Impact on Your Business
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Can you recall the last time you wrote someone an interoffice memo with ink and paper, or saw a pad of pink “While You Were Out” sheets for voicemail messages? Maybe it’s been years, perhaps decades, but odds are you’ve ditched the handwritten notes in favor of email.
At first, the notion of “electronic mail” probably seemed foreign and intimidating. But eventually, everyone adjusted, and since the advent of email, many more facets of life have begun to rely on technology. Our cars, our phones, even the way we record real estate documents – they all rely on digital technology in one way or another.
So where are things heading next? What new trends will develop in 2018 and beyond, particularly in the real estate industry? As electronic signature, notary, and recording become the norm, what does that mean for your business and the ways technology will impact how you operate?
CSC has been at the forefront of the eRecording industry for 20 years, and our experts understand these trends and how to stay ahead of them. Because we believe in sharing this knowledge with our clients, we would like to invite you to view our free webinar, “The Latest Digital Real Estate Trends and Their Impact on Your Business.”
CSC Director of Financial Services, Jim DeGaetano, and Sales Director for CSC Real Estate Recording Services, Kevin Kinderman, will not only discuss these new real estate industry trends, but will also explain our eRecording platform, the inner workings of digital mortgages, eNotary and eSignature, and how digital technology can help your business.
Annie: Hello, everyone, and welcome to today's webinar "The Latest Digital Real Estate Industry Trends and Their Impact on Your Business." My name is Annie Triboletti and I will be your moderator. Joining us today are Jim DeGaetano and Kevin Kinderman.
Jim is the Director of Financial Services at CSC with a primary focus in electronic recordings or eRecordings and related real estate services. Jim oversees national accounts to achieve partnerships and digital commerce activities. He also plays a key role in our product development and market growth initiative, contributing significantly to the 270% growth of CSC's eRecording business since joining the company in 2012.
Kevin is the Director of Sales for CSC's Real Estate Business unit. Kevin is based in Wilmington, Delaware and manages our nationwide eRecording efforts for government recording offices and document submitters. And with that, let's welcome Jim and Kevin.
Kevin: Thank you, Annie.
Jim: Thank you, Annie. Thank you. This is Jim DeGaetano and it is a pleasure for Kevin and I to be on the phone with everybody today. It's exciting this time that we're in, in the real estate and mortgage industry, as the move towards digital transactions has really accelerated.
Kevin and I go to a lot of conferences and, of course, we've been involved in electronic recording for several years, so we do interact with quite a few of the industry players involved in this movement towards digital mortgage. And the industry has been great in several areas in working together to accelerate towards digital.
So this morning we'll be talking about Digital Mortgages and then as a subset eClosing, eNotarization, and eRecording, and then we'll have a little time at the end for questions and answers.
Kevin: Great. Thanks, Jim. So we're going to give you a quick introduction on where CSC is today. CSC has been in business since 1899. We've been a leader for business, legal, and financial services worldwide. Today, CSC does business with 90% of the Fortune 500 companies. CSC's founders were two attorneys that were instrumental in the developing of the incorporation laws here in Delaware. We're a private corporation with over 2,500 employees and we're in more than a dozen countries and all 50 states.
So a few more details about CSC and some of the solutions that we provide. As you'll see here on this slide, there's a list of various services that we offer. Our clients have work with us, they do so in a lot of different ways. We really help companies of all sizes sort of as a one-stop shop. Our company tagline is "We're the business behind the business." And you'll see here a variety of corporate compliance and governance services, financial services like UCC search and filings, our real estate services, but even digital brand services and domain name services.
Jim: Thanks, Kevin. So folks may ask, "What is a digital mortgage?" And you could start off by saying that the Holy Grail is where everything is digital where you have an online application, digital loan processing, digital underwriting, and a completely digital electronic closing including eSigning and eNotarization of deed and mortgage. And that is the Holy Grail and it is reachable in some places, some scenarios.
But a digital mortgage is also a mortgage that is largely digital if not completely digital, and we'll talk about that more later. We are getting closer to getting to a fully digital mortgage, but there still are some challenges particularly in the eClosing space.
I think the industry would've gotten here a little faster had we not sort of happened to . . . we went through the mortgage issues back in 2008, and then I think the focus shifted more towards working through foreclosures and compliance and putting TRID in place and making sure that people were in compliance with TRID.
