Modern Mortgages

April 1, 2008

Buy a home in your PJs? Maybe not today, but e-loan technology is evolving into a safe, efficient option.

Every week, the public hears about new products, such as electronic mortgage applications, that make it easier for consumers to handle the process without a paper trail.

But despite their promises and the growing appeal of using advanced technology, the industry still is moving slowly toward the days when consumers will be buying homes in their pajamas.

“We’ve made huge progress in a few years,” says Harry Gardner, vice president of industry technology at the Mortgage Bankers Association, Washington, D.C. He manages the association’s e-Mortgage workgroup – more than 200 members and six subgroups – that develops guidelines and technical specifications for fully electronic, or paperless, mortgages.

But “huge” is a subjective term. When Gardner talks about progress, he means that lenders have registered promissory notes (or e-notes) for 6,000 homes in a country in which millions of houses change owners annually.

The Vienna, Va.-based Mortgage Electronic Registration System maintains the industry registry of e-Notes. The system tracks online loans to ensure that borrowers have the same rights and protections afforded in paper promissory notes.

Though the number may seem miniscule compared to the millions of mortgages processed annually, Gardner says it shows a great increase in activity.

“We used to have two or three in one month. Now they're really starting to trickle in,” he says.

The 6,000 figure does not include loans processed through hybrid mortgages, which are partly electronic and partly paper. This hybrid mortgage is emerging as the dominant way of doing things in the industry before the complete e-mortgage is adopted.

Clearly, the industry needs at least another five years for such electronic services to become used on a widespread basis. For now, more lenders are seeking services to help them transition to a paperless system and that means alliances are forming across the industry.

Earlier this year, for instance, MRG Document Technologies, a provider of documentation services for the financial industry, partnered with a technology company to convert files to secure, electronically signable documents.

"We began providing e-Disclosures in January as an alternative to the traditional mailing of printed disclosure packages," said Terry King, group chairman of MRG. "Our lenders and customers love the speed and efficiency with which they can complete the origination process with e-Disclosure technology. So far we have run 300 to 400 disclosures without a hitch and have a half-dozen companies looking to sign up to use the same service in the near future."

The growing reliance on paperless documents means that consumers must become more comfortable with dealing electronically with one of the biggest financial investments in their lives if they intend to transact major business in the future.

That may not bother most younger men and women, who have grown up with computer technology, but older adults still might hold concerns about issues like identity theft. Assuring borrowers that their electronic signatures are valid and secure remains a challenge, Gardner says.

“If anything, their documents are more secure because you have fewer people handling them,” he says. They're copied once and then everything is handled electronically.

The rising interest in paperless mortgages dates to the late 1990s, when several companies began urging the real-estate industry and lenders to give consumers the option of all-electronic mortgages. The federal government gave electronic mortgages a big push on June 30, 2000, when President Bill Clinton signed the Electronic Signatures in Global and National Commerce Act. The legislation provides the same legal recognition and enforcement for electronic signatures, contracts and records as for their paper counterparts.

The heavy lending volume of recent years has prevented many companies from developing the technologies to make electronic mortgages part of the real estate landscape.

But they think they are making headway.

Most lenders are experimenting with elements of electronic mortgages, but it will several years before an appreciable volume is completed electronically, Gardner said.

There are signs that his prediction is starting to come true.

Idaho Falls, Idaho-based DocuTech offers mortgage lenders a Web-based interface that turns any Internet connection into a paperless loan origination or closing. The company can print, e-mail or post loan documents online from any remote connection location.

“It’s all just a matter of time,” Gardner says.

Source: The RepublicSource:

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