Digital mortgages are no longer an idea, theory or goal. They are reality. However, the only thing keeping the mortgage industry from moving into the age of digital mortgages is the mortgage industry.
For whatever reason, our industry has widely accepted a grotesquely distorted misconception of what it takes to digitize the mortgage process.
These skeptics tend to envision a massive financial investment; a sizeable disruption to operations and, most of all, a frustrating wait for investors and partners (such as service providers) to adopt similar technologies in order to make the platform work. In other words, we hear from some lenders that they’re too busy to “go digital.” Others fear that installing a hybrid platform will actually harm business.
These fears are absolutely unfounded. A hybrid closing capability allows a lender to continue on, closing loans traditionally where needed, and enjoying the cost savings, increased efficiency and improved customer experience that comes with the digital mortgage.
Already, the vast majority of investors accept hybrid closings — even those which reject e-notes. More importantly, the lender with a hybrid capability has already made a major leap into digital transformation.
When that lender becomes comfortable with the number of investors ready to accept full e-notes and with the thought of becoming fully digital, that lender has already made tremendous inroads into that transformation. The next step becomes markedly easier. And the lender controls the pace and conditions at which it chooses to move forward.
One of the most often-stated objections to adopting a digital platform cites investors — as in, “I can’t sell e-mortgages to all of my current investors.” This statement, however, is incomplete and frequently taken out of context. While it is true that some investors will not (yet) buy certain kinds of nontraditional mortgages, the fear or hesitation usually involves a small number of documents that, for whatever reason, must still be physically signed with a pen in front of a notary.
These restrictions are usually found in state law, and some investors themselves still require certain key documents to be verified by notary. However, most of those very same investors will happily purchase loans concluded with hybrid closings. A hybrid closing incorporates those few documents that are required to be “wet-signed” (physically signed with a pen before a notary) with electronically signed documents to create the e-mortgage package.
The first step on the path to digital transformation, therefore, requires the ability to conduct hybrid closings. This is the bridge that connects technology and the future with the remaining investors, lenders or governments that require some closing documents be wet-signed.
All parties benefit from a more digital (and less confusing, inefficient) pre-closing, closing and post-closing experience. And yet, the lender is able to continue operating in the existing real world where the industry is not yet 100% digitized. Hybrids are here, and many more investors are accepting them than skeptics might realize.
In fact, adopting the hybrid closing is no longer a “nice-to-have.” If anything, there is more risk to the firm that continues to resist adoption of the digital mortgage than there is to those becoming capable of hybrid closings. The combination of regulatory and investor requirements have made the cost of doing business in the traditional way unsustainable (which is one of several reasons so many depositories have trimmed or even eliminated their mortgage product lines).
We have seen an exponential increase in the number of mortgage firms adopting hybrid closing capabilities, giving them a significant advantage of the as the industry evolves, and easing their path to a fully digital process down the road when conditions demand it.
On the other side of the coin, some of the largest savings to be experienced in the digital transformation may be found in the pre-closing, closing and post-closing areas of the transaction, as those have the biggest rewards to reap in cost savings, efficiency, consumer experience and return on investment. Making the small step to hybrid closing capabilities can generate a rapid and sizeable return on the investment.
While many in the mortgage industry are focused on potential game-changers such as reform to the government-sponsored enterprises, regulatory overreach and a rapidly changing market (all of which are important); we’re collectively overlooking perhaps the biggest game changer of all. The digital mortgage is not just a webinar topic or food for thought anymore. It’s here. And for those hesitant to make the move, the hybrid closing is the easy answer. In fact, it’s one of the rare instances in which the adopter can put one foot into the future without abandoning the present reality. And it’s time for the mortgage industry to put aside or see through the distorted perceptions of the process and move forward.
Mark McElroy is the CEO and President of Pavaso, a digital technology firm in the real estate space.