During the dot-com boom of the late 1990s, the mortgage industry was abuzz with the idea that borrowers might one day “buy a house at the click of a mouse.” In spite of huge advancements in technology, however, the digital mortgage remains an elusive goal.
That being said, there has been a tremendous amount of progress toward digital mortgages over the past twenty years. There are just a few remaining hurdles.
Lack of Consistency
For digital mortgages to work, every participant in the mortgage process—borrowers, originators, third-party providers, warehouse lenders, investors and servicers—must be able to do business together digitally. That means every piece in the mortgage process, from disclosures to notarizations, recordings and investor delivery must all be performed digitally. The vast majority of participants today haven’t figured out how to do that yet, so these different links in the mortgage chain are separated.
For example, electronic notes, or eNotes, are a key component to digital mortgages, as they allow mortgage notes to be created and stored digitally. However, according to a recent survey of lenders by the GSEs, only a handful of warehouse lenders allow eNotes, which severely limits the amount of available warehouse funds for digital mortgages.
Not All Investors are Ready, Either
The groundwork for digital mortgages was set years ago by the passage of the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN), which made electronic transactions legal. ESIGN also legalized electronically signed notarizations. Today, consumers can pay bills, apply for credit and invest in the stock market electronically, thanks to these laws.
Yet, in addition to warehouse lenders, other major entities critical to mortgage originations still aren’t on board with eNotes, either. For example, Fannie Mae and Freddie Mac allow eNotes, but other mortgage investors do not – borrowers must still sign their closing documents in person and in ink.
The Cost Factor
In theory, digital mortgages are less costly for lenders, because they enable faster transactions, fewer manual processes and less paper. Yet most lenders work with borrowers and other third parties that are not ready or able to do business in a digital environment.
Therefore, a lender that wants to create digital mortgages seems to have two options: go fully digital and abandon customers and partners that are not ready, or adopt some digital mortgage processes while continuing to do other things the old-fashioned way. Either choice would be costly, one way or another—so many lenders choose to wait.
Fortunately, a growing number of mortgage processes have become digital in recent years, including the once-labor intensive work of lien release tracking, title searches, document preparation and other services. However, not all providers are the same, so it pays to research vendors that most lenders, servicers and settlement service providers choose to handle their recording and document work.
According to a recent survey by Fannie Mae, more than half of U.S. homebuyers are now shopping for mortgages online. As online commerce in general continues to accelerate, it’s only a matter of time until digital mortgages will become a reality. Given the pace of recent innovations, that future could come sooner than we think.
