A Q&A Discussion with Electronic Marketplace Closing Solution (EMCS) Providers – Part 2 -- July 10, 2007 (Also appearing in the MBA Tech NewsLink)

In the first article surrounding electronic marketplace closing solutions (EMCS) our distinguished industry panel provided insight into benefits, organizational challenges, customer behaviors, and bottom-line improvements.  Notable quotes included:

  • “…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.”
  • “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.”
  • “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.” 

If you remember, 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

The final five questions will explore regulatory compliance impacts, workflow and cycle-times, customer advantages, and lessons learned. 

* * * * * * * *

  • How does the implementation of EMCS assist with regulatory compliance and reporting?

Tim M. Anderson:  The ability to now reconcile what you originally eDisclosed at the time of application, and final disclosure at time of closing will alleviate many of the rumblings addressed by the threat of new RESPA rulings.  Additionally, since you now have the ability to keep both the data and the documents in sync and the data that you have is the source data on the document, reporting is going to be much more accurate.  Bottom line – traditional documents are irresponsible in today’s operating climate.  Imaged documents are still a poor choice, but when you get to a SMARTDocument environment then the data and document are legally one.  This latter situation represents a radical improvement and many things will change as a result of being able to trust both the data and documents.
Cary Burch:  We all know the mortgage process is one of the most complex transactions within the financial services industry, and it is one of the most stressful for the consumer.  The end-to-end process is highly regulated and fragmented with state, federal, and local compliance mandates (which are continually evolving).  The successful adoption of an EMCS can aid the industry with: 1) consumer rights, 2) individual municipality requirements, 3) truth-in-lending, and 4) reporting and auditability. 
Bill Moody:  I am not sure that it assists in regulatory compliance, except for the fact that a lender’s compliance check could be done earlier in the closing process, which helps prevent fixing possible issues post funding.
Kirk Reese:  The creation and maintenance of an electronic event log helps lenders better track compliance and minimize exceptions.  DocuTech's Fulfillment Center for initial disclosures is a great example of how this works, giving lenders the ability to track the status of each initial disclosure from request to fulfillment.  Online reporting tools help lenders satisfy auditors by easily proving exactly which documents were sent to the borrower and when. Hard-copy loan files will eventually be replaced with electronic versions.  In general, lenders are seeking certainty, while reducing omissions and errors.  EMCS is a component for these organizations. 

  • Does the EMCS offering improve workflow bottlenecks, cycle-time and data exchanges between service providers?

Tim M. Anderson:  No question about it!  We have seen improvement with the ability to share electronic documents with ALL parties tied to the transaction.  Automating the real estate transaction, from the first point of contact (POS) with the Realtor, we can post the documents and allow both the buyer and seller to view the documents and electronically negotiate the contract online.  We can then allow access to the mortgage lender (automating the mortgage transaction) to finance the transaction and electronically order services and process the loan to complete the loan fulfillment process, right up to allowing the title agent to close the loan electronically.  Virtually none of these documents physically are delivered or passed to anyone.  They are all working within the same environment that Stewart hosts, (SureClose) for the initial real estate and mortgage transaction in a complete collaborative electronic loan folder environment, then the closing documents are passed into our eClosingRoom for final eSignature and closing.  The legal documents are sent to MERS for eNote registration and legal documents sent to the final investor or electronically stored in our eVault.  Currently, the only documents that may need to be printed out and physically signed would be for those county jurisdictions that still cannot support eRecording, which is only one document. 
Cary Burch:  EMCS provides a unique advantage of joining multiple parties simultaneously using common technology interchanges.  With the individual organizational closing process fully understood and compartmentalized, the individual segments can clearly be improved when implementing data interchanges, business recovery (as compared to paper-documents), audit standards, advanced consumer participation, and even litigation defense.  It is a logical industry next step within the eMortgage solutions discussed for the last ten years.
Bill Moody:  The signing of the documents is always a bottleneck in the closing process, especially for National Lenders, which most lenders have now become.  The return of documents from a signing in a different city or state makes the review of these documents prior to closing very time sensitive.  EMCS gives the lender the ability to begin its review process the day the documents are eSigned, as opposed to 2 days later (after the documents have been received).  Most loans are sold immediately in the secondary market. With EMCS, they also become available prior to funding for packaging to an investor.  Also, depending on the method of signing, the data can be passed immediately to the lender LOS for verification.
Kirk Reese:  The EMCS offering doesn't really provide these benefits by itself.  However, the preparation for EMCS facilitates a series of benefits that culminate into the aforementioned solution set.  By addressing the process and operational issues that are facing a successful EMCS solution, organizations will achieve incremental successes that provide improved workflows, faster cycle-times, and efficient data sources and uses.

  • How can EMCS be used as a sustainable service and operational differentiator?  Can this be realized given the current market situation and commoditization of industry offerings?