But then as we worked through that, I think a big spark towards digital was largely really that Rocket Mortgage Super Bowl ad which really got people's attention in online mortgage that was convenient for consumers, and I think that shifted attention and really catapulted things. It was a real spark.
Homebuyers want speed and convenience and security on their transactions. They could do so many transactions online today that the expectations or hopes are that they could do the same in the mortgage loan space. And lenders have the same interest. They want speed. They want data accuracy. They want to be compliant. They want to reduce costs and they want to be able to leverage data.
So when we look at digital mortgage and sort of break it down, it really begins with the realtor and the homebuyer. And for a long time, we've seen property listings online and we've seen companies like Zillow and Redfin, which are very popular with consumers. But then we move into real estate contracts.
And I've had actually personal experience with this where my daughter bought a house recently and we were actually with her and we were busy doing a bunch of other things, but she had her phone with her and she was able to sign a purchase agreement and also execute the earnest money deposit through this application called Dotloop. And there was a lot of communication between the realtor and the buyer and the seller and the other parties involved.
I had never seen it before and I was really quite taken with how efficient that was, particularly that since we were doing other things that had nothing to do with her buying a house that day.
But then you move into online loan applications and there have been quite a few borrower portals that have been developed and are now available in the marketplace. And these portals are then integrated with the loan origination systems that the lenders use. So that's how you get the mortgage loan started. And this means that you can now do loan disclosures electronically rather than sending out paper. That's very efficient.
One of the biggest changes for me personally is seeing that there are now e-portals for income and asset verification, and also property value. A long, long time ago, I was a mortgage originator and I remember running down VOEs and VODs, pieces of paper. I'd have to drive to a loan applicant's place of employment and try to get a VOE signed or I'd have to drive in to the city of Chicago and pay $40 to park and try to go into a bank to get a VOD completed. Those days are going by the wayside. Now, this can be done through data-driven engines.
Loan underwriting has been around for a long time. Both Fannie and Freddie have had their desktop underwriter and loan prospector systems around for a long time and those systems have just gotten better and better.
Something that is newer, though, is electronic notes. This is something that has been pushed by the GSEs and it's working with MERS. An electronic note is accepted in all 50 states. Fannie and Freddie will accept electronic notes. The notes are registered in MERS' eRegistry where they track the location of the note and also the controller of the notes.
And use of eNotes is growing rapidly. Quicken announced earlier this year that they were going to start using eNotes, as did Wells and there are investors out there like Mid America who are very openly in the marketplace buying loans with eNotes. And we'll talk more about eNotes later on.
But an eNote is a MISMO smart document. It can be eSigned in all 50 states and it just has so many advantages for lenders and warehouse lenders in terms of better security, better control, better execution because you can actually get the notes to the investors faster and hopefully get a better price on your loan execution.
And then eClosings, which we're going to talk about more, we said there are hurdles that still exist. There are different versions or ways you can do an eClosing and we'll explore that more. But those hurdles are being sort of knocked down one by one, and we'll explore that more later.
Kevin, why don't you share a little with us about eRecording here?
Kevin: Yeah, so eRecording has been the last mile of the real estate transaction and it's really become much more popular within the last five to 10 years or so. But we're really seeing a more wide range adoption of the electronic recording process, and this is included in the topic when we talk about digital mortgage processes. The electronic recording process is just the last piece of it.
Some statistics today, there are counties within 47 states now that have implemented electronic recording. And overall, county offices, we've seen them report greater than 80% recording rates in documents that are submitted electronically versus paper through mail or courier.
And we'll review more about how eRecordings matured over the last decade a little bit later in the presentation, but I do want to note that part of the adoption and sort of broad acceptance of eRecording has come through the CFPB endorsing eRecording. And then we've even seen also the American Land Title Association, they've listed eRecording as one of their seven pillars of best practices. So we've seen some industry associations and key players support electronic recording that way.
And then, finally, electronic signatures. We know that eSign was passed in a federal act in the year 2000. It basically made electronic signatures valid and enforceable, that if the party agreed to sign it electronically, that there was federal legislation in place that made that basically of the same validity as a signature that was done in wet ink.
