A look at how eMortgages, electronic signatures and recordings will save time and money for title companies.
by Kim Weaver
With the refinance boom of the last two years slowing and the hectic pace returning to normal, title companies are looking more closely at how to serve their customers in an efficient manner while differentiating themselves by providing the best customer service. Complementing this personal-touch approach, technology has enabled title companies to streamline some processes in the complicated steps of transferring land ownership and keeping track of liens filed against real property, as well as the transfers of funds associated with these transactions. Even with small advances in technology, there is still a mountain of paperwork in most cases and ample opportunity for documents to get misplaced, lost, sent to various parties, rerouted, and so on. And there is a lot of information to obtain from various parties and to exchange among all the parties in the transaction, for both the title company and the lender.
With that in mind, let’s look at some of the current best practices used in the real estate finance industries to make the exchange of paper and information a little easier—vendor provider networks, electronic document sharing, document imaging repositories, centralized data, and expanded systems.
The advent of vendor provider networks have enabled lenders and other customers to send orders for title work and related services electronically to title companies, using either open exchange networks or a title company’s own proprietary Web-based ordering system. Most title companies now return the requested title product documents electronically, whether through direct e-mail, Web post, or the ordering system. Whether used per single document or with sophisticated copier/scanning machines, document imaging has also become commonplace for many companies. This enhances the ability to share documents quickly and easily, particularly if the system supports a good method to index the documents and allows the title company to quickly access the particular document they need.
As centralized document imaging repositories have become more popular, there has also been a rise in the use of centralized data, which is often available over Web-based systems. From the county land records office to the large title company to the smaller field office, through to the independent title examiner’s home office, data is more easily shared than ever before. Often centralized data is accessed as part of a transaction management system. These systems are evolving from supporting the distribution of information within a company to sharing that information electronically with the company’s external business partners. Besides the vendor provider networks and title ordering portals, there are expanded systems that increase the amount of information beyond the requesting and sharing of preliminary title work. Closing details, closing documents, and other information related to the transaction can now be easily shared with all the parties involved in the transaction. Improving the parties’ access to information—what they need, when they want it—also increases the best practice of all: exemplary customer service to all parties with a personal touch.
| Organizations Setting Data, Document, and
Process Standards for Electronic Mortgages
Where do eMortgages fit into this puzzle?
EMortgages build upon the technology enabling these current best practices of data and document sharing and extend it to the business processes of electronically closing a mortgage loan. Although there are many definitions of what “eMortgage” means that range from completely paperless loan origination through servicing to just performing parts of the overall process electronically, two main assumptions are common to most definitions. The first is that the process (whether it’s a particular step or the complete multistep process) is paperless. This means the documents are exchanged between the business partners electronically, signed electronically, and then “wrapped” with a computer-generated digital signature that can be verified to validate that no additional changes have been made to the document. The second assumption is that computer programs, without human intervention, can extract the information contained in the documents. This means the data is labeled with common data field labels (e.g. “Interest_Rate”), and therefore the data can be exchanged between systems electronically as a separate file or embedded within the document. The document becomes more than an image, and it also becomes a container to hold the data that can be passed from system to system.
Standards Advance the Process
To facilitate the eMortgage vision of automating processes through the use of documents as data exchange containers, industry groups like the Mortgage Bankers Association’s Mortgage Industry Standards and Maintenance Organization (MISMO), ALTA®, and the Property Records Industry Association (PRIA) have worked on data standards, document standards, and process standards. Data standards include identifying all the data fields used in a particular transaction, such as all the fields on a Note, and naming each of those data fields with industry-standard labels, for example “Interest_Rate.” Document standards describe how to create mortgage closing documents in a format that includes extractable data within the document, such as the SMART Doc standard published by MISMO. Using the data and document standards as building blocks, process standards describe processes for handling these electronic original documents, from ensuring adequate procedures to obtain the consumer’s E-Sign consent to electronically signing the documents, recording them in the land records, tracking who the owner of the original electronic document is and in what electronic vault it is kept, and many other processes. These process standards have been written by Standards and Procedures for Electronic Records and Signatures (SPeRS), MISMO, PRIA, and the Mortgage Electronic Registration System (MERS). This guidance takes the form of implementation guides each group has written. Almost all of these groups are volunteers; if you are interested in helping define these standards, you can find information on how to participate on each of their Web sites. See the sidebar article.
The technologies that enabled the creation of these data, document, and process standards include: 1) a computer language called eXtensible Markup Language (XML), 2) Internet-based data transmission and exchange, and 3) the use of digital certificates. XML makes the data exchange possible. It provides a way to label the data in the document so it can be read by computers and used in other systems without having a person rekey the data. A unique feature of XML is that it is also easily readable by human eyes, not just computers. Additionally, each piece of information is categorized using standard data labels as defined by that industry. All the data standards discussed above use XML. Exchanging information securely over the Internet, the second technology, allows companies to share information with whomever they want in a safe and controlled manner. Third, the security for Internet-based data transmission and exchange comes from the use of digital certificates. Digital certificates use cryptography to create a unique identity for the holder of the digital certificate, and the holder of the digital certificate (whether it is a person or a company) can then use that unique identity in the digital certificate to encrypt data, sign documents, and sign XML transmissions. The recipient of the digitally signed data, document, or XML message can verify who sent it, decrypt it if necessary, and check that the data, document, or XML message content has not changed from the time the sender signed it.
