A Q&A Discussion with Electronic Marketplace Closing Solution (EMCS) Providers – Part 1 -- July 3, 2007 (Also appearing in the MBA Tech NewsLink)
We all remember our first closing – weeks of paperwork followed by hours of signing many documents. For me, I began to look around the room and think, “Who are these people and who’s paying for them to sit here day in and day out for such a routine series of tasks?”
Within today’s markets, there are those forward thinking lenders and vendors who are changing the face of closing interactions – for the better! I posed several questions to a group of leading mortgage solution providers regarding the benefits, technology, and customer impacts of electronic marketplace closing solution (EMCS) adoption. The panel consisted of:
- Tim M. Anderson, Vice President of eMortgage Services, Stewart
- Cary Burch, President and CEO, LSSI
- Bill Moody, President and CEO, Lenders First Choice
- Kirk Reese, CTO, DocuTech
Their answers should provide a solid foundation for those organizations seeking commercially available solutions. In part one, we asked the panel four questions:
- What are the key benefits achieved with the adoption and utilization of an electronic marketplace closing solution (EMCS)?
- What organizational and operational challenges must be overcome and prepared for to achieve the aforementioned benefits?
- Can an EMCS solution and/or technologies aid with the realization of streamlining processes while reducing systemic and operational risks?
- How can the EMCS be used to improve top-line revenues? Is this more important than improving operating margins?
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What are the key benefits achieved with the adoption and utilization of an electronic marketplace closing solution (EMCS)?
Tim M. Anderson: Simply stated, cheaper, faster, more efficient and accurate closings.
- Cheaper – It’s paperless and all documents can be eDelivered.
- Faster - All documents can be reviewed in advance and all non-notary documents can be “click-to-signed” prior to closing the clients only have to digitally sign the few remaining three to four witness notary documents. Even those documents can be signed once and eSignature can be used for all signature areas in one stroke. The same for eNotary & eStamp.
- Efficient – The above process has virtually eliminated all last minute questions and surprises at closing.
- Accurate – With the aforementioned process closing is completely digital with all information being updated immediately. All changes are automated, and you can never miss a signature or trailing documents since they are now contained within the electronic package.
Cary Burch: Foundationally, organizations must determine what they are uniquely seeking from the implementation of an EMCS solution set with definitive measurements and milestones. However, based upon our experiences at LSSI, we experientially have documented the three primary advantages:
- Streamlined closing process that directly translates into cost savings and enhanced operating margins.
- By compartmentalizing processes, organizations can secure improved quality, while mitigating fraud using integrated data, documents and centralization of multiple parties through proactive collaboration.
- Improving consumer and business partner’s satisfaction with the tailored segmentation of solutions to meet varied behaviors and business operations.
Bill Moody: Depending on the method of EMCS, consistent presentation of documents with very little chance of error to the borrower is one benefit. There is much less potential for errors on documents at closing with EMCS. Secondly, there is an immediate availability of documents for lender post closing review and investor review. Lastly, the electronic delivery to the investor is a significant benefit.
Kirk Reese: From our customer experiences, information management and disclosure are cornerstones for a robust EMCS implementation. Historically, customer and lenders were forced to deal with a wide range of systems and interconnected processes leading to erroneous data, improper disclosures, and even outright omissions. EMCS, if properly deployed, provides 1) a comprehensive electronic record of events and legal audit trail, 2) faster transaction times for all parties especially the lender and mortgage customer, and 3) a significant and measurable reduction in errors and document omissions.
- What organizational and operational challenges must be overcome and prepared for to achieve the aforementioned benefits?
Tim M. Anderson: From experience, there are five key challenges including:
- eDocs: The client needs the ability to support MISMO SMARTDocs ™ (v. 1.02) or eSignable PDF’s.
- eClosing: You need a closing agent that supports the eClosing process.
- eInvestor: If you are not retaining the loan, you will need to find an investor that is willing to buy eNotes.
- MERS eNote Registry: You must work with a platform provider that not only supports eClosing, but has successfully tested and been approved by MERS for eNote Registry and Investor for eDelivery.
- eVault: Again to perform all of the above, the process needs to be done in a secure electronic environment to hold the eNote asset before it is transferred to the ultimate investor or stored for life of loan access, management and servicing.
Cary Burch: First and foremost, the organizational culture must be prepared not only for the benefits of EMCS, but the implications of adoption and the changes to standard operating procedures (SOP’s). Frequently, our industry is dominated by historical relationships, obsolete channel partners, and point-based technology solutions resulting in inefficient fulfillment solutions, and regulatory burdens (due to interoperability issues). This fragmentation of approaches significantly perpetuates paper-based closings without proper consideration to the “new consumers.” These Generation X and Y customers have little tolerance for legacy business operations and technology that does not provide electronic disclosures, full discovery, and transaction transparency. EMCS will become widespread as the industry is pushed by multiple closing parties including consumers, investors, closing agents, brokers, recorders, notaries, and even the GSE’s.
