Editor's note: this piece originally appeared in the October edition of MReport.
In the ongoing effort to keep clients and co-workers safe, mortgage and lending companies are adapting their operational structures to accommodate new remote-working trends. In the process, these companies are learning where their current physical and digital workflows fall short, especially given that more sensitive conversations are taking place online. Many lenders are just now learning about software solutions that can streamline steps in the title and escrow process; however, their need to implement digital alternatives to manual, in-person processes quickly is causing many to overlook one critical component to any successful digital home transaction: cybersecurity.
It’s important that lenders do their due diligence when choosing or building software to help them transact digitally, and that they know what cybersecurity measures to consider when assessing options. There’s nothing more important than protecting customers’ personal and financial information and the secure transfer of that information.
Since title companies are considered an essential service, they can offer buyers and borrowers in-person, contactless closings for home sales and refinances. But in light of the current environment and concerns for personal health and safety, this does not meet consumers’ expectations for achieving milestones on a fully remote basis during the homebuying process. Digital alternatives to in-person closings exist and offering this flexibility can ease customer anxieties and add much-needed convenience for the buyer, seller, or borrower during an already unfamiliar and emotion-ally taxing closing process.
Perhaps the easiest way to illustrate cybersecurity best practices is by juxtaposing it with standard security measures used in physical title offices during the closing process.
How Do You Verify a Person’s Identity Without Ever Meeting Them in Person?
When opening escrow with a traditional title company, escrow checks are dropped off in-person. This prevents any unencrypted digital document or information sharing and allows the escrow agent to verify the buyer’s and seller’s identities. These stakeholders are further protected by private, soundproof meeting rooms for confidentiality and wet signatures with in-person witnesses to protect against fraud. One step in the traditional closing process that’s already done digitally is wire transfers; however, traditional wiring methods offer only minimal measures to ensure the safe transfer of funds.
Now, however, with escrow orders being completed remotely, some of these security standard sare lapsing. For example, information is being exchanged via unencrypted emails, and depending on what is being shared, this can put the lender, the buyer, and the seller all at risk. Recognizing this, many title companies have started to adopt piecemeal soft-ware solutions that offer some additional protection, such as secure document transfer, eSignatures, or identity verification. But keeping track of so many different platforms actually creates a more disjointed and confusing process in an already opaque sector of the industry.
On the other hand, digital title services are completed using fully encrypted communications that take place in recorded chat rooms so that customers still benefit from the person-to-person counsel and the invaluable human touch. The difference here is that all conversations are tracked, recorded, and encrypted to protect sensitive information from getting into the wrong hands and so that they can be referenced later on if needed. Fully digital title companies must also offer sophisticated systems that confirm the identity of all stakeholders involved in a transaction to ensure all parties are properly verified. Extensive verification is critical, even when you have the opportunity to meet in person.
What Can Be Done to Further Protect Buyers’ and Sellers’ Investments?
Every year, cases of wire fraud increase rapidly. In 2019, reported incidents and losses due to real estate wire fraud totaled $221 million, according to the American Land Title Association. It can be assumed that actual losses are much higher when you factor in the number of incidents that were unreported as well. There are services that ensure the safe transfer of funds, even guaranteeing transactions up to $1 million. But title professionals are already overwhelmed with new software, and it’s extremely inefficient and unsustainable to continue training staff on new digital platforms. One perk to lenders partnering with digital title providers is that these companies can offer seamless and secure third-party service integrations, eliminating the aforementioned issue of piecemeal software that creates more headaches and work for escrow agents and lenders.
Seeing as wire fraud is a widespread issue and a legitimate concern for many, it’s important to educate all customers on what is being done to safely wire funds prior to completing the transfer. An important step in this process is informing customers of what wire fraud looks like and how to identify if they are a target. Also, every closing agent should have their own set of clear, safe wire instructions so that all stakeholders know exactly what to expect in the process so that they don’t fall victim to phishing attempts. The more transparency and real-time updates that you offer during this step in the process, the more confidence they will have in you and your services. If a buyer wakes up in the middle of the night worried if a wire transfer went through or if a critical document was signed, they should be able to check in for a status update immediately, instead of waiting hours—even days—for an email or phone update from their agent.