Jim, tell us a little bit more about more of these, I guess, shifts and how the industry is becoming a bit more data-driven from where it's been in the past.
Jim: Sure. Yeah, really, the industry is changing from a document-oriented industry to a data-driven industry. There are so many ways for lenders to utilize and leverage data that previously they used to use documents for.
So, this is a good thing because the average loan file is around 500 pages or pieces of paper, and this is cumbersome, and there are many parties involved in a mortgage loan. So there's a lack of control, when you're working with paper, amongst all these parties and there's a high propensity for error. When you can move to data, you can work in a more controlled environment where there's auditability and transparency.
And the lenders are able to do exception processing where if there's something amiss in the data, or if there's something in the data processing that alerts them to an inconsistency, rather than working with paper where you would stare and compare to make sure that everything was appropriate. So this is really a good shift for the industry in terms of speed, convenience, but just making better quality loans.
Kevin, as we sort of touched on before, there are a lot of participants in the marketplace that are making this all happen.
Kevin: Yeah, and this has been the most impressive thing to me. It's been enlightening too because you see how many different parties are involved in a real estate transaction, and it requires so much coordination from each of these key market participants to embrace it, approve it, promote it, to give confidence to consumers but also other participants that, "Hey, look, these are processes that we should be adopting and they're going to be a value to all of us."
Here listed first are GSEs. This is Fannie and Freddie, and we know that they have a uniform closing disclosure dataset that's been established that they've approved specific e-vendors or electronic vendors, and that they've broadly said, "Technology is something that we should implement more and we support it, we're behind it."
There's been almost a blitz of states over the last year or two that have adopted some new legislation that permits electronic notarization of some form, and we'll talk a little bit about that, but that's been happening at the same time.
The National Association of Secretaries of State, they've been sort of reacting to this and that's likely where the legislation is getting kicked off to get these states positioned to accept electronic notarization of some form.
MISMO is an association or organization that has established this data exchange standards, and that was necessary to make sure we had a means and sort of a rule book or a standard process to follow with all these different parties involved. And we've even seen three, the Property Records Industry Association or ESRA, they're all promoting in their own ways to their own audiences and members that we want to promote and accept digital processes, that they provide a greater sense of security, they provide efficiencies, and they really benefit the consumer too.
The last couple here, ALTA, American Land Title Association, and the Mortgage Bankers Association, same thing. I've mentioned ALTA. They've made eRecording one of their best practices. I'm sure there's going to be more. It's not instruction. Kind of guidance or suggestions on how to adopt electronic processes or embrace technology a bit more from them.
Even MERS, the Mortgage Electronic Registration System, they've had a key role in all of this because they were the ones that developed the eRegistry. And through this process, they recognize the controller and the location of these registered notes.
And then even vendors that participate in these processes. CSC is an eRecording vendor, but even some of these eVault companies that contain the copy of the eNote like . . . who are some we've seen around? Pfizer and DocMagic and eOriginal, even PeirsonPatterson. They've all played a role in collecting, or the industry as a whole has collected all of these different participants, key sort of stakeholders and worked together.
So my final thought is it's about time. We've been talking about this for so long and it really is exciting. It's great to see progress being made, and now we can start to see some fully electronic and digital mortgages, or digital mortgage transactions are happening today.
Jim: Great. There are so many things to work through. In some ways, their work has been heroic.
Kevin: Yeah, it really has. Well said, Jim. I think that's the feeling I have too. It's been impressive and significant.
And I'd mentioned before on the past slide some benefits really about the digital mortgage process, but specifically for customers or consumers, they love the convenience. I think it was eOriginal that shared an example on a webinar that they conducted a couple of months ago that there was a couple vacationing in France and their flight got cancelled. But because of the available technology that they had, they were still able to conduct the closing through their phone, so kind of fascinating.
I know for many of us in the industry that are seasoned and established and we've been doing it a certain way for so long, there may even be an ounce of uncomfort with that thought, but we see a greater sense of security with these processes, and there's no doubt that it provides so much convenience with where and when certain things can happen in the transaction.
Speed, obviously, is a benefit. Security is another where every single action taken by any party within this transaction, if it's done through this electronic digital mortgage process, it's date and time stamped. Every action, there's a log, there's an audit trail that captures anything that was done, so that's an element that we maybe hadn't had before where you're just sending it out through physical paper mail or you're using a courier for the delivery piece of it.