Bill Moody: There are very few operational issues in today’s technology world for EMCS. Today, in most cases, the documents are reviewed either through a secure online process or web interview with the actual documents that need to be printed being signed by a pre-arranged Power of Attorney. The process of arranging the power of attorney to be executed and the security passwords and questions are critical, but not challenging. People buy expensive items on the Internet daily, and this is just an extension of the consumers’ ability to transact through the same secure methods they are already accustomed to using. Having the right person available to answer any questions for the borrower is also critical, but not a challenge. In fact, the chances are that a more qualified person will be available for this type of transaction then one that is “wet signed” with an escrow officer or notary.
Kirk Reese: The establishment and adoption of a common vision or architecture is paramount to an organizational EMCS plan-of-attack. In addition, technology partners must be properly aligned within this framework to ensure data exchanges, system interconnections, and for conformance to evolving industry standards. The path for global acceptance of EMCS will be provided by the early adoption lenders -- those willing to struggle through the implementation challenges and market uncertainties.
- Can an EMCS solution and/or technologies aid with the realization of streamlining processes while reducing systemic and operational risks?
Tim M. Anderson: No question about it. It all starts at eDisclosure and getting the borrowers eConsent to enter into a complete digital, paperless process from eApplication to eClosing. Eliminating the people intensive paper pushing and manual verification process (e.g., “stare and compare”) will greatly streamline cycle times and information exchanges. With electronic document processing, both the data and documents get updated at the same time, and the system can check and validate who changed what and where at any point in the process. This is pure automation -- not manual paper or people processing.
Cary Burch: EMCS can materially mitigate one of the largest challenges facing our industry – fraud. By integrating multiple parties and their disparate data sources, the closing process will inherently promote quality loans. Additionally, the risks associated with waiting weeks for the loan to close, can be reduced to days, hours, and potentially, even minutes. Furthermore, as the industry promotes an “educated home buyer” the use of EMCS for the “new consumer” base will have a direct impact on loan viability and financial risks, while increasing investor confidence and a reduction in buybacks. Holistically, discrete advantages include; 1) minimizing errors and having real time corrections, 2) reducing hard document storage requirements, 3) significantly reducing borrower’s time and issues at the closing table, 4) providing quicker review of funding packages, 5) point of sale closings, and 6) providing a completely digital investor package.
Bill Moody: When compared against the current closing systems, lender’s EMCS positive improvements include:
- Consistency of the closing package.
- Instantaneous availability to post closing (which should be performed prior to funding and happen 3 days after closing in a refinance transaction).
- Recordable documents are available immediately.
- Positively ensuring that all questions are asked prior to closing.
- Giving the borrower access to the documents early enough to review.
The closing may take longer, depending on the method of EMCS, but will be more consumer friendly with fewer mistakes. Also, a situation where the borrower “does not recall” what happened during the closing event is aided either by recording a web-based presentation, or a copy of their online transaction.
Kirk Reese: With the mortgage industry moving towards increased specialization, the addition of an EMCS solution will require granular knowledge for planning and deployment if organizational risk is to be identified and mitigated. Additionally, to streamline workflows and automate rules, subject matter expertise must first be available within the organization to effectively deal with divergent data and system interfaces. Nevertheless, a properly designed end-to-end electronic solution has great potential to streamline processes and reduce risks. Interim processes required during transition may actually increase risk and slow the current closing engines.
- How can the EMCS be used to improve top-line revenues? Is this more important than improving operating margins?
Tim M. Anderson: Eliminating operational time, cost and errors will greatly improve the bottom line. In doing so, improving customer service and experience will generate repeat business which will increase top-line revenues and marketing costs. In a sense, you are building repeat customers for life, if you deliver a superior customer experience.
Cary Burch: With the industry in transition, individual organizations should be actively hunting for both. As we know from published research, the average cost to close a loan is approximately $1,200 to $1,500 per loan, which is a result of the tedious process that involves many people. By streamlining the process (and the compartmentalized sub-processes) through an EMCS, sustainable improvements can be achieved and booked in the areas of loan quality, off-set costs associated to fraud, and a reduction in the overall costs to close a loan.
Bill Moody: Top-line revenue is improved by faster “pull through” times, client satisfaction by creating return client and referrals, and faster and cleaner delivery to investor. I don’t think you can say one is more important than the other-- both parts need to be in the equation.
Kirk Reese: Due to current market conditions and pressures, healthy firms will be seeking to expand their top-line revenues. Although, we’ve also witnessed less robust firms or those potentially facing material market weaknesses, concentrating more on margins and sustainability. Regardless, we believe that faster, more accurate closings will improve customer satisfaction and customer retention thereby providing a solid foundation for growth. The wildcard for the industry and existing players will be the M&A downstream impacts to product offerings, customer services, and volumes. We’re certain when we look back in 2008 there will be fewer lenders and a healthier mortgage market (due to M&A’s and an industry recovery).
In part two, we will examine regulatory compliance impacts, workflow and cycle-times, customer advantages, and lessons learned.
For 2008 MBA entries, click here