Posted by napratt

This is a good article on eMortgages.  We certainly have the ability to support eMortgages today.  We can support a true paperless eMortgage depending on the business model of the Lender and if their partners are also “e”enablesupporting the paperless file throughout the closing process , recording and delivery.    

However, if the Lender does not support eNotes currently and they are not doing business  in a county that supports eRecording, they can support  hybrid eMortgages/eClosings. They simply wetsign the Note and the recordables, but support the remaining 98% of the file in a paperless environment.  By doing hybrid eTransactions, they are seeing tremendous benefits by improved data integrity, less costs and offering a better experience to their customers.

There has been a renewed interest in the Lending community with eMortgages and eClosings.  With the expectation of the passage of H.R. 4229 Bill; ( Borrowers Right to inspect Closing Documents Act of 2009)  This bill would make it the responsibility of the Lender to provide the closing package to the title agent no less than 4 days prior to closing and would then require the title agent to deliver the package to the borrower 3 days prior to closing.  The bill would allow for delivery via  electronic communication.

As we approach the winter months, it is a good time to look at the technologies that are available to improve your business practices and find new ways to gain market share by  building a relevant niche in your marketplace to drive more business to your bottom line.  By embracing eTechnologies , you can accomplish this goal and make this a reality.

Nancy

Lenders Eager to Transform Cascade of Paper into Stream of Data

Thursday, September 9, 2010

By Ted Cornwell

Efforts to reduce paper in the mortgage lending process hit a snag after the foreclosure crisis, with investors and government agencies imposing stricter documentation requirements for home loans. But while the Dunder Mifflins of the world aren’t going out of business yet, recent indications suggest that e-mortgages and other paper elimination initiatives are once again gaining traction.

A recent survey by Xerox Mortgage Services finds that 86% of industry executives expect e-mortgages will account for a majority of loans produced within seven years. While just 4% expect e-notes to be in the majority within two years, 42% expect e-mortgages to account for most mortgages within three to four years. Another 40% expect the tipping point to occur within five to seven years. The survey confirms that momentum for electronic commerce is still growing. Sixty-nine percent of lenders say that they are seeing an increase in electronic disclosure forms being used in the lending process, and for many firms electronic disclosures may pave the way for electronic signatures and e-notes at the closing table. And a substantial majority (79%) think that decreased processing costs, quicker turnaround time and supporting compliance are key factors driving the paperless lending processes.

The benefits are indisputable. A 2006 MISMO study estimated that a typical mortgage company would see a 25% improvement in overall closing costs during the second year after implementing an e-mortgage solution, and that the benefit would exceed its implementation costs within three years.

Todd Moncrief, vice president for business development at Xerox Mortgage Services, was at the first MISMO meeting devoted to the topic of e-mortgages. While progress in moving toward truly paperless lending has been slow, he says the value proposition is getting stronger for lenders as evolutions in technology increase potential cost savings.

“There is a steady movement toward a true e-mortgage, which the MBA and MISMO define as a true e-promissory note being signed at closing,” Moncrief told Mortgage Technology. “More people are educated about what you have to do, where are the holes in the process that have to be covered and who are the players who have to be involved.”

Moncrief acknowledges that in the interest of marketing, a lot of people are saying they are doing paperless mortgages when they really haven’t met the MISMO definition of that phrase. In fact, 63% of survey respondents say companies can call themselves paperless even if they are not doing a true e-mortgage.

While the foreclosure crisis has resulted in renewed documentation requirements, the crisis may also spur the industry to embrace secure electronic documents, which can serve as a barrier to the old “white out” version of document fraud. That’s especially true now that the government-sponsored enterprises are placing more responsibility on originators to ensure the accuracy of loan data.

“Everybody now has a big vested interest in their quality control today,” Moncrief noted.

Documentation is king in the marketplace right now, he said, creating new hurdles for lenders that are trying to embrace paperless processes. But the digital revolution has not been abandoned. Because of the renewed emphasis on ensuring the accuracy of information on loan applications, paper or imaged documents, such as W-2 forms, bank statements and tax returns, will likely remain a part of the loan file, though the documents may be imaged and the data captured for digital use.

