It is no longer a matter for debate. The mortgage industry is moving toward the adoption of digital closings. And while the pandemic may have given that trend a jump start, it will likely be a highly competitive marketplace that drives the new reality of wide scale and full-on adoption, possibly making traditional “wet signings” and in-person settlements relics from the past.
While the digital revolution of the past few years has brought about some breathtaking changes to the mortgage and closing process, it’s the settlement phase, admittedly, that still requires way too many manual processes. Previously, some of those in-person tasks were required by arcane state laws or needlessly complicated regulations. Those obstacles, too, are finally giving way to the future.
We no longer need overwhelming evidence to prove the viability and necessity of digital closings. Almost everyone will agree that, especially when markets are competitive, nearly any business in any industry would be well-advised to shift its strategic focus from gross revenue to market share and profitability. Reducing time and operating cost is a proven way to stay profitable when there’s simply less transaction volume to be had. Many have already seen the MarketWise Advisors report indicating that, even a year or two ago, a mortgage lender could save as much as $444 per transaction using a full digital closing. The same study told us that, on average, digital closings shaved an hour off of the tedious, in-person closing and as much as two days from the average time to close from loan approval to closing.
There’s little question that digital closings are a prime pathway to a faster, less expensive transaction. Now, let’s consider what Remote Online Notarization (RON) services can add to them.
Not every digital closing makes use of RON, especially where a hybrid closing (some part of the process remains manual) is taking place. Perhaps the documents are prepared and delivered electronically, but the buyer and seller are still required to schedule time and assemble in an office with a notary present in order to close the transaction. RON, in and of itself, is not a digital closing. But it certainly can, and does, help speed the process and eliminate the natural chokepoints that come with scheduling, travel and, occasionally, rescheduling. It also proves to be a major convenience to the consumer, real estate professional and closing agent, dramatically improving what used to be, for many, an unpleasant experience.
Should lenders build their own digital closing operations or use service providers?
Any time a new approach to an old process is adopted, especially on a significant scale, the business transforming that process likely considers the options of building out their own operation or making use of a third party provider, a new technology or maybe Software as a Service (SaaS) to conduct most or all of that process going forward. Traditionally, building out one’s own operation comes with a significant investment on the front end as well as the understanding that the transition needs to be strategically planned, which also costs time and money. The benefit comes from having control over the operation going forward. There’s no need to worry about a partner going out of business, raising rates or proving to be unreliable.
However, more and more, lenders are making use of SaaS and third party providers (or some combination thereof) instead of taking the riskier approach of building out their own, new solutions. When a SaaS or vendor prove to be less effective than planned for, there’s definitely some wasted expense. But changing out that provider or SaaS is usually far less expensive than the sunk costs that come from a failed, internal operations investment.
At a time when market conditions can change quickly, it’s probably the wiser move to opt for the services and technology that come with a qualified third party digital closing provider. But what exactly should lenders be looking for in that partnership? Digital closings are just reaching the adoption threshold. Some of the traditional standards used to vet, for example, a title agency or LOS provider aren’t applicable to this developing field. While the volume has increased significantly in the past two or three years, no provider can honestly say they’ve been doing thousands of fully digital closings nationwide for decades…or even a decade. So, what do the best partners provide and what questions should lenders be asking?
Selecting the optimal partner
While it’s true that no digital closings provider is able to claim extensive experience from the perspective of duration, a lender can still measure a potential partner’s experience by vetting that firm’s true geographic footprint as well as the volume of digital closings they’ve performed. In markets like these, it’s all too easy for some settlement services firms to hang out the proverbial shingle advertising their “fully digital closing capabilities” when, in reality, they’ve simply partnered with a provider that is capable of managing some element, but not all, of a national lender’s digital closing needs. How hands-on is the provider and what do they bring to the partnership?
Lenders should thoroughly examine what type of digital closings a provider has undertaken, how many and where. How much of the process are they “throwing over the fence” and, if they are, what is their role in monitoring the performance, quality control, compliance and similar considerations?
Does the potential provider or its partner offer good RON options? Digital closings are being adopted to the point that soon it may not be enough to offer an iPad signing instead of one with pen and paper. Borrowers (and real estate professionals) may quickly come to expect the convenience of signing at home at the time they wish. It could be a question LOs hear during the application process, in fact! Potential RON providers, as well, should be thoroughly vetted.
As is the case with any service provider relationship, lenders seeking digital closing partners should also be absolutely sure that the potential provider’s technology aligns with the lender’s core technology, including any LOS or POS. Far too many firms, thinking they’ve upgraded their operations with new technology, have learned the hard way that systems that don’t seamlessly align simply create new chokepoints in the workflow—usually “solved” with more stare and compare or manual data entry.
Because we are still in the early days of a world where digital closings are the norm, keep in mind that pricing models vary widely. Anything from pay per transaction to pay per file to subscription could be on the table. Depending on the lender’s anticipated volume, this could become a huge variable when determining ROI, so it’s incumbent upon the lender to thoroughly understand exactly what they will be billed and how often.
Continuous improvement, which can at times be an overstated, underutilized concept, is very important when it comes to digital settlements. It’s almost impossible that the advances we’ve seen in the technology as well as its regulation and execution will simply plateau or stop evolving. Far from it. It’s likely we’ll see more advancement and changes to the way we do eClosings. Lenders should plan to stay on top of those developments, and demand that their service providers do as well. Is their technology “futureproof?” Do they have documented strategy and processes for helping their partners maintain a competitive edge?
Finally, the principle that oversight is an active process remains in play where lenders choose to source the majority of their digital closing process to a qualified partner. Things can change. There’s no doubt that regulation, compliance, regional customs and more will continue to evolve when it comes to eClosings. Lenders who do take the partnership approach still need to have dedicated internal resources actively monitoring and interacting with their digital closing partners. Those resources need to be given the means to update their understanding of the state of digital closings from compliance to new technology. And they should be required to report regularly to top decision-makers. At a time when wire fraud, cybercrime and similar threats are only increasing—especially when it comes to real estate closings—anything less risks some very serious consequences, the very least of which would be a suboptimal digital closing partnership.
The conversation around digital closings today is no longer about “if” or “when” we can expect them to become mainstream. Adoption is all but inevitable now. Instead, the conversation has turned to the “how” of the matter. It’s clear that, for many mortgage lenders, partnering with a qualified partner committed to continuous improvement can be a great choice. But lenders choosing to go that route will still need to invest time and resources into maintaining and regularly improving that partnership. After all, just like any other element of a mortgage lending operation, “winning” the early stage of the race doesn’t mean that the lender will maintain that advantage automatically.
Aaron Davis is the CEO of AMD Enterprises, a conglomerate of eClosing, technology, settlement services and consulting services which includes Florida Agency Network, Closingsuite.com, Premier Data Services and Network Transaction Solutions. He is also a frequent speaker at title and mortgage industry conferences and seminars, and often serves as a contributing author or expert source on issues including digital closings, industry M&A strategy, growing successful ABA and title operations and more. You can reach him at [email protected].