Brian Webster From NotaryCam: Transforming Home Equity Lending–Why Mortgage Lenders Should Embrace eClosings

Brian Webster is the president of NotaryCam, a Stewart company and leading remote online notarization (RON) provider for real estate and legal transactions. Reach him at brian.webster@notarycom.com.

Home equity lending is back. According to the Mortgage Bankers Association’s Home Equity Lending Study, originations of open-ended Home Equity Lines of Credit and closed-end home equity loans increased by 50% in 2022 compared to 2020.

With 62% of homeowners currently possessing a sub-4% interest rate, the surge in home equity lending as a means of tapping into home equity, as opposed to refinancing, makes a tremendous amount of sense. Additionally, homeowners have accumulated nearly $30 trillion in real estate equity, marking significant growth opportunities for home equity lending.

While these loans have typically been the purview of depository lenders, independent mortgage bankers (IMBs) have begun adding these products to capitalize on homeowners’ abundance of equity amidst depressed purchase volume. At the same time, lenders are incredibly concerned with the rising cost to originate, which peaked at $13,171 per loan in Q1 2023 and remains well above the $10,000 mark. Given the impact digital offerings have on lenders’ per-loan origination costs and the unique characteristics home equity transactions possess, lenders should strongly consider adopting eClosings for this subset of their loan production.

The Digital Transformation

Digital transformation has significantly revolutionized the mortgage industry, streamlining and enhancing the mortgage process. One of the critical aspects of this transformation is the adoption of digital platforms and technologies that allow for more efficient and streamlined communication, document handling and transaction processing. Online platforms are crucial in expediting pre-approval, document submission, verification processes and mortgage closings. Electronic signatures and digital notarization have notably expedited the approval and closing stages, reducing the time and effort traditionally required for paperwork.

Furthermore, the digital transformation has led to better integration and collaboration among stakeholders in the mortgage process. This synergy results in a more cohesive and efficient mortgage ecosystem. Overall, the digital transformation in the mortgage industry is reshaping the landscape, making the process faster, more accessible and customer-centric.

Of course, one cannot ignore the impact of digital mortgage technology on the cost to originate. Freddie Mac found that lenders with higher utilization of digital tools:

• Reduce their per-loan production costs by $2,200;
• Cut their production cycle times by five days; and
• Gain an extra percentage point of margin over their less tech-savvy counterparts.

All this adds up to a potential $3.2 million in incremental revenue over the course of a year.

Starting the Journey

For many lenders, embarking on a total digital mortgage transformation can be a significant undertaking. Yet, every transformative journey begins with a single step, even if it’s filled with twists, turns and occasional setbacks. While each lender’s digital transformation journey may be unique, the best approach is to progress one step at a time. Notably, many of these steps have already been taken.

One of the significant hurdles in the digital transformation process is the adoption of Remote Online Notarizations (RON) and eClosings. The stumbling block is that many lenders perceive RON and eClosings as an “all or nothing” implementation. However, like any journey, this transformation requires incremental progress.

A Practical Starting Point

Mortgage lenders can easily adopt RON and eClosings by beginning with non-purchase transactions, such as home equity transactions. Compared to purchase transactions, home equity loans are far less complicated, making the transition from paper-based closings to eClosings much simpler. In addition, home equity transactions involve far fewer parties outside the lender, such as real estate and/or settlement agents, reducing many of the friction points lenders encounter when moving to eClosings for purchase transactions.

By taking this measured approach, lenders can gain experience and build confidence in the RON and eClosing processes. Starting with home equity transactions allows lenders to determine their best practices before extending these processes to their full range of transaction types. Every journey commences with a single step, and that first step can be the most challenging. Fortunately, lenders don’t have to take this step alone. RON and eClosing providers have already paved the way for adoption and are poised to guide lenders on their implementation journey.

(Views expressed in this article do not necessarily reflect policies 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 Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)