Opinion: how digital closings can help with housing affordability
From the White House and Congress to multiple federal agencies, one of the top concerns is housing affordability. Consumers are worried too. About half of U.S. adults (49%) say the availability of affordable housing is a major problem where they live, up 10 percentage points from 2018. The same 2021 Pew survey, 70% of Americans said young adults today have a harder time buying a home than their parents’ generation did.
While it’s getting more expensive to buy a home, it’s also getting pricier to originate one also. According to the Mortgage Bankers Association (MBA), total loan production expenses increased to an all-time high of $9,470 per loan in the fourth quarter of 2021. This was up from $9,140 per loan in the third quarter as the market transitioned from a rate-term refinancing market to a purchase and cash-out refinancing market.
With the current cost of origination, combined with higher interest rates and low housing inventory on the horizon, the MBA reports that 2022 is likely to see about a 30% decline in overall mortgage originations, as compared to 2021.
With revenue tightening and volume slowing, it is becoming increasingly important for companies to adjust costs. As a result, lenders and title companies are seeking ways to invest and implement solutions that will further streamline operations, grow market share, remain competitive, and improve borrower experience while providing increased ROI.
One avenue to reduce cost and streamline the closing process is to offer digital closings. A recent Marketwise eClose ROI study found that lenders can save nearly $450 and settlement agents up to about $100 per loan due to time eliminated, improvements in transactional quality, and costs associated with printing and mailing documents. Lenders and title agents also reported they can close more loans faster with the same or fewer people, and improve overall loan quality by reducing critical errors, avoiding missed signatures and unnecessary rework. Full e-closed loans also reduce funding time during post-closing to the secondary market and results in an improved, measurable overall return on investment, according to the study. A 2021 digital closing survey by the American Land Title Association (ALTA), found 52% reported closing times decreased utilizing RON due to the number of documents signed ahead of time, while 43% reported cost savings.
“Consumer expectations have shifted to digital-first, and that’s an incredible opportunity for the lender and title industries to be at the forefront of both what consumers want and what is also most financially and operationally efficient,” said Terri Davis. “eClose is the final frontier of real estate, and we’re seeing the incredible ROI, both in the numbers and in consumer feedback, of those who fully embrace eClosing mortgages with online notarization.”
To help drive adoption of digital closings, ALTA partnered with the Mortgage Industry Standards Maintenance Organization (MISMO) to be the sole provider of title and settlement agent data for the MISMO e-Eligibility Exchange. The e-Eligibility Exchange serves as a central source of information on the criteria that impact digital closings. The data will be provided to MISMO under a contributor agreement with the ALTA Title & Settlement Agent Registry (ALTA Registry), a national database of title and settlement agents.
The MISMO e-Eligibility Exchange features information on trading partner requirements, e-notarization regulations, county recording requirements, settlement agent readiness and title underwriter restrictions. The platform helps real estate and finance professionals navigate these factors so each closing can be as digital as possible.
The ALTA Registry is a unique real estate utility created specifically for the mortgage industry and service providers. For the first time, the ALTA Registry will provide data on individual title insurance and settlement services companies, identified by an ALTA ID. The ALTA Registry identifies title and settlement companies that can perform RON closings. This helps mortgage companies identify closing companies that offer this increasingly in-demand service. The ALTA Registry is free and ALTA membership is not required.
“We’re pleased to collaborate with MISMO and provide the e-Eligibility Exchange with the most accurate title and settlement services company data available in the industry,” said ALTA CEO Diane Tomb. “It’s crucial that the title insurance industry urge progress and innovation in the digital closing space. With 9,000 locations already listed in the ALTA Registry and 2,000 of them showing a state of ‘RON readiness,’ now is the time for all title insurance companies and real estate attorneys to register.”
ALTA launched the ALTA Registry in 2017 as the first national database of title insurance and settlement services companies. In addition to contact information and branch locations, each ALTA Registry listing also includes a title insurance company’s or real estate attorney’s unique seven-digit ALTA ID.
