This article ran in the October issue of MBA NewsLink
Feb. 20, 2015 — Brinn, Cy firstname.lastname@example.org (Cy Brinn is COO of VirPack, McLean, Va., a provider of document management and delivery technology to the mortgage industry. The company’s website is http://www.virpack.com/.)
The rate of adoption of e-mortgage technology would increase if lenders and brokers were required to reveal to prospective borrowers the environmental impact that originating their mortgage caused based on the number of trees destroyed, or pages of paper used to manufacture their loans.
That’s because lenders who adopt e-mortgage technology could report that no trees were sacrificed to create the paper used to originate their mortgages. Lenders that are technology laggards, on the other hand, would reveal the number of trees, or paper pages sacrificed to close their loans–and face the wrath of environmentalists and damaged reputations.
In addition to being an impractical and heavy-handed approach, I don’t want to see another requirement imposed on the mortgage industry, especially an unnecessary one like this. Besides, requiring the use of e-mortgages would be gratuitous, since e-mortgages are good for the environment as paper is removed from the process–and good for business because of the efficiencies it delivers.
Over time the benefits to the environment are astounding. For instance, over the past 16 years, VirPack, the firm I serve as COO and its clients, have imaged 448 million pages that otherwise would have ended up as paper documents or paper copies. In addition, staff in the processing, underwriting, post-closing, investor review and other origination functions often photocopy these documents at least one time, eliminating another 448 million pages of paper documents.
On top of that, another 940,000 pages did not have to be copied for regulatory audits, for a combined total of nearly a billion pages of paper not consumed. And there’s more: a single tree yields an average of 8,333 pages of paper; that means 113,000 trees were saved. With an average of 700 trees per acre, technology saved 161 acres of trees. Last, an acre of trees absorbs an average of six tons of carbon dioxide gas and generates four tons of oxygen per year, generating an incredible 645 tons of oxygen per year and eliminating 967 tons of carbon dioxide gas per year.
The mortgage industry over time will also be able to achieve striking results–and the benefits will accrue to the environment, their businesses and future generations. But e-mortgages are also good for business because users gain efficiencies and reduce their costs. Among the most important technologies that have emerged are the following:
–Electronic signature capability ensures that documents are signed faster, deals close sooner and revenue is realized faster than with paper-based signatures. Brokers are free to focus on selling and not on gathering wet signatures and tracking paper documents the signatures are on. E-signature technology can be integrated with existing systems, so it does not require the replacement of existing systems to use E-signatures.
–Electronic disclosure and consent agreements enable lenders to electronically distribute mortgage disclosures and documents, and obtain borrower acknowledgement. Users register for the service and create a password. Borrowers receive federal and state mortgage disclosures and documents in electronic form and lenders can discontinue sending and collecting paper documents.
–An originator portal provides a web-based, intuitive, customizable tool third-party originators can use to gather a list of the documents required to originate a particular loan type and download them, as well as list the documents that are outstanding. Brokers can monitor a loan file any time they want, from wherever they are, in a secure manner. They can also upload a batch file of loan documents in a secure manner directly to the lender.
Moreover, an advanced document management and delivery system can be integrated to support the originator portal. Brokers can communicate through a secure message feature with lenders and other business partners, and loan data is synchronized with the data in the loan origination system. Users are in an optimal position to comply with regulations and cooperate with audits because an electronic audit trail is created and that makes it faster to review and audit an e-mortgage transaction.
–A borrower portal is a web-based platform that provides borrowers with a list of documents required to complete a mortgage transaction. Borrowers can securely upload or download documents, monitor loan status, and exchange secure messages with the lender as well as other loan participants. After a document is uploaded to a lender, through a borrower portal, lender staff are notified that documents have been added to the borrower’s file. Lenders can also use borrower portals to request additional documents and borrowers are able to go online to track their document requests, status and messages without requiring a lender employee to take phone calls or respond to emails.
Lenders and brokers who are slow to adopt e-mortgage technology forfeit productivity gains and undermine their own profitability. Such lenders are already falling behind, perhaps irreversibly so, to competitors who are employing these technologies. The gap will widen once lenders begin to require brokers to use technology, especially if they provide incentives, in the form of lower rates and fees.
Under that scenario, brokers will simply not have an option if they want to do business and stay competitive, adopting technologies that support electronic originations is vital. Brokers have a finite amount of time in which to originate loans; e-mortgage technologies can help them maximize their efficiency and originate and close more loans. That leaves more time to perform quality control checks and stay compliant as well as to ensure an electronic document trail is created for use in an audit.
Brokers who are willing to migrate to these technologies will close more loans and earn more money than was possible when overnight carriers delivered documents in gas-guzzling trucks and fuel-consuming planes that harmed the environment. In addition, once the documents arrive, they have to be printed out and signed, which consumes paper, burns fossil fuels and wastes time. It also reduces profitability because fewer loans are closed than when e-mortgage technology was deployed.
Under increased regulatory scrutiny the mortgage industry operates under, loan files have to be kept virtually forever–certainly for the entire lifecycle of the loan and an additional seven years so that loan documents can be made available to regulators. Audits are more intense than in the past; the risks of non-compliance are greater than ever before. Electronic mortgages alleviate much of that pressure because when a file or a document is needed for an audit, they are just a keystroke or two away. The documents needed to satisfy the audit are always on the server, never lost or misplaced.
In contrast, when there is a problem with a paper-based loan, lenders have to retrieve documents from the archive, look for the box the file is stored in, hope the loan file is in the box and that it includes all the documents required for the audit. Finding a lost loan file or misplaced documents is difficult and time-consuming. The inability to provide regulators with documents they have requested has resulted in severe penalties, though with the technology available today that is preventable.
Over time as members of Generation X begin to buy homes, they will put pressure on brokers to adopt sophisticated technology because it is their preferred method of doing business. Gen Xers grew up using technology and understand that uploading personal information into a secure portal poses fewer risks than e-mailing customer specific, personal financial information in an unencrypted fashion to their broker. It is unlikely they will work with brokers or lenders that don’t make sophisticated technology available to their clients.
The message, therefore, is clear: brokers and lenders who fail to adopt e-mortgage technology will cause unnecessary harm to the environment and lose business.
(The views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at email@example.com.)