Goodbye, paper?

Digital mortgage options are on the rise. Here’s how community banks are (or could be) capitalizing on them.

By Beth Mattson-Teig

You order a pizza and pay bills from your phone. Why not complete a home mortgage from your phone, too?
The traditional paper loan process can be cumbersome for both the bank and the customer, with dozens of signatures required from homebuyers. Now, some community banks are looking to ease this process by taking advantage of digital technologies.

“We have put a tremendous focus on digital banking and doing as much as we can online,” says Peter Michelotti, senior executive vice president and chief operating officer at Sussex Bank, a $1.4 billion-asset bank based in Rockaway, N.J. Young people especially are seeking the convenience of online transactions from their computer or their phone, adds Michelotti.

Community Bank of Bergen County in New Jersey first introduced online mortgages about four years ago. Since finalizing its merger with Sussex Bank in January, that platform will be shared across all 14 Sussex Bank branches in New York and New Jersey. The platform brings the application, approval and documentation processes all online. Currently, closing documents are still done with paper and pen, but Sussex is looking at adding eSignatures in the future.

One big advantage of the online platform is that it gives customers all of the information at their fingertips, notes Michelotti. People can start an application and save it to complete later. If they are thinking about buying a house, they can prequalify online to identify their price range. Customers also receive legal disclosures online that are date and time stamped, which provides an electronic trail to show compliance.


Number of states that currently allow electronic notarizations

On the Sussex mortgage platform, customers set up a username and a password to create an account. They can start an application and then decide to finish it later or put it on hold. If someone is doing a preapproval, the platform stores all of their information so they can finish the application once they have found a house they want to buy. Customers also can log in to check the status of their application. “It provides a tremendous amount of flexibility,” Michelotti notes. At the same time, each loan is assigned to one or more bank employees, who follow up with phone calls and emails to answer questions and provide a personal touch, he adds.

“The ability to deliver electronic documents, allowing consumers to have time to think about them, study them, ask questions and then return them, has revolutionized that part of the process.”
—J. Kenneth Sykes, North State Bank Mortgage

Banks adopt hybrid models
Banks are increasingly using technology to streamline the mortgage process. However, there are a variety of different models and hybrids emerging that run the gamut from online applications to a fully paperless eMortgage and eClosing.

Since Fannie Mae first started purchasing eMortgages about 15 years ago, about 350,000 eNotes have originated in the market. However, the recession dramatically reduced the eMortgage business. Lenders had different priorities for investing capital in the wake of the mortgage crisis, with a bigger focus on loan servicing, loss mitigation and complying with regulatory requirements.

“We’re finally now seeing in 2018 and 2019 where companies have priorities and have resources where they can spend time thinking a little bit more about moving forward with eMortgages,” says Shane Hartzler, director, eMortgage strategy and operations at Fannie Mae.

Although more banks are moving to eMortgages, whether a consumer mortgage lender can offer a fully digital mortgage depends on the state in which it’s registered. Each state has rules in place that govern what can be signed electronically as part of the notary process and what documents can be recorded electronically.

Borrowers can sign an eNote in all 50 states, and 22 states currently have rules in place that allow electronic notarizations of the security instrument in some form or another. The important question is whether a state allows for an electronic notarization with an electronic seal versus a paper notarization with a paper seal, says Hartzler. The other piece is the recording of the security instrument at the county or the jurisdiction level. Currently, there are about 1,700 counties in the U.S. that allow the electronic recording of the security instrument, which encompasses about 80 percent of the borrower population, he adds.

“From an audit standpoint, you are putting some of those controls in place so that the borrower is, hopefully, better educated and more informed as they go into the closing process.”
—Shane Hartzler, Fannie Mae

“At the end of the day, what we are really trying to drive to is to get as much as we can signed electronically,” says Hartzler. The preference is to get at least the disclosures and the loan note signed electronically, while it is up to the individual state and county jurisdiction whether a fully paperless mortgage is feasible.

eClosings move forward
North Carolina is one state that made a conscious decision that it wants to be an innovative leader in providing eMortgages and eClosings. North State Bank Mortgage participated in North Carolina’s eClosing pilot program, completing its first fully end-to-end eMortgage with an eClosing in May 2017. During the first several months, the bank has completed about a half-dozen eClosings and is now preparing for that business to start accelerating.

“The message we are getting today is that our consumers are demanding that we meet their market needs in the place that is most convenient for them,” says J. Kenneth Sykes, president of North State Bank Mortgage, a division of North State Bank, a $780 million-asset community bank based in Raleigh.

In the past, North Carolina consumers had to sit face-to-face with a mortgage officer and attorney. Now that closing can be conducted anywhere the borrower has internet access, with electronic signatures approved by an eNotary. North Carolina requires that an attorney be accessible and visible via video conferencing, but they no longer have to be physically present at the closing.

In North Carolina, and elsewhere, the momentum behind eMortgages is growing. “We’re beginning to see the big players that are now interested in getting involved in eClosings in North Carolina,” says Sykes. For example, Quicken Loans has recently explored becoming an eLoan provider in the state. “We have tested it and proven that it works and that the consumer likes it, and now we are seeing more and more people get on board and showing a real active interest.”

Unlocking value
Digital mortgages offer value in terms of cost efficiencies, risk mitigation and a better borrower experience. Aside from the convenience, customers receive mortgage documents days ahead of the actual eClosing. “The ability to deliver electronic documents, allowing consumers to have time to think about them, study them, ask questions and then return them, has revolutionized that part of the process,” says Sykes.

The digital processes also help to eliminate risks from human error. For example, eClosing platforms automatically check to make sure all signature blocks are completed. One main reason that many lenders say they started moving to eMortgages is because preparing closing documents electronically is one of the easiest ways to comply with the new TRID requirement that requires borrowers to have loan documents three days ahead of the closing, adds Hartzler.

the momentum for eMortgages stems from consumer protection interests. Some of the closing platforms are designed so that the borrower must review all of the documents prior to going through the closing. “So, from an audit standpoint,” says Hartzler, “you are putting some of those controls in place so that the borrower is, hopefully, better educated and more informed as they go into the closing process.”

Beth Mattson-Teig is a freelance business writer in Minnesota.