The e-Eligibility Exchange is now available to all MISMO members via an online interface and APIs that can be integrated into other technology platforms.
“The MISMO e-Eligibility Exchange serves as a resource for the entire industry and its success relies on the quality and accuracy of the contributed data,” said Seth Appleton, president of MISMO. “The exchange will benefit tremendously from ALTA participation, with its timely and accurate title insurance and settlement services company data. The fact that a title agent can only join the ALTA Registry after its title insurance underwriter has confirmed its information gives us ongoing confidence that we will have data that is unique and up to date. This accuracy, together with the uniqueness of the ALTA ID, will help make the e-Eligibility Exchange a compelling and innovative industry resource.”
The e-Eligibility Exchange draws on Snapdocs’ and MISMO’s respective areas of expertise, with Snapdocs providing the technology that powers the e-Eligibility Exchange, and MISMO working with industry participants such as ALTA to collect and maintain the most robust and up-to-date digital closing criteria possible.
The number of title and settlement companies offering digital closings increased 228% compared to 2019, according to ALTA’s 2021 Digital Closing Survey. The survey of 300 title professionals showed that 46% offered digital closings in 2020 during the COVID-19 pandemic. Prior to the health crisis, a 2019 survey showed that 14% of companies offered digital closings two years ago.
While the number of digital mortgage closings completed continues to rise, industry-wide adoption is still hindered by the complexity and lack of transparency into factors that determine how “e” closings can be. The e-Eligibility Exchange helps to maximize the digitization of closing processes, including shifting to eNote and RON, and increasing these benefits for every participant involved in a mortgage loan’s life cycle.
“eClosing volume has grown significantly in the last two years due to growing acceptance from stakeholders such as investors, servicing buyers, etc., as well as the growing adoption of e-recording and e-notarization at the jurisdictional level,” said Raj Penugonda, product development director at Freddie Mac. “However, since acceptance and adoption are not yet uniform across the ecosystem, lenders need to make a loan level determination of which loan documents can be electronically signed. This makes it difficult for them to scale their eClosings. MISMO e-Eligibility Exchange helps address this challenge. As part of our efforts to help the industry’s journey towards a true digital mortgage, Freddie Mac is excited to work with MISMO in developing e-Eligibility Exchange.”
Balancing high-tech with high touch was a priority for companies even before the pandemic. In a 2020 report by Forbes Insights in association with Freddie Mac, 85% of firms surveyed described their efforts at mortgage digitization prior to COVID-19 as aggressive or very aggressive. During the global crisis, lenders already focused on technological capabilities were the most prepared to help borrowers.
As people have become accustomed to using smartphones for shopping and applying for jobs and expectations for technology continue to increase, businesses are responding by meeting the client where they want to be—on their screens. According to a 2020 study by J.D. Power, 64% of consumers believe that a digital process would make buying a home or refinancing easier than one conducted in person.
In an effort to permit immediate nationwide use of RON, ALTA and other groups continue to support the SECURE Notarization Act, which now has 83 co-sponsors in the House of Representatives. The bill would create national minimum standards and provide certainty for the interstate recognition of RON. At the state level, Maine joined 39 other states to allow remote online notarization (RON) after Gov. Janet Mills signed into law LD 2023. The legislation will go into effect July 1, 2023.
“There is a need and demand for this approach to notarization throughout the United States,” Tomb said. “The SECURE Notarization Act allows businesses and consumers the ability to execute critical documents using two-way audiovisual communication. Current requirements for a signer to physically be in the presence of a notary are often impractical and sometimes impossible due to social distancing limitations resulting from the COVID-19 pandemic, as well as other roadblocks for in-person signing, like overseas military service and time constraints.”
“Consumers expect greater digitization in the mortgage process like they do with other experiences. From a homebuyer perspective, digital closings can help bring the reality of homeownership to a wider swath of consumers. For businesses, digital closings improve efficiency through reduced operational cost and increased productivity. Solutions like the MISMO e-Eligibility Exchange can help bridge the gap between housing affordability and accessibility,” Tomb concluded.