The last few years, and particularly the last several months, have seen an increase in eClosings. With the increase in eClosings, and changing landscape, many in the industry have questions. October Research LLC recently held a webinar to answer some of these questions. Two industry experts answered some additional questions here. Mark Ladd, vice president, regulatory and industry affairs, ICE Mortgage Technology, and Scott Gillen, senior vice president, national agents, Stewart Title Guaranty Co., answered some of those remaining questions here.
General questions
Consumer surveys by NAR and others suggest that buyers and borrowers continue to cite the closing experience as the most intimidating part of the transaction and, thus, the area where they most appreciate in-person hand holding. What are the concrete steps lenders and settlement agents can take to prepare consumers for eClosings?
Gillen-Realtors started digitizing sales contracts and other paperwork many years ago, leveraging tools like DocuSign and the like. Lenders started in earnest to digitize the front end of the consumer experience, starting initially with the electronic signing of initial disclosures like the loan estimate brought about by Dodd-Frank. This process migrated to the digitization of the consumer experience during the origination phases of the mortgage process, leveraging point of sale applications to take loan applications, electronically verify income, assets and employment to simplify the document procurement process. These POS systems further allowed for digital document submission and upload of remaining necessary documentation, allowed for seamless communication through mobile apps and websites and ultimately created a digital origination process through up and until closing. In essence, this created a digital expectation from the consumer, which failed to flow all the way through to closing.
The last part necessary to fulfill a fully digital closing is the closing process, but lenders and title companies should consider the following.
The lender should:
- Determine the platform they wish to leverage to support hybrid, full and RON closings;
- Determine if their document provider can provide digital/tagged document for execution;
- Obtain MERS eRegistry and GSE approvals as necessary;
- Discuss and obtain approval from correspondents;
- Obtain approval from warehouse banks;
- Ensure C-suite endorsement;
- Ensure internal buy-in from the secondary market, operations and production sales peers;
- Determine operational and sales rollout plan to ensure successful deployment; and
- Discuss and market externally with referral partners.
Title companies should:
- Deploy eClosing platforms for pre-closing processes;
- Determine a platform for support transactions that title controls (cash, sales-side transactions, individual documents);
- Make decisions relative to outsourcing to RON notary vendors versus internal escrow officer training;
- Review SOS requirements around eNotary certification requirements and identify an internal team to obtain certification and necessary training;
- Operationalize RON on a small basis for transactions title companies can control;
- Determine operational and sales rollout plans to ensure successful deployment; and
- Discuss and market externally with referral partners.
To hear more answers to your questions, listen to our webinar here.
Has any third-party borrower satisfaction survey data been posted or published showing borrower experience with an attitude toward electronic closings?
Gillen- We have done CSAT scoring and found very favorable responses from consumers where digital technologies are leveraged and both hybrid and RON solutions are used to support closing process choice. The CSAT scores for electronic closings have trended higher than the CSAT scores for paper closings.
How can independent agencies make sure we stay on a level playing field with our direct operations competitors when it comes to eClosings?
Gillen- From my experience, independent agents tend to be more nimble and creative than their direct operations counterparts. Their ability to deploy technology, train staff and operationalize without the large infrastructure and training needs of a larger, underwriter-owned shop give them that advantage. If we take a look at the lender side for comparison, it’s the non-bank independents that have successfully deployed digital technologies for consumers, not the large depositories for the same reasons.
Ladd- Be the expert on your local market. This includes understanding the process for becoming an eNotary or a RON notary. Most states are requiring an eNotary or RON specific commission. Knowing what the requirements for your state are is critical.
Lenders
There are a few lenders that are allowing eClosings (hybrid), but for the most part most of the lenders are still “paper” lenders requiring “wet” signatures on all documents. Do you have a realistic timeline when loans will truly be closed electronically including an eSigned note and RON?
Gillen- Lenders are slowly getting on board, but cannot mandate a consumer close electronically. That being said, the financial incentives for the lender are there and the overall process is more efficient for all parties. While putting any timeline out there is purely speculative, I’d certainly expect to see double digit percentages in early- to mid-2021 with continued expansion over the next 36 months.
Ladd- The industry is still doing a lot of learning, but there are more hybrid closings happening all the time. As the pandemic related emergency orders become full-fledged enabling legislation, you will see lenders move more confidentiality into this space.
