This piece originally appeared in the June 2023 edition of MortgagePoint magazine, online now.
It took longer than expected to gain traction, but there is little doubt that digital closings are on the way to becoming the preferred form of settlement for the majority of mortgage lenders.
Although many felt the pandemic-fueled boost to the remote online notarization (RON) element of digital closings would drive an even faster adoption rate, a combination of barriers, regulatory and market driven, has moderately tempered expectations of a rapid, full adoption. That being said, at a time when mortgage businesses are seeking improved cost efficiencies across the board, the digital closing has become a priority.
The Numbers Don’t Lie
There are a number of convincing reasons for lenders to make the leap to some level of digital closing.
A recent Notarize survey, conducted through MarketWise Advisors, indicated that lenders can save up to $444 per loan, and title agents up to $100 per loan utilizing RON.
So, it is no surprise to learn that an increasing number of mortgage lenders are making digital closings a priority in their expenditures, in spite of unfavorable market conditions.
In fact, 87% of those surveyed by Notarize indicated that they believe eClosings may help close more loans with the same or fewer staff.
A SimpleNexus survey conducted through Celent in 2022 reported that one in seven lenders perform some sort of eClosing, and that in the next year, 41% of those surveyed plan to implement digital eClosing technology.
The time savings are also undeniable. A MarketWise survey reported that lenders using a hybrid eClosing processing realized a 99-minute reduction per loan. Lenders utilizing a full eClosing, including online notarization, saved an average of 157 minutes per transaction.
Overall, the same lenders indicated that digital closings had saved them up to seven days in the processing and funding cycle, as well as decreasing their cost per loan by a total of $174.
It is clear to see that mortgage lenders have gotten the message … there is a stronger movement toward some level of digital closings.
However, not everyone evolves at the same pace during periods of rapid adoption of new technology. In many ways, it’s still the wild, wild West out there when it comes to determining which potential RON and eClosing partners can get the job done well, which can do a satisfactory job, and who out there have no business at all promoting themselves as digital closing or RON partners.
The Next Big Challenge for Lenders
Because digital closings don’t have a tremendously lengthy history in terms of actual performance, lenders need to be thorough in their vetting process. There is no service provider who can claim to have been doing RON or digital closings for 30 years, for example. If anything, more than a few title and closing firms will claim an expertise in services they simply outsource or partner to produce.
When it comes to closings and other settlement services, that’s usually a reliable path. But there isn’t nearly the number of digital closing technology providers or electronic notarization platforms available that there are for more established, traditional services. The lender needs to be aware of this, and the vetting process should be a comprehensive one.
It starts with the title agency. Title agents already understand that digital closings and RONs are the wave of the future, and that future begins now. Some have already invested a great deal of time and effort to understand the nuances of RON and the digital closing, and have performed a substantial number of digital transactions. It’s also all-too-easy for an owner who may be scrambling for new lines of revenue, to quickly onboard a RON provider or make a splash about a new digital-friendly lending partner. Many times, the digital capabilities they claim are superficial at best. Beware of these “fake-it-‘til-you-make-it” providers. How many RONs or eClosing transactions have they performed in the market you are seeking to serve? How many on their staff have extensive training and experience managing digital closings? If they claim to provide RON services, do they only provide a notarial experience, or a comprehensive closing service? The difference could impact the customer experience and the cost/time savings a lender otherwise hoped to achieve by adopting digital closings.
Lenders also need to go beyond the title or closing firm they are considering to spearhead their digital closing experience. Even the most experienced title agents need to rely on third- or fourth-party providers for their technology or other elements of a typical digital closing process.
So, who are those partners? How many digital closings or RON transactions have they performed? What kind of technology is being used? Is the lender’s client data secure while in the hands of those fourth-party providers, and what types of protocols do they employ to ensure data security?
The Vetting and Selection Process
These questions should also be asked of the closing or title business to which a lender assigns its digital closings. Do they understand the current regulatory and legal landscape in the markets where the digital closings will be performed? This is critical, as the rules are currently changing at an accelerated pace. What, if anything, are they doing to keep abreast of that regulatory landscape?
The partner’s technology also needs to align with a lender’s own workflow processes and platforms for the digital closing partnership in order to succeed. How does a potential partner’s process fit with the lender’s LOS or post-closing process? More importantly, does the potential digital closing provider use technology or have a plan to remain “future proof?”
The standard for digital closings today is only likely to rise and evolve—and quickly. Just as a lender seeks to avoid investing in an LOS that will be obsolete three or four years after the investment is made, a digital closing partner that is planning to stay on top of change is a much more attractive option.
Finally, keep in mind that the digital closing field is still in its infancy. As such, there are various pricing models in play. Whether the service or technology is billed per file, via subscription, installation fee or the like, be sure of who will be billing you, when they will be billing you, and exactly how much they will be billing you. You may see invoices from the provider, program, or platform (or all of them).
Don’t allow yourself to be surprised—it will impact your ROI if you don’t account for it in the first place.
The digital revolution within the mortgage industry is quickly moving from LOS and POS technologies to digital closings. The fact that lenders continue to invest in closing technologies and relationships in spite of a down market can attest to that. Service providers in the closing space are also racing to meet this increased need, but lenders need to do their due diligence to ensure that they are not partnering with someone who has cut corners to get there.