And for that reason, lenders in Xerox’s latest survey emphasize that “a real paperless solution” must provide the flexibility to work with paper, images and electronic documents.

“It’s an evolutionary process, and they need a way to move the process around to get the incremental benefit,” Moncrief said.

So what does a truly paperless process look like, according to the survey?

Ninety-two percent of respondents said it involves using electronic documents instead of paper or paper-sourced images, while 88% said it entails electronic delivery of closed loans to investors. And 83% said storing loan notes in an electronic repository, or e-vault, is a critical component of paperless lending.

Moncrief said a lot of people have to be able to touch the e-mortgage note in the process of funding a loan. Fannie Mae created the first e-mortgage in 2001, but that involved just one lender selling directly to Fannie Mae. For many home loans, the route to financing is not so quick and easy.

The whole network of parties involved in a loan closing will need to have the means to manage electronic mortgage notes. And investors will have to be on board as well. So far, Fannie Mae and Freddie Mac have embraced it. But to date, the FHA does not accept electronic signatures, and that creates a stumbling block.

“If 50% of the market is FHA, you have to wait on them,” Moncrief said.

But he said the FHA is making progress, noting that the FHA now accepts imaged documents for its 10% audit requirement.

Further down the line, custodians, warehouse lenders and servicers also have to be on the bandwagon for e-mortgages to really take off. Not only will they all need to have access to the technology for handling e-mortgage notes, they’ll also need to have rules, rights and processes in place for managing them.

“All of those things have to be greased,” Moncrief said.

To date most e-notes have been processed by lenders that serviced the loans themselves and sold directly to a single investor. But some of the lenders that served as e-mortgage pioneers have seen changes in ownership as a result of the industry crisis, and now their portfolios are being sold. That means that a new servicer will need e-note capabilities.

That is helping to smooth the “natural progression” of increasing e-note acceptance across the mortgage spectrum, Moncrief said, which may be one reason why industry participants are now regaining optimism about the likelihood that a majority of loans will be processed as e-notes within seven years.

In 2008, only 27% thought a majority of loans would go the e-note route within three to seven years.

“It’s on the horizon. It’s coming,” Moncrief said.

The Push from MERS

Moncrief credits MERS, the industry-owned utility that tracks the ownership of mortgages and servicing rights, with doing much to promote the adoption of e-note technology. MERS has created an e-registry for tracking e-mortgages ownership, though the actual electronic notes are stored on e-vaults offered by industry vendors, including Xerox.

Dan McLaughlin, executive vice president and product division manager at MERS, said 177,000 e-notes have been added to the registry as of August.

“We’re averaging right now 250 to 300 notes a day. We expect to see those volumes start going up,” he said.

Despite the relatively modest volume to date, McLaughlin sees reasons to believe that e-note usage is poised to start growing again.

“Things were going really well up until the financial crisis. Large organizations that had big plans to implement electronic notes put those plans on hold for obvious reasons,” McLaughlin said.

For one thing, Wells Fargo has indicated that it plans to start accepting e-notes from correspondent lenders next year, a move that will likely pressure other big aggregators to follow suit.

Today, the firms that have been successful originating and selling e-notes are mostly GSE-approved seller-servicers that are depository lenders and don’t need to finance their mortgage production through a warehouse line of credit, McLaughlin said.

“The traditional warehouse lending community, for reasons that aren’t real clear, has been reluctant to enter into this electronic note world.”

That may reflect unease with using e-notes as security instruments for warehouse lines, he said. But those fears can be overcome. In late August, McLaughlin said three warehouse lenders were poised to start accepting e-notes in the near future.

“That’s a big deal. Once you start seeing warehouse lenders being successful, generating significant volume, that becomes a very significant competitive issue for those that are not doing electronic notes.”

