While the federal eSIGN legislation was passed 20 years ago and the industry has made significant strides toward completely paperless transactions in the intervening years, some hurdles remain in the way of fully electronic transactions. But what are those hurdles and how can they be overcome?
During The eClosing Roller Coaster session at the National Settlement Services Summit, Bill Burding, executive vice president, general counsel, Orange Coast Title, and Tim Anderson, president of eMortgage strategy, eVolve Mortgage Services, shed some light on the current state of the eMortgage world.
Forward momentum
Anderson started the session by noting that the pandemic drove significant adoption of eTransactions, though maybe not at the pace he would have liked. However, it has caused people to change and adapt to a more eEnvironment.
He stated that in a recent Qualia study, 62 percent of homebuyers wanted a fully digital closing, yet only 13 percent were engaged in it. He said about 85 percent of transactions begin electronic and consumers are predisposed to electronic transactions.
Anderson also pointed out that at least 37 states have adopted remote online notarization (RON) statutes.
“The whole issue is even though the state might adopt a RON statute, that doesn’t mean the counties will,” he said. “That is one of the issues with adoption is you still have this patchwork of [laws and regulations]. If I’m a national lender or title company, where can I actually offer an eMortgage and be certain its going to be accepted at a county level?”
He noted that 87 percent of county recorders currently do eRecordings, which is huge adoption. The next step is to get them educated on accepting eNotary.
But the numbers are promising. Anderson said that two years ago, we had about 15,000 eNote transactions a month. Now there are about 50,000 a month. This was due in part to the needs during the pandemic, but also the fact that last year Ginnie Mae started accepting eNotes for FHA and VA loans, and other investors like the Federal Home Loan Banks started accepting them as well. Now most of the lenders that are selling to mainstream investors will accept eNotes, which Anderson said will create an uptick as well.
Regulatory uncertainty
While the desire and the momentum are there, there are still hurdles to adoption. One of the biggest hurdles is the current hodge podge of regulations across the country. Burding noted there are states like his home state of California where a bill has been introduced but is unlikely to pass. Other states haven’t addressed it and in states that have adopted legislation, the regulations vary widely. This prevents lenders and the secondary market from feeling comfortable from doing an entirely eTransaction. They don’t know if they can sell the loan on the secondary market. He pointed out the numerous lawsuits against MERS where borrowers were contesting MERS’ ability to foreclose on mortgages. Lenders don’t want to be put in that position again.
“There are some states that have very good RON statutes,” Burding said. “The ones I always call out: Texas has done a really good job; Nevada has done a phenomenal job; Montana has done a phenomenal job. And then there are the ones that haven’t. and those are the ones that really are a problem. They don’t even have the basic minimum standards and you need to have those basic minimum standards for lenders to feel comfortable.”
He said that with the different laws and different regulations, and even the hesitancy of clerks and recorders in various jurisdictions to accepting them, he and others at ALTA believe the only way to get clarity is to get federal legislation adopted. He noted that for the second year in a row the SECURE Act has been introduced in Congress, and currently has 75 co-signers from both sides of the aisle.
“If we can get the SECURE Act passed, what that will do is it will provide for a basic minimum standard that will allow for true eClosings,” Burding said. “I think that when this passes, we are looking at a true game changer. I think that when this passes, lenders will feel a lot more comfortable about doing true online transactions and I really believe this is going to make an enormous difference in really moving us [forward].”
Burding said it was likely the SECURE Act would pass before the end of the second quarter 2022 and encouraged attendees to take steps now to be ready when it does.
“Get signed up with those who you want to get signed up with, because if you wait until the bill passes, good luck getting your contracts done,” he said. “Get signed up with them now, take care of it now. IT is going to happen. We have a true bipartisan bill. Lets get it signed, lets get moving on it.”
He said it would be very hard for agencies that wait to get contracts signed with the companies they wish to work with.
Practical issues
There are some more practical issues that also prevent the industry from moving forward with “e,” the first being the sheer volume of business the industry has done in the past year or more.
“Its not a question of will or [whether] they want [to do it],” Anderson said. “It gets down to when we are that busy, who has the time to actually set-up and sign somebody up, to actually help them get started. A lot of people don’t know the “e” piece of it. What are the components of “e” and that is the problem.”
There is also a lot of coordination that has to happen between the title agent, the lender, the broker, the loan officer, and there can be some resistance, Anderson said. And of course, which party is going to take the lead in driving the move to “e.”
He said another issue to overcome is knowing when and where an eTransaction is able to be done. Lenders may not know at time of application whether they can offer an eMortgage or not, whether the county will accept an eMortgage. He said this is an area where attendees can get involved.
“I want to be ready for that business, to be able to have an eClosing because there is business to be had,” Anderson said. “Lenders are looking for top companies and notaries that can accept it and they have no good way to find that today. Databases are out there, but if you are one of the first to solve those two things, you can begin to lock in eMortgage business and process at time of application; You know where it can happen and who can actually close it. That is where lenders can drive title, at least referral, because if you are an agent that can do eCLosings, and you are in this database… you are going to get referral at time of application. That’s how the lender can drive that business.”
The robo-signing issues of the past have also caused some skepticism among county recorders and other government entities, Anderson noted. He said it is important to educate people that eSign is not the same thing and that it is secure.
Anderson also pointed out that many people say that consumers are not asking for eMortgages. He argued they are not going to ask for something they don’t know about, using the example of Steve Jobs and the iPhone. Its also a great way to set yourself apart from the competition, and opens you up to potential new markets if you are the first to offer.
He noted that, for instance, if a small town notary in Texas or Nevada has RON capabilities, they can now notarize a document across the state.
“I can literally be one shop in Dallas and close anywhere in Texas,” Anderson said. “Talk about a market opportunity. Go out and market that. What a great opportunity.”
He also gave the example of an attorney in an attorney state who can only schedule two closings because they have to be physically present. IF they can perform an eClosing, they can do ten times as much.