Which is why lenders that want to implement remote closings the right way should look first toward companies that have experience and a track record in providing eClosings and eNotes, as well as the alliances and partnerships they need to provide remote closings in a scalable fashion.
Because eNotes are probably the most critical piece to providing paperless closings, a good eClosing provider should be well-versed in how eNotes affect every partner that originators work with, especially investors. Typically, such a provider will have years of experience conducting eClosings as well as a document engine that runs on SMARTDocs. Such a document engine allows companies to create and deliver documents in all standard data formats.
This last part is key. Instead of native XML SMARTDocs, many companies that market eClosing services use PDFs only, which is not ideal. PDFs are far more time-consuming and error-prone than SMARTDocs. Before anyone can electronically sign a PDF, for example, it must be tagged and inspected manually, which increases the risk of mistakes or missing data. SMARTDocs, on the other hand, do not require tagging and can be scanned and verified automatically for errors.
Choosing the Right eClosing Partner
How do you know if an eClosing provider is right for you? There are several questions you can ask to make sure. For example, do they have a complete library of MISMO Category One SMARTDocs? The reason this is so important is that many closing providers only enable the note to be a SMARTDoc, which severely limits the ability of lenders to create completely digital loan files.
A full library of MISMO Category One SMARTDocs, by comparison, lets lenders choose whether they want to use XML or a PDF for the full range of loan documents they use. They can also change document formats depending on an individual investor’s preference. And because they can generate any document in a loan file digitally, lenders are able to review documents for due diligence and compliance electronically, which saves a substantial amount of time and effort.
Another trait a good eClosing partner should possess is the ability to offer other mortgage services, such as application, underwriting and due diligence support. Such partners tend to take a digital approach to these other services and do not simply focus on a digital closing.
The best places to start looking for eClosing providers are Fannie Mae and Freddie Mac, each of which maintains a list of eMortgage vendors that can create and submit electronic mortgages to them. To appear on these lists, a vendor must have completed tests of eNote deliveries with both the GSEs and MERS. But even many providers on these lists are not able to offer a completely paperless mortgage closing, which brings us back to RONs.
Putting Together the Complete Package
To go completely paperless, lenders need a partner with an eClosing platform that can support RONs. Platforms that support RONs use audio and video technology combined with identity verification features that allow a certified notary to witness the borrower’s signature over the internet, thus eliminating the need for face-to-face contact entirely. A key aspect to RON-enabled eClosing platforms is the ability for the borrower to review individual loan documents before the closing stage, so the borrower can ask questions before signing.
When blended with a full library of SMARTDocs, a RON-enabled eClosing platform enables lenders to provide a digital mortgage process for borrowers that is truly end-to-end, with the borrower electronically signing all documents remotely. Platforms that support RONs can produce closing packages with notary language that is specific to remote notarizations and eNotes. Typically, they are also capable of producing closing packages that can be signed in paper and ink in areas where traditional signings are still required.
This is where the power of eClosing alliances comes into play. For example, we have partnered with Pavaso, a provider of digital mortgage closing technology that supports both in-person and remote electronic notarizations. Pavaso has deep title industry expertise, which can help lenders with eClosing adoption, and provides an online, paperless process both for signing initial disclosure documents and closing documents that can be used by lenders and title agents.
It’s often said that there are opportunities within every crisis. As frightening as the current global pandemic has been, the opportunity our industry must accelerate remote closings to create a better borrower experience and keep deals moving is a tremendous silver lining. While the goal right now may be to help borrowers execute closing documents from the comfort and safety of their own homes, the push to make remote notarizations legal in a growing number of states will undoubtedly speed adoption and create lasting change long after the pandemic ends.
It’s incumbent upon lenders that seek to implement remote closings and create a completely paperless, digital mortgage process to think carefully about the best strategy for doing so. That means selecting the best possible partner to get them across the finish line, one with the knowledge, the expertise, and the track record to make remote closings safe and scalable.