This technology is already being used to simplify certain parts of the loan origination process, including some title company best practices such as communicating with vendors more efficiently and ensuring secure sharing of sensitive information among different business partners. In addition, mortgage lenders have begun to move toward a datacentric approach. Now that the development of data sets for many parts of the loan transaction have been concluded or are close to being finalized, lenders are starting to ask title companies (and their technology vendors) to be able to receive and send data in the industry standard format.
“MISMO has seen extensive adoption in the front-end origination services, as business partners save time and money implementing industry-standard interfaces, rather than custom one-offs,” says Harry Gardner, senior director of industry technology at MBA. “We’re now seeing more MISMO transaction adoption through the rest of the mortgage process. On the eMortgage front, vendors and lenders are able to provide a form’s image (page) view and data in a single, immutable, electronically signed SMART Doc. This means that electronic documents can be transferred between multiple systems with no human intervention and no rekeying of data, and the data and document integrity can be automatically validated.” In addition, documents and information can be shared at the speed of the Internet—for example, lenders can deliver loans to their secondary market partners almost instantly.
Benefits to Title Companies
While the benefits of eMortgages are identifiable for lenders, what about the title companies and closing agents that will be requested to do business this way by their lender customers? What are the benefits, if any, to title companies? To answer this question, let’s look at some current title company challenges.
It’s fair to say eMortgages won’t change the traditional rush of closings scheduled for the end of the month. But the technology that enables eMortgages might bring relief to other burdens. One such problem is that most homebuyers don’t understand the value of the title search and title insurance. They just know they are required to obtain it for the lender, and most are too busy taking care of all the lender’s requested conditions to ask for a detailed explanation that would explain the value of the title work, not to mention that many borrowers never even see it until they receive their final Owner’s Policy (if they obtain one.) Another issue is that the closing agent, by virtue of coordinating the closing among all parties to the transaction, often becomes the focal point for the combined parties’ anxiety. Even the most diplomatic of closing agents can feel the burden of ensuring that everyone’s concerns are addressed in order to complete the transaction in a timely manner. A third issue is the backlog of final documents—recorded security instruments and final title policies—from the current refinancing boom. Creating the paper, even a short form title policy, forwarding it onto the lender, reminding the lender it is already in the returned closing package, etc., takes precious time. Fourth, the direction of RESPA reform and bundled services has left some smaller title companies wondering how to best compete in a possible world of prenegotiated package prices. Finally, the cyclical nature of the real estate industry also concerns title companies that may not be positioned to cross-sell other title-related services. And now, with lenders moving toward even more electronic processes, which always require some level of support by the title company and closing agent, the question becomes: How can the title company and closing agent benefit?
Remembering that eMortgage itself is a term with many definitions, we should also recall the main concepts of eMortgages: paperless electronic documents, a datacentric focus, Internet-based methods of sharing information with multiple business partners, and the use of digital certificates to identify business partners and validate original document content.
How it Works
Let’s begin with the title request. In fact, many title companies already use versions of the following processes. With the growing use of common data names and interconnection of different systems, title orders can be received directly into the title company’s system. This streamlines the data entry process and the communication with the lender regarding the status of the order. In addition, real estate data continues to become available over the Internet. Centralizing data leads to faster turnaround of title searches, and some systems can even automate the quality control review of a title report before it is sent to the lender. And by generating documents in an electronic format, they can be easily indexed, stored, and routed to the proper recipient, sometimes with automated delivery. Tracking the receipt of the title work is simpler, along with resending a copy when needed. Archiving the documents in electronic format saves space and makes research an easier task by eliminating the dependence on paper files in storage. In addition, many title companies (and their software vendors) are working on being able to send back, with the title documents, parts of the information that appears in title work as separate or extractable data items. For example, sending back the legal description as a data item that can be automatically imported into the lender’s loan origination or document preparation system can help eliminate data reentry errors. As the standardization of mortgage industry data field names continues, lenders will continue to ask for data return and other technology-based enhancements to request and receive title work.
