Electronic Settlement – Reality has Arrived -- November 15, 2006 (Also appearing in the MBA NewsLink)
Since 2000, many mortgage executives have been focused on improving margins and efficiencies utilizing optimization methods that included business process management (BPM), outsourcing, adoption of new technologies (e.g., SOA, LOS, imaging), and regulatory compliance automation. While significant sustainable advantages have been realized, a vast majority of these initiatives were rigorous improvements associated with originations, loan servicing, and risk mitigation. The next wave belongs to those entities that recognize the forgotten segment of the electronic mortgage process – settlement.
Even though electronic settlement (i.e., e-settlement) is often times wrapped up in a plethora of abbreviations, industry associations, regulations, and technical capabilities (e.g., SaaS, UETA, e-Sign, MISMO, PRIA, et al), the business rationale for adoption continues to grow along with the number of lenders, agencies, bureaus, vendors, and county recorders. The goal is powerful albeit difficult to achieve – the use of fully digital “SMART” documents to eliminate the need for paper-driven settlement processes that for some counties consumes in excess of 180 days. Now factor in: a) the capability to settle the loan / property faster, b) a potential reduction in warehouse lines, c) greater ability to “turn” the volume (either via portfolio or into the MBS value streams), d) a reduction in exception handling (automation reduces rejections and streamlines processing), and you can see why e-settlement holds such an opportunity for an industry struggling with profitability and on-going fragmentation.
Yes, as you can imagine there are a host of offerings being promoted by not just start-ups, but well established firms seeking to extend their origination operations. However, whereas six years have passed since the adoption of the foundational government regulations providing the legal legitimacy needed for e-settlement, there are still no comprehensive or uniform standards among county recorders across the nation. The result are vendors that have tailored their e-settlement solutions to accommodate the nuances within the estimated 10% to 20% of the national recorders who are contemplating or embracing some form of e-settlement (often referenced from level 1 or scanned documents to level 4 SMART document adoption).
For many mortgage professionals, the adoption and implementation of e-settlement represents the critical lynchpin in the holistic realization of e-mortgages that have been debated for the better part of seven years. For profit challenged organizations, the key is no longer whether the technology works, vendors are robust enough, or the standards are accepted, it is the ability to quickly integrate and adjust diverse national settlement processes. For large organizations seeking to find “one-size that fits all”, they maybe surprised – unpleasantly so. Since each locale frequently has their own unique requirements and constraints, mortgage leaders must decide which solutions possess the greatest business value and return on investment (e.g., 50% of national volume is done in 15 counties). Some organizations are taking this market segmentation and subsequent implementations a step further by sub-dividing the types of documents with the greatest degree of return (e.g.,reconveyances). The realistic adoption of e-settlement is all about “thinking BIG, but starting small.”
Regardless of the strategy chosen, a proven and robust solution must be selected which can be adapted and certified to diverse county requirements. Furthermore, since the markets have recently exploded with vendor claims and patent filings, purchasers must approach the selection of an e-settlement solution as “buyer beware.” A comprehensive due diligence must be performed with pre-established criteria, rating scales, and mapping to business measurements and goals. In more complex settlement processes and back-office operations, it is useful to enjoin an independent outside advisor to assist with cutting through the seemingly endless market claims by vendors and SaaS providers. A common implementation rule of thumb is two to six months (depending upon settlement type, document “levels,” organizational readiness, and if the vendor has experience with the county in question).
Stating the obvious (from the above cursory review), the reality of e-settlement has arrived – it’s no longer a matter of when. The e-settlement designs have been proven, transactions certified, and the returns verified. How prepared is your organization, where do you begin, and what are the returns?
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