Aaron Davis and Jonathan Kearns: Making the Case for Universal eClosings
Aaron Davis is CEO of AMD Enterprises, a conglomerate of mortgage, title, technology and eClosing ventures which includes Florida Agency Network, Premier Data Services and Network Transaction Solutions. He is also a frequent speaker at title and mortgage industry conferences and seminars, and often serves as a contributing author or expert source to numerous trade publications on issues pertinent to title and mortgage executives. You can reach him at firstname.lastname@example.org.
Jonathan Kearns is MISMO’s Vice President of Technology. Recognized as a thought leader in the mortgage technology space, he has substantial experience developing technology and product strategy, including over a decade of experience with electronic signatures, eVault’s and the eClosing process. Previously, he was Senior Vice President of Technology at DocMagic Inc., where he was responsible for its digital mortgage platforms.
As we emerge from two years of the pandemic, a new reality is clear: it is getting easier to conduct digital closings, thanks to improving technology and an increased awareness of the possibilities. Many of the outdated laws hampering the widespread adoption of digital closings have been all but swept off the books, removing another critical barrier to eClosing adoption.
In fact, a 2021 American Land Title Association survey indicated 46% of the title agents responding offered digital closings in 2021. That was a substantial increase from the 14% that offered them prior to the pandemic.
And yet, in spite of this progress, the mortgage industry today still performs over 50% of its closings in person, manually. Nonetheless, the arrow is still pointing up for the nearly universal adoption of the digital closing process. And there are many convincing reasons to expect it to accelerate.
A primer on digital closings, eClosings and RON
First, a brief primer on several commonly used terms which actually have distinct and differing meanings. Although many use the terms “digital closing” and “eClosing” interchangeably, an eClosing, or full eClosing is one of two types of digital closings (the other is a “hybrid closing”). An eClosing is the act of closing a mortgage loan electronically. This occurs through a secure environment(s) where one or more required closing documents are accessed, presented, and signed electronically.
In a hybrid closing part of the process remains manual. MISMO defines a hybrid eClosing process as a signing process for documents in the mortgage industry in which certain documents are printed and signed on paper while other documents are signed electronically. So parts of the loan documentation will be signed and notarized in person, in ink. The process is accelerated by the digital production and transfer of the loan package, but an in-person closing (albeit, typically a shorter process) is still usually required.
Finally, remote online notarization (RON), while part of an eClosing, is a notarial act performed by means of an electronic device or process that allows a notary public and a principal, who is not in the same physical location as the notary public, to complete a notarial act and communicate with each other simultaneously by sight and sound. While RON is a critical component of a full eClosing, it does not, in and of itself, make up a full eClosing.
The status of eClosing adoption
In mid-2022 there should be no going back to manual, in-person closings on a wide scale. If anything, as mortgage origination volume begins to decline, and the impact of The Great Resignation begins to impact our industry, the trend toward digitization on all fronts will likely grow. That trend will probably include a wider adoption of digital closings. According to an independent study by MarketWise Advisors, working with users of the Notarize RON platform, 87% of the title professionals surveyed indicated they believe eClosings may help close more loans at existing or even decreased levels of staff.
Some of the critical barriers to eClosings, especially remote and online notarization, are also being pulled down, easing the path toward adoption. Today, at least 40 states authorize some form of RON, whether by law or emergency action.
The case for eClosing adoption: Cost savings for lenders
While it appears to be less difficult to adopt eClosings on many levels, there is still significant hesitation about fully embracing and adopting the process throughout the industry. While there could be several reasons for this, undoubtedly the expense and initial investment are part of that hesitation. And yet, there are many reasons to believe that the adoption and implementation of digital closing technology can lead to very real long term savings.
According to the MarketWise survey, lenders using a hybrid eClosing process realized a 99 minute reduction per loan. Lenders using a full eClosing, including online notarization, saved 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 $174.
Fully eClosed loans can also reduce funding time during post-closing to secondary market. Some accounts suggest additional time savings at the warehouse lending level up to 60% from traditionally-closed loans. At a time when margin compression and time-to-close remain real challenges to lenders, the time and cost savings likely to be realized by the adoption of digital closing technology is real and substantial.
The case for eClosings: service provider benefits
The mortgage transaction is anything but a single party affair, and the efficiency and productivity of the third party providers, such as title agencies and closing companies, impacts the entire transaction and all involved. To that end, the use of digital closing technology has revealed real time and cost savings for title companies, too.
Title agents using digital closing technology indicated that they had saved up to 104 minutes per file. They further reported that they experienced improved lender communication, increased loan quality, the elimination of paper and shipping costs and a 31% reduction in errors such as lost documents or missed signatures and the resulting rework necessary to cure those defects.
eClosings can facilitate improved CX
Finally, the case can be made that digital closings facilitate improved customer service and CX. In addition to the improved time to close, the reduction of errors and the elimination of significant costs, digital closing processes—especially RON—meet the consumer on his or her terms with regard to convenience. Closing documents provided well in advance of the scheduled closing because of digital closing technology empower better understanding by the signer, in contrast to the consumer who sees the closing documents days or hours before closing for the first time. Moreover, the elimination of manual processes and tasks at any level of the transaction enable a business to reallocate its employees to more meaningful and complex tasks, such as customer service or sales-oriented duties.
A lot of progress has been made in the battle to smooth the migration path toward universal digital closings. However, manual or traditional closings are still in the majority. And yet it is highly likely that, in short order, we will begin to see greater transformation, and an even more rapid adoption of the eClosing.