Besides title research, there are also technical enhancements for the tasks of scheduling the closing and preparing the closing documents. Many title companies and closing agents already allow their customers to schedule closings online or even automatically between their closing system and the lender’s system. Some “closing Web sites” also allow the sharing of statuses, events, loan, and other information, and even documents between the other parties in the transaction. Sharing information, whether through e-mail or Web-based system, allows each party to receive and review information at their convenience, increasing the title company’s customer satisfaction level because of the higher availability of closing details 24 hours a day. The closing agent’s document preparation and review can be streamlined through using SMART Documents, such as for the HUD-1. With a SMART Doc HUD-1, all the fees are individually specified within the document, so both the lender and closing agent can collaborate on a true electronic HUD-1 by entering their respective fees and eliminating rekeying of lender fees by the closing agent. HUD-1’s are already shared electronically using secure e-mail, Web post, or within online systems, with lenders and others prior to closing. Some of these methods also include extensive document tracking and audit trails, reducing the overhead associated with distributing the HUD-1 and other documents with all parties in a timely and efficient manner.
Another benefit of using this technology is to increase borrower and property seller satisfaction by making the closing process more transparent. Borrowers gain when they can review their loan documents ahead of the actual closing appointment and ask questions in advance. Sharing the documents electronically reduces the handling and courier costs, and also allows the closing agent to receive redraws efficiently and quickly. Some systems even version documents so that previous copies can be compared to the current one.
Electronic Signatures Feature Prominently
Since electronic signatures are one of the defining characteristics of an eMortgage, title companies that conduct closings must learn how to sign electronically themselves as well as conduct the process with consumers. Just as there are different methods of closing document delivery today, several electronic signature systems are coming to market, and the savvy title company or closing agent will become familiar with as many as possible to serve the widest range of lenders. Forms of electronic signature include “click” signatures, where the signers click a button or icon to indicate they wish to sign the document; “text” signatures, where the signers enter some form of information such as their name or a personal identification number (PIN); “image” signatures, where the signers handwrite their signature on a signing pad that captures the handwritten signature as an image; and “digital” signatures, where the signers use a digital certificate credential to sign the document.
Because the act of signing becomes a workflow task in these systems, it means that logic can be added to prevent signers from forgetting to sign a document or signing it in the wrong place. Additionally, it can eliminate the possibility of signers “undersigning” documents (when a person signs the document using less than the name printed on the document, such as “J. Doe” instead of “Jane Doe.”) And since document signers can access the same electronic documents, signing activity can be reviewed, tracked, and audited—automatically.
Electronic signatures can also be used for completing notarial acts on electronic documents. The National Notary Association has included a section on electronically notarizing documents in their Model Notary Act and promotes electronic notarization to government and the private sector. Richard J. Hansberger, director of eNotarization for the National Notary Association says, “The National Notary Association is committed to the development of a sound and reliable eNotarization infrastructure that enables industry and government to conduct electronic transactions with all the safeguards and guarantees that Notaries provide. As a paperless economy becomes ever more realistic, the National Notary Association is preparing professional Notaries to meet the needs of this new economy.”
After the documents have been fully electronically signed and notarized, the next step is electronic recording. The number of counties and other jurisdictions that allow electronic documents to be recorded continues to grow. Electronic recordation offers the same benefits as signing the documents electronically: ease of sharing documents with all business partners; better tracking and auditing of documents, and, when data is included in or with the document, faster document processing by the land records system. Electronic recording systems include the ability to send documents to the land records office and receive them back recorded, as well as other advantages such as automated quality control reviews of the documents to ensure no missing information or signatures, automated calculation of recording fees, and even escrow services for the payment of the recording fees. “All participants in the mortgage process benefit greatly from electronic recording,” says Paula Steger, vice president and director of the electronic recordation exchange for ACS. “With electronic delivery of both the data and the documents, counties are able to complete the recording process and return the recorded instruments in minutes now instead of the many days and even weeks it has taken with the paper process. Once the documents are recorded, they remain electronic and are now able to be delivered to the downstream participants electronically.”
The net benefit to the title company is less time spent on the handling and tracking of documents, no more “lost” documents, and faster return of recorded documents to the lender or requesting party. Escrow disbursement is also simplified through the use of collaborative data sharing systems. Closing agents can request, track, and receive funds online. With electronically signed documents, it’s possible to streamline the entire process of notifying all parties when the loan has been funded. This is of particular interest in escrow closing states where the loan is normally funded after the signed documents have been received back by the lender, speeding up the disbursement and finalizing the transaction much faster.
While eMortgages are in the pilot phase of adoption, there are still many current uses for the technology that supports eMortgages as described above. Becoming familiar with this technology only increases a title company or closing agent’s revenue potential, from utilizing parts of it for small process enhancements to participating in pilots conducting electronically signed loan closings. Learn more about the new systems as they progress by reading eMortgage articles, attending workshops and conferences. Talk to your lenders about volunteering in eMortgage pilots. Get involved with the volunteer work groups working on data, document, and process standards. The technology is there to make the title company and closing agent’s work easier and free you up to spend time on customer service. And as you become more familiar with the tools of eMortgages, you’ll be well positioned for the next big wave of business conducted electronically.
Kim Weaver is the director of product management for BCE’s Emergis e-lending business unit in McLean, VA. She has been in the mortgage industry for 12 years. She can be reached at firstname.lastname@example.org.