We haven't always had a fully transparent process, and I think security and transparency go hand in hand.
And then, obviously, communication really works with speed as well, but so many things can be done online, there's no delay, and it allows the transaction to happen sooner, which is beneficial really to all parties, the suppliers of the services, but also the consumers because buying a home may not take three months or four months anymore. It could be something that happens much, much faster.
Jim, any thoughts just about benefits to the consumer, or maybe you can share some information about benefits to the suppliers of the services, like title companies or lenders?
Jim: Yeah, the same or like benefits accrue to both lenders and title companies when going digital. Number one, you can leverage data. There are data that can be leveraged that will help the processing of loans, so it eliminates paper. It can be more accurate. You don't have to worry about cam keying errors. It's faster. And then you can also generate data for downstream users. You generate data at the very beginning of the loan process through the application and then it moves downstream even to the mortgage servicers once the loan is closed and delivered to the investors.
So, again, speed, faster loan processing. If you can process a loan in 30 days rather than 45 or 60 days, you can sell that loan into an earlier market and get a better price. It's easier to manage and hedge a mortgage pipeline. It's good for the guys doing secondary marketing, who are selling these loans into a secondary market.
Using digital processes, you have improved loan quality. Studies are showing that there are fewer errors and this really reduces the amount of post-closing cleanup that lenders have to do when they're processing and closing loans digitally rather than in sort of traditional paper-based processes. And post-closing cleanup is a pretty big thing for most lenders, so if you can reduce that cost, that's a big cost savings for lenders.
The studies are showing that doing digital mortgages reduces the cost of a mortgage anywhere from $220 to $400 per loan file, so that's pretty big savings, particularly when you consider that the cost of origination has gone up quite a bit over the last, say, 10 years due to increased compliance requirements.
When you're doing business digitally, particularly if you're utilizing eNote, you're going to get a faster turn on your warehouse line and this is going to reduce your warehouse costs. Again, every little bit of savings helps.
We talked before about better loan execution. If you have electronic documents and you can get those documents to the investor faster and you've been able to process and close your loan in a shorter amount of time than if you've been using paper, that means that you can sell into an earlier market and get a better execution.
The next one is something that everybody in every business wants, and that's a happy customer, so good borrower experience. If you have borrowers that are pleased with the process all the way through due to the convenience and speed, that's good because then they come back to you to refinance or when they buy a new house, they come back to you for their mortgage financing.
Early adopters in the digital space will have a competitive edge over those that lag. Consumers want speed and convenience and they're doing so many online transactions that they are going to gravitate to mortgage lenders who can do digital mortgages.
But just overall, doing business digitally is a benefit to all parties: the lender, the buyer, the seller or the title agent, and the real estate agent.
Again, going back to Quicken, they've really been a leader in this space first with their promotion of the Rocket Mortgage, and then earlier this year when they announced that they were going to begin utilizing eNotes and doing eClosing where they can. I think that really got people's attention and I think it moved the needle. I think the rest of the industry or most of the industry is now taking serious look and improving their digital capabilities.
Kevin: We're going to talk specifically about the types of eClosings. There's the traditional closing process, which has happened for decades. This can be done in any state. Obviously it's done in person, the notarization is done in wet ink, and there's a traditional note. But as Jim mentioned, he even thinks that sort of a hybrid eClosing should still be considered electronic, which it is.
This is happening more and more where the transaction is still conducted in person, but on non-notarized documents are electronic documents and they are electronically signed documents.
And then all notarized documents are still wet signed and notarized in person right on the paper, but there is an eNote. There could be a traditional note, but this is where there are variations within the hybrid eClosing process. But there's still adoption of enough electronic processes where, I hope we'd all agree, "Hey, look, this is a really solid step. This is maybe even a direction that all of us should be moving toward at least right away."
And then these second two over here on the right, I'm going to use some acronyms and we're going to reference them throughout the presentation, the remainder of it.
The first is IPEN, which is an In-Person eNotarization. This is where the transaction is in person, it's face-to-face, but all the documents are electronic, they're all electronically signed, they're all electronically notarized, there's an electronic note, and the documents are electronically reported. So although it happens in person, every piece of . . . I shouldn't say paper because there is none. Every document and every action by the various parties, those things happen electronically. And, again, that's the IPEN, the In-Person eNotarization process.
