All-Electronic Loans Are Still Far Off

Forward thinkers in the mortgage business dream of the day when borrowers will close on their loans electronically from home.

They’d still have the same number of papers to read and sign. After all, most of those are required by law, not by the lender. But at least they’d have electronic versions well in advance to peruse at their leisure so there will be no surprises. And they’d be able to click their approval onto each page instead of having to sign every last one.

Lenders also will benefit. No longer will they send loan papers to closing agents, not knowing what they’ll get back or whether the file will be intact. At least one major lender operates a lost note department to retrieve missing documents.

But don’t hold your breath. Despite some well-publicized “firsts,” these supposed all-electronic transactions were not milestones. In most cases, the reams of documents were printed out on paper later so the information could be verified and stored.

Now, some experts say it will be at least three years before electronic mortgages become commonplace. And it’s been two years since the signing of the Electronic Signatures Act that was supposed to make all this happen.

What’s the hang-up? For one thing, the mortgage business is only now coming to terms with a common framework of key data standards for paperless home loans.

Until these are in place, the corps of professionals who have a hand in the transaction--the lenders, appraisers, title companies, surveyors, flood certification specialists, just to name a few--will not be able to exchange paperless documents at will.

Nor will anyone trust the quality or the integrity of the information contained therein.

For another, only a handful of the nation’s 3,000-plus county recorders are equipped to receive, register and post electronic documents. About 80% of all closings take place in perhaps 200 counties, so there’s not that far to go.

But if you’re not in Fairfax County, Va., Broward County, Fla., Maricopa County, Ariz., or one of perhaps two dozen other jurisdictions nationwide, everything that’s generated by a computer has to be printed out before it can be recorded.

In addition, most states still require that mortgage documents be notarized as proof that the borrower did not do so under duress. So even if you want to sign electronically, a notary will have to be there, too.

Then there are the borrowers. Just as lenders have embraced the Internet as a business channel to efficiently and inexpensively originate mortgages, computer-savvy consumers have accepted it as a way to quickly search for information, compare rates and, yes, sometimes even apply for financing.

But are consumers ready to take the next step, a leap of faith that what we saw and signed on the monitor screen and what comes out a dozen years later when we pay off our loans or question what we still owe will be one and the same?

Mark Oliphant, who is responsible for e-mortgage solutions at Fannie Mae, the nation’s largest supplier of money for home loans, thinks we are.

Oliphant says that based on his company’s experience with several test programs, he doesn’t think there will be a problem. “Whether electronic mortgages will become mainstream remains to be seen,” he said, “but I’m encouraged.”

Mark Bellenger of Vested Technologies in Rocky Hill, Conn., used to be enthusiastic, too. Now he’s not so sure.

After President Clinton signed the E-Signatures Act in June 2000, setting out the legal framework for conducting business electronically, Bellenger predicted that his firm, a division of the Connecticut Attorney Title Insurance Co., the largest domestic title underwriter in New England, would do its first true electronic closing before the year ended.

Not only has that seminal event never taken place, Bellenger said it’s “not even close to happening.”

Buyers and sellers are “leery” of not having paper, said Bellenger, who has come to learn that just because a law is passed doesn’t mean something will happen automatically. “Few people are asking for this.”

That doesn’t square with the results of a recent survey by Myers Internet Services of San Jose, which found that three out of four borrowers are willing to complete the entire mortgage process online, once digital signatures become available.

But even if the Myers study is on target, there’s still a big problem: Only 1% of all loan originators have implemented an e-signature platform, according to Mortech, a Silver Spring, Md., consulting firm.

As it turns out, while most lenders think paperless mortgages are a good idea, for the most part they are waiting for it to happen before they invest in the technology. “Every lender we talk to says they aren’t doing a thing [until they receive] clear guidance,” Bellenger said.

Consequently, consumers who are eager to move forward will have to be content with shopping and applying for a mortgage online. The rest is still being done the old-fashioned way, with pen and paper.

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Lew Sichelman writes a weekly housing column that appears in newspapers nationwide.