TRID went live on Oct. 3. Some industry analysts say one consequence of the new consumer-disclosure rules will be that paperless eMortgages will become standard in the post-TRID world. Tim Anderson, director of eServices for DocMagic, spoke to Scotsman Guide News on why the regulations and consumer preferences might inevitably push the industry toward a paperless mortgage.
How would you define an eMortgage?
My definition of an eMortgage is a full and complete paperless process from initial loan application all the way to closing.
Why is it difficult from a technical standpoint for mortgage lenders to cross over to paperless?
You are dealing with so many different parties from application to closing and also to investor delivery. Everybody has got to sign off on an electronic process and agree to it. That has been part of the problem. The majority of the steps have all been automated by various partners, like notary, title and closing and [document preparation]. The major obstacle is that you still have to get the investor to buy it. That is the last barrier to adoption. You have [Fannie Mae] and [Freddie Mac], but most of the mid-tier guys don’t sell direct to Fannie and Freddie. They sell to Chase, [Wells Fargo] and others. Until they start buying eNotes, it is still going to be limited adoption.
How far has the industry gone in going paperless?
There is wide adoption on initial disclosures. Already, it is an easy package to put together. You don’t have to sell to an investor. It is the initial three-day application package, and the regulations are only that you have to show that you delivered it, or sent it out within three days of your application. There has been mass adoption [of that], probably close to 70 percent [of companies] already. That is the first step. The consumer says, ‘Well, I can get the initial disclosures that way, why can’t I do the closing?’ That is the second step. You are seeing pretty quick adoption of the hybrid [closing]. You can execute the majority of the documents you sign, but you still have to paper up the notary or recordable documents.
Why might TRID push companies in the direction of paperless mortgages?
The regulator that designed the rule, the [Consumer Financial Protection Bureau], is pushing hard for eClosings. The regulation itself almost mandates that you start electronic right from the loan estimate. This is all about electronic proof of compliance. Right from the loan estimate, to intent to proceed to the delivery rule around the final disclosures, all of these are critical compliance milestones that the CFPB is going to audit a lender for compliance, and you have to be able to prove this. Again, it is very hard to do in a paper world. Finally, it is just a business decision. In the paper world for a closing, people are projecting 10 to 15 days added on to the closing process because of the three-day-mail-delivery rule. In the electronic world, I can cut that in half if we go with eConsent and eReceipt-of-delivery. All those things contribute to a better process for compliance and for the consumer.
Are there any other factors aside from TRID that would encourage paperless mortgages?
It is the consumers themselves. The millennials are all online. They want everything immediate, and they want it online. They don’t want to deal with paper. Who mails stuff anymore, right?
How receptive are the government-sponsored enterprises (GSEs) and other investors to purchasing eNotes?
There is no barrier at all from the GSEs. In fact, Fannie has basically doubled down, created a brand-new website to educate lenders and consumers to get on board. There are a lot of myths about whether it is still legal or not. There is a huge educational curve still. It is not an issue on the consumer side. They are already into eSignings and doing everything online. It is basically old, traditional players that have done business for 30 years the same way.
How long do you think it will take for the eMortgage to become the standard?
It is going to be critical when the CFPB begins enforcing compliance, when they start auditing these lenders for compliance around TRID, and not just TRID, but the [qualified mortgage rule] and ability-to-repay [rule]. When [companies] start getting audited, we’ll see mass adoption very quickly because they will not be able to comply in a paper world. It will push them to go electronic to prove electronic evidence at the next audit. Within a year, you will start seeing auditing for compliance. Once they start imposing fines, the pocketbook will force compliance very quickly.