And then, finally, here, you have the . . . we call it RON, Remote Online Notarization, and it's probably fair to say that this is perhaps the more adopted process, at least as states put legislation in place to allow electronic notarization.
So this is where the signing would occur remotely but in real-time and that there's some sort of two-way A/V or audio-video connection, a camera and some sort of speaker that you're able to communicate that way.
The notary public would appear before the signer through that webcam, and then, again, all of the documents, they're electronic documents. They may not take paper form. They're signed electronically, notarized electronically. Again, you have an electronic note, and then the last part of the process is they're electronically recorded. They never have to take any paper form. They never even have to go on to mail. They can be a fully digital document all the way from the document creation to document execution into document recordation.
So that's probably what will become the more common eClosing model, at least related to the notarization process, but hopefully that gives everyone a good sense of what the different types of closings are that we're seeing.
So, Jim, give us a little more info. We've got a map here and I think you're going to talk with us about just which states have adopted legislation and which states are implementing this so far.
Jim: Right. The map does a good job of showing where you can do the different types of eClosing. And, again, you can do the hybrid in all 50 states, but then we have some overlays here. Those in orange are where you can do the Remote Online Notarization, which really started in Virginia. That was the first state to pass legislation for Remote Online Notarization. And their laws allow their notaries to notarize a document outside of Virginia, both inside Virginia and any place else.
And then Montana followed. Their initial law they passed restricted online notarization to just within the state. And then last year, both Texas and Nevada went live with their new laws allowing for Remote Online. They both went live July 1. And then, shortly thereafter, Stewart Title announced that they had done their first fully digital closing in Texas.
So I can't say that Remote Online Notarization is sweeping Texas like in a big tidal wave, but it is being done and it's growing slowly. I saw a report where the Texas Secretary of State reported that 132 Texas notaries had been designated or received designation as a Remote Online Notary. Now, Texas is a huge state, so you could say it's a good start, but 132, that number is going to grow quite a bit over the next few years.
But then in the dark blue, we see those states that allow for In-Person eNotarization or the IPEN. So there are quite a few states there. And then in the blue is where you've got the Hybrid eClosing.
I think the states in gray are interesting because those five states have passed Remote Online legislation, and in those five states it will become effective next year in 2019.
So moving on to the next slide, we're going to take a closer look at Remote Online Notarization, or RON. Kevin, you want to move it to the next slide, please? Thanks.
So it's interesting where it appears that Remote Online Notarization could become mainstream. And we see here, we've got four states in red that where it's already been passed and where it's active. You see the five states in blue where it's going to become effective next year. But then we see the 15 states in dark blue where legislation has been introduced. Not passed but introduced. So RON is being considered in 15 additional states, and so that indicates that there is momentum towards Remote Online Notarization, and that's why many in industry feel that it could become sort of the mainstream way to do notarization in the future.
With those five states, they are going to make it effective next year. I think in the latter part of 2019 and in 2020, we will see a sharp increase in RON-closed loans in the industry.
So moving on to the next slide, there are a lot of things to consider when you are looking at doing eClosed loans. There are multiple parties involved. You have to look at, if you're the lender, can you do this? You have to put things in place so that you can do business digitally. Then you have to look at the title underwriter. Will the title underwriter issue a title policy on an eNotarized loan or an eClosed loan? And then you have to look at your investor. Will that investor accept an eClosed loan? And then you have to look at the GSEs and also the state law in the county in which the transaction is being done.
As we've stated before, Fannie and Freddie accepts eNotes in all 50 states. They accept eNotarized loans in 22 states, and this is a fluid number. These numbers are changing all the time so this is a snapshot in time. Ginnie Mae is publishing a 2020 plan supporting digital, so they're going to get in the game in the near future. And the Federal Home Loan Bank is exploring digital.
Right now, Stewart Title will insure title on RON loans in several states provided it's in a county that eRecords. And Westcor has really been sort of out in the front amongst the title underwriters. They'll insure title on RON loans in 29 states provided that it's in a county that eRecords. All the other title underwriters are actively reviewing eClosings and eNotarization, and I'm sure we'll see their numbers and their acceptance pick up as well in the very near future.