Lender Perspectives

David Miller, senior vice president for business development at Cenlar, a major subservicer, told MT that the adoption of e-mortgages has lagged behind earlier expectations. So far, he said he’s seen about a 3% to 4% increase annually in actual e-note mortgages coming in the shop. Cenlar is one of the few vendors approved for e-notes by Freddie Mac.

“Were not seeing the level that one might have accepted with the hype over the last couple of years on e-note documents,” Miller said. “We do have repositories in place, but we’re not seeing the usage. It just hasn’t caught on the front end.”

Miller said e-note acceptance has been slow in part because of concern about storage of documents, with many industry participants lacking a good understanding of how official e-notes are stored and traded. There are also questions about the legal ramifications of using e-notes, he said. But he remains optimistic that e-note adoption will become widespread “on the shorter end” of the three- to seven-year timeframe suggested by the survey.

E-notes are not the only component of going paperless. Miller said most lenders have a back-end imaging solution in place so that loan files being boarded on a servicing system come in as images rather than paper documents. Cenlar has built an interface that connects a lender’s imaging system to its own to facilitate boarding loans onto the servicing platform. Imaging has yielded dramatic improvements to customer service by eliminating the need to store and track down paper, he said.

“Today, through our workflow imaging system, what we are able to do is bring documents up dynamically to a customer service representative.”

Cenlar has also added imaging to its mailroom for correspondence, such as assignments and payoff requests, pertaining to loans already on the servicing system. Cenlar uses OCR (optical character recognition) technology so that data can be lifted off documents in an automated fashion, eliminating the need to retype information that is received.

“I think we are really just starting to scratch the surface of that technology,” Miller said.

Pat Hinman, CIO of Shore Mortgage, Birmingham, Mich., says his company went 100% paperless early this year. That means loan packages are sent to closing in an electronic format, though they still have to be printed at closing for wet signatures. Once the closings are completed, the final package is imaged again for electronic delivery to investors.

Shore Mortgage accepts imaged loan applications from brokers using a workflow system that allows the loan to be underwritten in an entirely paperless environment, Hinman said.

“The delivery to investors is all electronic as well, both the data side of it and the images.”

Still, Hinman said e-notes have been slow to take hold in the marketplace.

“Everybody keeps pointing to it, but from my perspective, everyone has been pointing at it since around 2004 or 2005,” he said. “We have the technology available. We understand the technology. We’re just waiting for investors to start taking them.”

Hinman said his firm has received “virtually no resistance” from consumers when using e-signatures for disclosures and notifications. He agrees with the Xerox survey finding that most lenders expect e-mortgage adoption to take off within the next three to seven years.

“I’m hoping it will be more in the one to three range,” he said.

John Baymiller, executive vice president of mortgage banking at New York Community Bank, sees another reason why e-mortgages will win over the market: capital incentives.

E-notes have given NYCB, which last December acquired the assets and mortgage operations of e-mortgage pioneer AmTrust, much more flexibility in managing its warehouse, Baymiller said. Having the freedom to sell loans quickly, within a few days after closing, frees up capital that would otherwise have to be held against the loans during the typical 30-45 day warehouse holding period. Moreover, if the bank deems it worthwhile to hold the loans for a longer period of time to take advantage of spread income, it can quickly switch gears and adopt that strategy based on market conditions.

“That alone should have the attention of every CFO in this business,” Baymiller said.

He said lenders that want to embrace paperless loan processing need the support of the company’s board of directors to ensure that paperless processing is a strategic priority. Trying to implement paper reduction efforts in a piecemeal fashion won’t work, he said.

“Pulling it together does require a full corporate strategic vision, commitment and execution.”

NYCB, via AmTrust, accounts for the majority of e-loans on the MERS e-registry. But Baymiller expects to see many more lenders names in the e-registry in the near future.

“I’m shocked it hasn’t happened faster,” he said. “The impediments have been substantially removed.”

Nancy G. Pratt

Director of Business Development/eStrategy Manager

PropertyInfo Corporation /eMortgage Solutions

Direct         317-414-4268

email       npratt@stewart.com

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