Are eSignatures and Remote Notary Services Legal in Every State?
Remote online notarizations (RON) are a hot topic in the mortgage industry today. Prior to March, only 23 states had laws that enabled notaries to conduct remote notarizations. Since then, four new states have passed permanent legislation to allow it, and almost every other state has some form of emergency authorization in place to assist during the pan-demic. This made the end-to-end digital closing process much more accessible to lenders, buyers, and sellers across the U.S. and offered quick market expansion options for digital title providers who could now operate remotely in new markets. As for eSignatures, these are legal in every state and U.S. territory as a result of the Electronic Signatures in Global and National Commerce (ESIGN) Act passed in 2000.
Are Digital Documents Safe?
Contrary to popular belief, physical document transfers do not offer the highest level of protection. Certainly, there is no information being transmitted or stored digitally, but locked file cabinets, shredding, badge access to a building, private networks, hand-to-hand document exchanges, and clean-desk policies only offer a basic level of protection. None of the information that is prepared, organized, or shared on paper is encrypted, which opens up the possibility of it ending up in the wrong hands—or getting lost or destroyed. Plus, exchanging physical documents now poses potential health risks and makes remote work virtually impossible. Nevertheless, digitizing documents and encrypting them, whether they are ultimately signed in the office or online, is a standard best practice that all title companies should implement—at a minimum—in order to increase security during the closing process and enable remote teams to operate efficiently and with urgency.
Digitizing closing documents will also allow for more secure storage, making it easier to organize all documents in one centralized and secure cloud server. To add even more protection, digital document storage allows for encrypted backup and redundancy to prevent data loss and also allows for complete control over access to each digital file for maximum security. Some of the unique benefits of working directly with a title partner that was built to operate remotely is the company’s ability to efficiently manage, maintain, and upgrade security measures as best practices evolve; pre-vet third-party vendors to ensure compliance and integration with existing workflows and local legislation; and facilitate a single-sign-on dashboard that’s built specifically for the title industry and easily understood by its customers.
How Can Digital Title Help the Industry Modernize?
Firstly, digital title companies should add convenience for the lender as well as the buyer, seller, or borrower. Bringing on a digital title solution should not involve more work for your team, but instead, modify existing work-flows to make the entire process more efficient. Digital title transactions were not something that became popular in response to the pandemic, but instead catered to a long-standing need for better service, increased transparency, and more flexibility during the closing process for buyers, sellers, and borrowers.
Since there is so much software on the market that was retrofitted for the title and escrow process during this period of unprecedented demand, it’s easy to see this dependence on technology as a temporary inconvenience and to anticipate returning to standard operating procedures once it passes. But lending—and the real estate industry more broadly—is one of the few remaining service industries that was never forced to innovate with technology. So, you’re better off planning to adapt instead of negating the progress that has been made in recent months in favor of inefficient, risk-prone, and old-fashioned operations.
Why Should Lenders Partner with Digital Title Companies?
Even prior to the pandemic, consumer purchasing trends were becoming increasingly mobile and digital. Even in-store purchases are now facilitated by consumer spending apps such as Apple Pay, Samsung Pay, Venmo, and PayPal. Trends in this direction demonstrate that people crave simplicity and convenience, and they show no issue purchasing big-ticket items—from mattresses to luxury vehicles to homes—online, and even sight-unseen.
Digital title companies built to operate securely and remotely will lead the industry forward. Traditional title companies that recognize the vast demand for these services and partner with existing providers to streamline and modernize their own pro-cesses will follow closely. Those that wait for things to return to “normal” and continue to rely on antiquated workflows will fall behind.