MReport March 2017

TheMReport — News and strategies for the evolving mortgage marketplace.

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20 | TH E M R EP O RT FEATURE clear on the legality of eMortgages or eNotes. It is. We now have clear laws governing electronic transaction of real estate busi- ness in all 50 states. American consumers have been doing brisk business in everything imaginable in a completely electronic fashion now for 17 years. Amazon would not be the company it is today if electronic commerce could be challenged successfully in court. Some argue that we don't have the right technology. This argument hasn't been true for many, many years. No one who attended a recent industry confer - ence, especially not the recent Digital Mortgage Conference, would make this argument. It just doesn't stand up anymore. Some argue that it's the ware - house lenders that are holding us back, unwilling to give up the interest income they earn while they wait for paper transactions to inch across between industry participants. While this may have been true in the past, it is no longer true. We're hearing plenty of stories about warehouse lenders that are embracing the eMortgage, from companies like First Funding, Guaranty Bank & Trust, Merchants Bank of Indiana, Santander, and more. Others claim that consumers don't trust electronic processes. Not even close. Borrowers are the ones pushing for a simpler, paper- free process, like the ones they use every day at the grocery and hardware stores. One look at the success enjoyed by Rocket Loans, LoanDepot, or Guaranteed Rate will show you that. Some say investors won't buy them, but this isn't true. Fannie Mae and Freddie Mac have been buying eMortgages for well over a decade. When non-government investors return to the market—a movement some experts claim has already begun—they will undoubtedly be open to accepting business electronically. In truth, no third-party is responsible for the slow rate of eMortgage adoption. It is true that the title industry has not been particularly quick to help lenders get across the finish line, but as lenders have begun to take vendor management more seriously (part- ly due to compliance concerns), they are beginning to choose title partners that are more capable of helping them grow their busi- nesses. More title companies are beginning to see a clear path to the future, one that includes the real eMortgage. The responsible party for the lender's slow adoption of the eMortgage is the lender them- selves. But it's not all their fault. Many of them are currently being misled into thinking the paper- less mortgage origination of the last decade is the real eMortgage. Sadly, that is not the case. What eMortgage Really Looks Like W e've heard a lot of stories lately about how we have finally achieved the "paperless" mortgage. Actually, we were closing these paperless loans 12 years ago in 2004, using the same laptop computers and digital signing pads we've read about in recent news. We stopped using the "pa- perless" designation for digital lending back in the mid-2000s because it had already been used by technology vendors who sold expensive document scanning and storage equipment to mortgage lenders and closing companies. Those systems took paper loan documents and scanned them so that lenders could enjoy some of the benefits of the true eMortgage without re-engineering their loan origination processes. Let me say that again: Lenders did not want to change a set of processes that was working for them and so instead of jump - ing ahead to the digital mortgage that the new federal and state legislation made possible, they purchased expensive equipment to render paper loans digital files. Now, it's very difficult for many of them to let go of that invest - ment and move forward. But the moral of the story is simple: If there is paper in the process, it's not a true eMortgage. If you look closely at the recent "paperless" mortgage originations, you'll find that, at the end of the process, documents were papered out and wet-signed. In this case, the paper comes at the end of the process instead of the beginning, but the paper is still there. It's still not an eMortgage. Paperless will not give lenders the same advan - tages as the eMortgage will. A real eMortgage is a financial instrument originated electroni- cally, sold into the secondary market electronically, and boarded onto the servicing platform elec- tronically. The signatures are all electronic, the note is electronic (an eNote), the notarization is electronic, and the key docu - ments are recorded into the public record electronically. If that's not happening, it's not an eMortgage. It may be "paperless," but that's been around for more than a decade. The Bright Side T he good news is that real eMortgages are being origi- nated by lenders today. Those who attended the Digital Mort- gage Conference last month saw a live demonstration, with the documents signed electronically before a notary signing agent who was 3,000 miles away. Most of the work was finished by the time the eight-minute demo was complete. The eMortgage is here now, but lenders won't get to it by hold - ing on to outdated technology or using "bridging" technology. They must not be distracted by the lure of "paperless," when the advantag - es come from the true eMortgage. There are enough reasons for any lender to want it, and so we expect to see more achieving it this year. Within five years, all lenders will be originating true eMortgages, end to end, and paper will be nowhere in sight. RICK TRIOLA has been working in the real estate, mortgage, and technology for more than 35 years. He founded NotaryCam in 2014 as the first venture-backed, on-demand notary service in the world. Some argue that we don't have the right technology. This argument hasn't been true for many, many years. mc_9X10.875_Ad.indd

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