Why are lenders not taking our online notary documents when it is legal in Florida? We have a virus out there and don’t need customers in our office.
Gillen- Lenders must ensure their loans are salable and some investors are not comfortable with RON closings. While fully legal if the lender is not comfortable with the salability of the loan, they will not close in that manner. This typically will only apply to the lender documents and should not affect the seller-side documents.
Ladd- There are a number of factors in this equation. Is the transaction being underwritten by an insurer who will insure a RON transaction? Will the county record a document that was performed in a RON environment? Having discussions with your underwriting counsel and with your county recorder are important steps to take to get everyone on board with these new laws and technology developments.
Who is really driving demand and adoption—lenders or title companies—as a competitive market differentiator and advantage?
Gillen-Lenders ultimately will drive adoption in my opinion. That being said, title companies can do their part by digitizing their operations, from pre-closing processes to the transactions they can control, like cash and seller-side transactions. Many title companies get caught up in lender adoption and haven’t even done all they can do internally with the transactions they can control. The lenders will come and are expanding. The numbers are beginning to reflect this now. In our case more than 92 percent of our RON transactions in 2019 were seller, cash and miscellaneous documents. So far in 2020, we are seeing that number drop below 90 percent as more lender transactions are happening.
One of the biggest hurdles I have come across so far is that lenders will generally say they do not allow eClosings or eSigned documents due to the investors. After looking further into this, I have found it is hard to get investors on board because there are no checks and balances in place when it comes to transferring these transactions between the lender and investor to ensure they were closed and sold correctly. What is being done to help ensure the lenders and investors the eClosing was done correctly?
Gillen-Industry and competitive pressures will ultimately change this dynamic. For 15 years, only FNMA and FHLMC would be eNotes. Now that GNMA is moving forward for those lenders who sell directly to the GSEs or securitize with GNMA, more than 80 percent of their originations will be eligible to use an eNote. The challenge lies more with the aggregators. Today there are 17 investors on the eNote registry, including large aggregators like Wells Fargo, Penny Mac and JPMorgan Chase. We will continue to see this expand, and I believe ultimately you will see premiums paid for loans closed with eNotes as it speeds up the delivery process and minimize post-closing risks, ultimately resulting in faster securitizations.
I’m especially interested in what lenders are saying about rumored changes at Fannie Mae and Freddie Mac to go to eSign and RON mortgages and notes. I am hearing they are pushing to get rid of wet-signed documents and are discussing charging lenders more for wet-signed notes. If that is the case, we need to be prepared.
Gillen- FNMA and FHLMC have supported eNote execution because of the efficiencies it provides to them in validating the note and speeding up securitization. Wet-signed notes likely won’t get eliminated, but I could see an incentive being offered up to close using an eNote.
Is there a way to partner with lenders in such a way that they also send purchase and business and convince their Realtors to use us? How do I get them to send us purchase business, not just refinances?
Gillen-Lenders would love nothing more than to have more control over their purchase transactions. I’ve never met a lender that loves the fact that they must validate tens of thousands of settlement agents annually. Keep in mind, in most states, consumers have a choice on whether to close, but are unaware of that. Realtors, for a variety of reasons, have traditionally controlled where loans are closed, and consumers typically aren’t aware of their right to choose. Ultimately lenders and their loan officers have to partner closely with their Realtor partners to sell the digital advantages to the consumers and ensure they have title partners willing to support those transactions.
eNotes/eVaults
If you are doing a full paperless eClosing, how are you handling getting the eNote implemented prior to closing?
Gillen- We need to remember, the vault is a lender need, not a title need. For a lender to get the capital markets benefits of digital closings, they must get to the eNote, which means they must pick a provider for the eNote, a platform to execute that eNote (as well as other documents) and a vault that will hold and transfer that note to the end investor. Title providers need to work closely with their lender partners to ensure they understand the platforms being used and have the necessary hardware and connectivity to execute the documents. This typically is nothing more than having a laptop, desktop or tablet in the closing room with internet connectivity to access the portal or platform necessary for the execution.
Is the lending industry close to incorporating the eNote and mandating their agents to be on the lenders’ digital platform?