Tim M. Anderson:  Great question and hits to the core competitive advantages that eClosing offers.  In a world where everything else has been commoditized, what else “new” do you have to compete with unless it is an easier, better process and overall customer experience?  What it gets down to is simply making it easier to do business with you then your paper based competition.  I firmly believe within the next two years, we will look back at this and say, wow what was all the resistance about?  Change is not something that comes easy to this industry.  It really is still about educating the consumer.  EMCS is real and as more adopt it as a competitive advantage and traditional companies begin loosing business to them, more and more will jump on and it will soon become the standard way of doing business.
Cary Burch:  Today, EMCS offers progressive organizations a clear market differentiator.  Those organizations that have deployed EMCS are experiencing extensive exposure and coverage.  With the Baby Boomer’s already reaching their peak of spending, it is clear that the next wave of mortgage buyers will demand and seek out those entities that pose EMCS offerings.  Coupled with the extensive subprime issues, investors are adopting a “Wall Street” mentality for securitization and bundling.  Furthermore, lenders who adopt EMCS may well experience significant improvements in marketshare, services cross-selling, and rapid time-to-market.  An advantage – yes.  Sustainable – for the early adopters.  Realized – it’s available today.
Bill Moody:  EMCS is mandatory, not for a marketing advantage, but just to stay in the game.  For many years, EMCS has been a topic of conversation for tech companies, lenders, settlement services companies, etc.  The excuse has always been that it is not a viable solution until the county recorder would accept an electronic document and investors accepted electronic mortgages.  EMCS is just the stepping-stone to a true eMortgage.  Most counties aren’t ready today for recording an eMortgage, but over 250 counties now accept an imaged recording document.  Baby steps usually pick up momentum, as the child gets older.   I don’t think you will find a lender, or investor that doesn’t want to find a way to get rid of the paper (sorry paper companies!), and make eMortgages the industry standard.  Easier delivery, easier ability for compliance monitoring, better for the consumer, much less warehouse space, more readily available documents, and the list could go on indefinitely.  EMCS is the baby step, but adulthood isn’t far behind.
Kirk Reese:  The current market situation demands more efficient solutions.  This is the best time to realize the overall strategy for full automation.  An electronic closing environment is a key part of this strategy.  This is the best time to develop the overall solution, as we have more time to work through implementation challenges, before the frenzy of an up-market consumes us again.

  • What are the customer advantages and benefits achieved once an EMCS offering has been adopted? 

Tim M. Anderson:  I think the benefits for the customer are the same ones for the lender.  Today the process is very cumbersome, takes a lot of time and people never want to go through it again.  By eliminating the obvious paper pain points and knowing that the documents are accurate by having the ability to preview them “prior” to closing will virtually eliminate all the surprises at the closing table.
Look at what we do today.  A third-party broker gives them an “estimate” of closing costs and some initial documents to review. The information is really very limited and sketchy and is not based on anything “real,” since after all, it is only an “estimate” and we’re really not locking them into anything legal.  That’s what the closing process is all about.  Why does the broker really care?  He’s only brokering the initial transaction -- the lender is really the one on the hook legally for proper disclosing.  Then about 20 to 30 days go by and we schedule a closing, and surprise them with all the additional fees and papers they need to sign.  That’s when all the fun just begins and usually the closing agent gets all the fallout, but doesn’t have any control over the process.  He’s just the messenger.  Involving the borrower, lender, and closing agent from the time of application all the way through the process will do much to eliminate the current sins and causes of new RESPA reform concerns.  It’s all about providing transparency into the transactions all along the process.
Cary Burch:  The “new consumers” are seeking a “banking experience.”  Just like many of the Generation X and Y consumers have rapidly embraced on-line banking, ATM’s, and just about anything digital.  They are seeking out a lender who can provide an EMCS closing process.  The transactions are secure and the technology has been proven both in merit and legally.  Without EMCS, lenders may find themselves at a market disadvantage with these upwardly mobile “new consumers” who are not particularity interested in the legacy way of closing.
Kirk Reese:  The customer will be a driving factor in the adoption of EMCS.  In fact, we believe as the market recognizes changing customer needs, the usage of EMCS will become an ingrained portion within a future closing process thereby no longer being a badge of distinction – it will be part everyone’s closing offering.  Within the current market environment, distinctive customer benefits include; 1) faster time to close, 2) more accurate loan data and documents, 3) an ability to review information prior to close in the comfortable setting without pressure and time-constraints, and 4) a legally binding audit trail of critical events.

  • What are the lessons learned that you would offer decision makers regarding the adoption and implementation of an EMCS?

Tim M. Anderson:  Start at the beginning and not the reverse as some have (i.e., at the back of the process and work forward).  That’s kind of how imaging got introduced while starting at servicing and moved forward only replicating the current inefficient processes.  When you start at the beginning, you will see how you are able to shrink the process by keeping everyone in the loop electronically and never having to physically ship files and documents around.  Furthermore, you are not just dealing with ‘dumb images’ but SMARTDocuments, you can automate the data and document verification process instead of having people today “checking the checkers.”  Now that you have intelligent documents, you can finally automate the paper process while implementing intelligent processes and workflows that check conditions on the documents and automatically orders what next has to be done in the process.  
Cary Burch:  Plain and simple, one size does not fit everyone.  It is only with the segmentation of processes both internally and externally, that organizations can truly realize and sustain an EMCS offering as part of their end-to-end eMortgage solutions.  As a result of the varied industry needs, a host of vendors have arisen creating a new wave of confusion that can only be dispelled by mapping requirements against the offerings.  Additionally, it will be the consumer and investor who lenders must listen to and partner with to ensure that their EMCS offering can be adaptable to changing business needs.  Phased implementations and iterative offerings should be preferred by organizational leaders.
Kirk Reese:  All vendors and solution providers must be properly aligned underneath a common architecture and plan-of-attack.  Selected providers must be scrutinized for not just an ability to deliver solutions today, but they also must possess the financial strength and technical ability to perform in tomorrow’s uncertainty.  Lastly, lenders must be patient and methodical and not give up at the first sign of difficulty, while the market matures and expands.

 

 

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