Brian D. Pannell: Paradigm Shift

Brian D. Pannell, Chief eServices Executive with DocMagic, Torrance, Calif., examines key changes the mortgage industry has seen over the past year. In this role, he has managerial responsibility for all post-sales activities for customers who are adding eMortgage (eSign, eNotary, and eVault) as well as Post-Closing (MERS eRegistry) technologies and efficiencies to their business models. With extensive experience in the evolution of eMortgage solutions, Brian has initiated industry-leading implementation processes for DocMagic’s entire suite of eSolutions.

What a difference a year makes. A year ago, many lenders in the mortgage industry were still inching their way toward an electronic closing. Now, after facing an unexpected pandemic, most lenders realize that paper-intensive processes are outdated and they are clamoring for some form of digital transformation.  

Looking back to an industry-wide survey of lenders that DocMagic conducted near the end of 2019, the contrasts to today are stark. Lenders’ pre-COVID attitudes toward digital readiness have shifted dramatically compared with what we know now, after 10 months of a deeply shifted post-pandemic mindset.

Here are some paradigm shifts I witnessed in the mortgage industry from last year to now:

Lenders had been hesitant to overhaul their existing systems, preferring to cobble together a solution that fit into their current infrastructure. They no longer have that mindset.

In 2019: The reason you saw lenders using so many disparate software applications was because they’d been leery of upsetting their existing workflow. The mentality was, “I’d rather stick with what works than worry about trying to improve it.” So instead of upending legacy systems—loan origination systems, in particular—to create a more streamlined process with a single software provider, many lenders simply cobbled together solutions that fit into their existing infrastructure, despite the fact that multiple integrations like this are far costlier than using a single-source provider.

Today: A company’s long-term product strategy may have been developed over years of experience—but can it be expanded in months?Some of the ways that lenders have been operating are now being challenged. So, how quickly can you pivot to something else? Because if lenders can’t pivot, they may find themselves left behind.

Analysis: In 2019 we asked lenders to name their biggest challenge to adopting a digital mortgage strategy, survey respondents’ top answer was system integration (48%). When it came to updating their mortgage processes, many lenders had been content to move slowly, believing they could take their time to modernize their systems. However, as borrowers’ pandemic-driven preferences have shifted toward demanding more options for remote closings and notarizations, and as more lenders recognize the benefits of going digital—among them increased accuracy and speed, enhanced compliance, and a higher return on investment—lenders are realizing that they need paperless processes sooner rather than later.

For many lenders, investor interest in fully digital mortgages was still low enough that it wasn’t worth the cost to install new systems. That’s no longer the case.  

In 2019: The upfront cost of upgrading systems didn’t make sense if you didn’t have the volume. Organizations interested in implementing a digital mortgage process would raise a lot of questions with regards to, how do I get paid, how do I get funded, who am I going to sell my loans to? There was often a concern about generating the savings per loan to pay for the cost to install these systems.

Today: We’ve heard for a long time that Ginnie Mae and the Federal Home Loan Banks were on the cusp of accepting eNotes; they both began doing so in 2020. The fact that both are now accepting eNotes is crucial because it introduced a whole new level of participants to the eNote world. Between the FHL Banks and Ginnie Mae, there are a lot of advancements in the ability to make those eNotes saleable. 2020 was the year of the eNote.

Analysis: The foundation of a 100% paperless mortgage is the electronic promissory note. While eNote registrations were steadily on the rise before the pandemic, in 2020 they reached their tipping point, boasting almost 463,000 registrations—a 264% increase over the previous year. One key reason for this jump is the fact that, after years of planning, Ginnie Mae and the 11-member FHL Banks system finally joined Fannie Mae and Freddie Mac and began accepting eNotes as collateral. The impact on the mortgage industry can’t be overstated: With these two major players on board, the pool of investors willing to buy digitized mortgages has vastly increased.

Additionally, along with this greater acceptance of eNotes, there has been a corresponding increase in eWarehouse lenders—which has also been critical to increased adoption of digital mortgages.

Prior to COVID-19, many lenders’ primary focus, as it related to digital mortgage decisions, was to improve the customer experience. Now, lenders are focused on meeting borrowers’ vastly changed risk tolerance.

In 2019: As far as what moves lenders to go digital, of the organizations we surveyed, the prime motivator was to improve the customer experience, with 86% of respondents citing this as a reason for adopting new software. This was followed closely by the desire to reduce errors (85%) and improve security (83%).

Today: As we continue to find ourselves within a pandemic-operating environment, borrowers’ risk tolerance must increasingly be taken into consideration. The borrower has a new risk tolerance for in-person contact nowadays, and lenders need to be able to execute on that from borrower to borrower. A lot of people have a very low tolerance, especially folks who are high-risk. They’re not going to tolerate putting themselves and their families in a situation where they need to leave the house and go to another location to execute an in-person closing. As an industry, we need to reduce the amount of in-person contact that’s occurring.

Analysis: Before the pandemic, lenders’ primary reason for offering eClosings was to improve the customer experience. That’s still true, but whereas before COVID-19 lenders provided electronic mortgages as an optional convenience, now they have become a necessity. Borrowers want more eClosing options, whether hybrid or 100% paperless, both for their safety and because pandemic restrictions have made people less mobile. If an eClosing is the only process borrowers will accept, lenders don’t have any choice but to give borrowers the experience they demand.

Some states were still on the fence about remote notarization a year ago, but the overwhelming majority are now allowing it—in some form.

In 2019: When I went to North Carolina and spoke to closing attorneys, they told me there would never be remote online notarization (RON) in N.C. The reason? They wouldn’t know who the notary was at that point and they wanted to have the notary there. It also made sense because they didn’t want their business to come from outside the state.

Today: As the pandemic hit and as jurisdictions were making adjustments to allow for and minimize in-person contact, they had to come up with new ideas for notarization. In response, concepts like remote ink-signed notarization (RIN), or online in-person eNotarization (IPEN) were introduced. The advent and the necessity of coming up with unique ways to execute on any notarization came into play because there simply wasn’t enough time to push through all of the regulatory concerns and considerations associated with RON and to make it more mainstream. Some states were able to accomplish it, but others had to make accommodations in order to support it. Looking ahead, if 2020 was the year of the eNote, 2021 could very well be the year of RON.

Analysis: Due to the pandemic and social distancing guidelines, states have welcomed all forms of remote notarization, including RON. Almost every state now allows some form of remote notarization, mostly via temporary emergency orders passed in response to COVID-19. These methods include RON or lower-tech alternatives such as RIN, online IPEN, or PRON (paper remote online notarization).

In addition to the spate of temporary orders, permanent RON laws also saw an increase this year, with an additional seven states jumping on board to bring the nationwide total to 29. North Carolina also made RON legal—albeit via a temporary law that’s currently set to expire on March 1, 2021. Still, it’s a once-unthinkable turnaround for a state where closing attorneys swore only a year ago that RON would never be allowed.

Leading up to this point a lot of lenders had been trying to convince themselves to make the switch to eMortgages, but there was no definitive tipping point. Now you have a pandemic. There’s your tipping point.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)