Gillen-The number of lenders moving into eNotes is slowly expanding. As little as six months ago, there were only 40 or so lenders approved on the MERS eNote registry. As of the time of our presentation, there were more than 70 and according to MERS there are at least the same number in queue and growing. The launch of GNMA’s digital initiative as well as the FLHB’s initial rollout is giving lenders that have been on the sidelines the additional push to start the process. No lender can force a consumer to sign electronically, so a mandate is likely not the correct way to view this. Lenders will want to maximize the percentages of digital closings due to the financial incentives it provides. Title providers receive similar financial benefits and should look at it through that lens, not whether they will be mandated. It is largely a better process for all parties.
Regulations, standards and guidelines
In Indiana, witness proofing must now be done on all notarized documents and the secretary of states notary duties does not include language allowing for witness proofing so many underwriters are not allowing agents to do RONs. The Indiana Land Title Association and others have filed a lawsuit against the state. What are your thoughts?
Gillen-Effective July 1, 2020, the law changed to require both an acknowledgment (regular notarization) and a proof (disinterested witness and notarization—special language). All underwriters, and Indiana Bar Association, have been working to determine what “proof” means (not defined by the law), and the language form. It does require that the witness be disinterested and actually see the person sign the document. This does put all agents in a difficult position, as many have a single person closing office and, therefore, no one to act as the witness. Some are using the phone audio-visual capability to bring in the witness. If they are, then the original document must be witnessed, signed and notarized at a later time when the documents get to the witness.
RONS are being done, but the systems have to be able to join the witness to the actual closing.
The secretary of state notary duties does allow for the in-person notarization of the proof; but there is no language under the RON statute to allow for electronic or remote proof notarization.
ILTA did file a complaint and injunctions request to stay the effective date of the statute, but the injunction was denied.
Ladd- The situation in Indiana points to the absolutely vital importance of local relationships and local advocacy. It also highlights some of the difficulty in drafting legislation during a pandemic. The Property Records Industry Association (PRIA) has an initiative they call PRIA/Local. The idea is to get the various stakeholders together, on a regular, on-going basis to discuss practical production issues as well as legislative and regulatory topics. Having open channels of communication can improve everyone’s understanding of the various issues we face as an industry and how small changes in the rules can have a significant impact on the process.
When will RON come to California?
Ladd- California’s Secretary of State has expressed serious concerns regarding potential consumer harm related to RON. Add to that the length of time it takes to adopt administrative rules there and I think you have a timeline that is a couple of years away. So, while RON might be a solution to LA’s traffic problems, I don’t think we are going to see any permanent changes there for a while.
I’m in the state of Arizona. Are there any states wherein the lenders are doing complete RON closings and eSigned notes?
Gillen-We are seeing fully digital closings in more than 25 states, including quite a few in Arizona.
Ladd-Arizona is one of the states where there is pretty clear direction when it comes to eNotary and RON. And it is a great state for eRecording acceptance. I recommend talking to your lenders regarding the favorable scenario you have and if you can lead in this area. Remember to talk to the county recorders to be sure they are willing to accept RON executed documents.
Different states have different laws about eClosings. Can you tell me if there is a specific state that does not allow eClosings?
Gillen- There are states where recordability is a challenge. Massachusetts, Georgia, New Hampshire and New Jersey come to mind.
Ladd-Vermont would be difficult to do a full eClose, as they do not authorize eRecording, so you would still need to paper out the recordable documents.
For the states that have yet to pass statutes enabling greater amounts of eClosings or remote notarized closings, what is the range of months/years experts think it will take before all are fully enabled to fully eClose or RON-close loans?
Gillen- My best guess is three to four years.
Ladd-The key factor here is the length of the overall regulatory process. This includes getting enabling legislation adopted by the legislature and getting administrative rules adopted by the notary administrator (typically the secretary of state). Several of the current RON states have taken anywhere from one to three years to get all the way through the process. Some states permit temporary rules that allow folks to move forward more quickly, but that option isn’t available everywhere.
Many states have issued executive orders allowing for relaxation of statutes/requirements regarding remote closings and notarization. Because executive orders do not have the same effect as statutes, I’d like to hear more about the likelihood of those orders standing up—or not—against challenges to their enforceability by lawyers defending borrowers in bankruptcy and foreclosure.
