by Darren G. Ross
In the Beginning
In January of 2002 Fannie Mae issued a formal announcement to the mortgage banking and real estate industry concerning electronic transactions for Fannie Mae mortgages. It was the start of something big in a traditionally paper-intensive industry. In short the announcement stated that Fannie Mae would not require documentation to be submitted in paper form. More specifically, Fannie Mae confirmed that lenders could accept title insurance policies (including Short Form Loan Policies) that the title insurer or its authorized agent had produced and delivered by electronic means or by using a laser printer. The title policy, as produced by the title insurer or its authorized agent, must comply with Fannie Mae's announcement and not be subject to unauthorized alteration. Other GSEs, secondary market participants, and investors followed suit with similar announcements, paving the way for the production and delivery of electronic title policies.
Do Electronic Documents Make a Difference?
Improving Delivery Time
The title insurance policy is generally considered the core product provided by the title underwriter. While there are many valuable products and services provided by the title/closing company, it is the title insurance policy that provides for the stability and assurance of the real estate transaction and home ownership, as well as the liquidity of mortgages in the mortgage lending, investor, and secondary markets. For a typical real estate transaction, most title insurance underwriters and their agents strive for closing, producing, and delivering a title policy within the following general time periods:
Issue residential title commitments
in 3 business days;
Issue residential title policies in 30 business days.
Issue commercial title commitments in 5 business days;
Issue commercial title policies in 21 business days.
There are many factors that can lead to the delay or inability to deliver final documents in an timely fashion, such as problems related to funding/payoff, new or newly discovered encumbrances or liens to the property after a final date-down search, receiving final trailing documents and/or recording endorsement information from the county clerk/recorder, or to the lack of proper technology or efficient workflow. However, title companies continually strive to improve customer service and satisfaction, and employee productivity by measuring certain things like the turn-time per file, the number of files processed per employee, and the cost-per-file. By implementing an electronic title policy production and delivery process, title/closing offices can directly and significantly improve these and other measures and provide an improved real estate transaction process for their customers.
Reducing Costs For title/closing offices, utilizing electronic forms can significantly reduce the traditional per document costs associated with various paper-based processes and provide the ability to:
Improving Customer Satisfaction
For mortgage lenders, servicers, investors, and/or the secondary market, the benefits of electronic forms include:
We continue to hear that lenders don't want our paper. Increasingly lenders are requesting the delivery of electronic products and data to facilitate automated processes and reduce the costs associated with internal paper-based processes and inefficiencies. Title underwriters have implemented and provided various forms of electronic policy preparation and policy register and remittance technologies to their agents to achieve these same benefits as well. It is now time to work with our lender customers to improve the real estate transaction process for them and consumers—and eTitle policies may be the starting point.
Why is a SMART Doc Better Than a Scanned Image?
Many title underwriters, agents, and offices have been employing some form of document imaging or have established electronic repositories of prior files for a number of years now. However, this was primarily for locating these prior policies to start a file for a previous customer or property. The fact that these documents were being imaged and subsequently available in electronic format was certainly an improvement over traditional paper files and storage methods. However these electronic files lacked the ability to provide much more than just a basic “view” of the documents. By using the SMART Doc format, businesses can access and capture the data elements and computers can process that data without having it rekeyed. That's why a SMART Doc is better than a scanned image.
The SMART Doc Meets eMortgage
Over the past few years, the Mortgage Industry Standards Maintenance Organization (MISMO) has worked to create an infrastructure for fully electronic, or paperless, mortgages. The eMortgage infrastructure is built around the concept of a SMART Document—an electronic document that binds together the data, page view, and signature(s) into a single electronic file. SMART is an acronym for Securable, Manageable, Archivable, Retrievable, and Transferable —thus, “SMART Doc.” One of the inherent primary benefits of a SMART Doc is that both the data and the viewable portion of the original document itself are all in a single electronic format. This SMART Doc may now be processed by software application and production systems, as well as rendered for viewing and/or printing.
In October of 2004, members of the MISMO eMortgage Workgroup approached the MISMO Title Workgroup to determine interest in the development of a SMART Doc format for title policies. The Title Workgroup had already been involved in enhancing their version 2.1 request and response standards for business-to-business electronic commerce. Both workgroups agreed that the development of a SMART Doc standard for title policies would be a natural extension to much of the work on version 2.3.2 (currently in the pre-publication phase). And thus, the initiative was born.
Members from both work groups met frequently to define the initial scope of the eTitle policy project and determine business and technical requirements for electronic title policies and a SMART Doc standard. The workgroups decided to focus initially on the ALTA® Short Form Policy and respective state variations (such as TLTA, CLTA, etc.). Additionally, the workgroup ultimately wanted to create a framework that would accommodate both the owner's policy as well as mortgagee/lender policies. Much work was accomplished over a few months in analyzing various title policies and performing business and data mapping for the following components of the Short Form Policy:
Additionally, the eTitle SMART Doc format supported the ability to include additional title endorsements that could be attached to policies. Future versions of the eTitle SMART Doc would address additional versions or variations of traditional short form policies as well as those of long form policies (with the additional value of also containing the recorded mortgage data).
Why A Standardized Approach?
Many organizations invest significant time, money, and resources into technology solutions for both internal efficiencies and those of their business partners and customers. Specific to the latter, the success of any electronic commerce solution is highly dependent upon the utilization and implementation of standards-based technologies. Standards provide a common framework, language, and 'rules of the road' to which all users adhere. Standards can provide the opportunity for open, nonproprietary business operations. Simply stated, the proper utilization of standards can allow business partners to more easily integrate and work together without reinventing the wheel every time a new customer would like to order or receive products electronically.
Much like ALTA® develops standards for policies, forms, and guidelines for the land title industry, MISMO develops standards around data and documents pertaining to the mortgage industry and real estate transactions. Much of the standards development efforts involve the use of extensible markup language (XML). One of the nice features of XML is the ability to create a “tag” which can be used to wrap around and qualify certain data within a document - such as
With the myriad of title policy products and forms in use today throughout the country, the eTitle SMART Doc standard will provide a common format for the creation, delivery, and receipt of title policy data and documents between agents, underwriters, and our customers. As the standard(s) mature and become more widely utilized, title/closing companies and their customers will be positioned to take advantage of the inherent benefits of electronic commerce and enhance the real estate transaction process for their customers and consumers. To learn more about MISMO, eTitle policy and/or other initiatives, please visit www.mismo.org
Darren G. Ross is director of ecommerce for Stewart Information Services Corporation in Houston, TX. This article is an excerpt from his panel presentation at the 2005 ALTA® Tech Forum. Darren can be reached at email@example.com