Gillen- I think we all wonder the same. From an underwriter perspective, I can certainly share that we don’t believe that the executive order approved closing changes should extend beyond the pandemic. RON processes provide the protections and safeguards that make the underwriters comfortable insuring the transactions. Those same safeguards don’t exist for executive order-related transactions and should be viewed as a short-term solution only. Challenges will come, its inevitable. Having strong scripting and video retention certainly should help with those challenges, but ultimately, we will have to see how this plays out.
Ladd- I think the biggest problem that may be faced in the future is not whether the orders themselves hold up (notwithstanding the case in Michigan), but whether or not the basic ESIGN disclosures and consents were administered? Was the borrower fully informed of the type of transaction they were entering into? Did they clearly consent to engaging in that type of transaction? Was the disclosure and the consent properly archived? If the basics were properly covered, it would be more difficult for the borrower to claim the transaction is unenforceable. But if these basic steps were not properly performed, then things will get messier.
Out of state borrowers or foreign nationals
Are any states accepting RON done in a foreign country if done in compliance with that country’s laws?
Gillen-Not that I am aware of. We require the consumer to have a U.S. credit profile to complete RON. In some cases, title companies are using Virginia notaries since KBAs are not required under the Virginia RON statute.
I’m looking for solutions for U.S. citizens and foreign nationals overseas. It seems like these transactions can only be done on U.S. soil.
Gillen- That’s not true. As long as the signers have a U.S. credit profile and can pass KBAs, the signer could be on the moon. Location is not the issue, it’s the consumer’s ability to use the technology.
In which foreign countries, if any, is it illegal to have a customer who is participating in a RON transaction?
Gillen-None that I am aware of for a transaction on property in the United States. Again, keep in mind the things we are concerned with is the location of the property and the location and state where the notary is commissioned.
Vendors and providers
From a lender, how do you mitigate which title companies are ready and able? How do you know which providers to use?
Gillen-The only way to determine which title companies are ready is to reach out to them directly. I do know of some websites or other lists that exist, but I would not trust those at the transaction level. I’d suggest lenders survey their preferred agents to determine their readiness to support eClosings. Additionally, the lenders typically will have a preferred platform and most title companies would indicate a willingness to use the lender’s platform. However, you would need to contact them directly.
Potential problems
What issues are there with eNotarizations and eClosings that need to be resolved?
Gillen-As it relates to RON, I think ultimately the biggest issue is creating different technologies for consumer validation. KBAs are a tool and are highly successful, but using biometrics, multi-factor validation and other forward-thinking technologies would expand utilization.
What is the title industry doing to streamline and ensure they are closing eClosings correctly to avoid title claims in the future? I know of several stories of settlement agencies “jumping on the bandwagon” to be able to say they can do eClosings, but are returning packages to the lenders without the electronic part being completed with the lender, or closing VA/FHA loans in their notary system when Ginnie Mae is not yet set up for that. Also, I’ve heard of closing attorneys trying to have the VA security instrument eNotarized and eRecorded without two-part ID verification in our state. Yes, it is acceptable per the Virginia code, but not as far as Fannie and Freddie are concerned.
Gillen-Title companies absolutely must have the approval of their lenders to do eClosings. We have certainly had many agents reach out to us “attempting” to do their own eClosings on lender documents without approval. Lenders have to obtain the necessary approvals from their end investors, so any agent “jumping on the bandwagon” to try to provide digital capabilities without obtaining approval from the lender on lender documents is going to have to re-execute them.
Have eClosings really impacted the closing timeline? How? Are there lessons from the rush to online and hybrid notarization during the pandemic that we can build on to legitimately impact the timeframes to close?
Gillen- I don’t think digital closings change the timeline to close specifically. It changes the time it takes to close. Since many documents can be signed in advance (hybrids) and signatures can be affixed on all documents after review, the closing process can take 10 to 15 minutes, speeding up the time at the table.
PRIA talks about 87 percent of the U.S. population living in an eRecording county, but I keep hearing about eSigned documents being rejected by counties. What’s the real story with eRecording?
Gillen- We have seen very few rejections nationally. We require issuing office to confirm in advance the acceptability of the documents by the recording authority. I think as a best practice it would be advisable to make the consumer aware that should rejections occur, they confirm their willingness to wet-sign documents for correction purposes if necessary.
What percentage of RON transactions are either declined and/or fall out due to KBA or other issues?
Gillen- We see less than five percent of RON transactions fall out due to KBA or other issues.