It’s been talked about for years — and talked about and talked about. But something close to full adoption of eMortgages throughout the industry looks like it’s finally going to happen – and happen soon.
So notes Tim Anderson, Senior Vice President at Pavaso — a Texas-based company providing a completely digital closing platform — and, in the words of Mortgage Media’s Dave Matthews, “a long-time evangelist for eMortgages.” Anderson spoke with Matthews at the MBA’s recent Technology Solutions Conference and Expo in Dallas about the possibilities of eMortgages, the factors driving them, tech like Blockchain that can help move the process along — and potential stumbling blocks in the forms of industry inertia and regulator shortsightedness.
“So, I’ve been drinking the eMortgage Kool-Aid since Fannie Mae said they’re going to do this thing called a SMART Doc® eNote, back in 2002,” Anderson said. “… We were saying it’s (large-scale eMortgage adoption) going to happen in the next three to five years. I didn’t know it was going to be three times five!”
But now? The ball’s rolling and picking up momentum. Major players are coming into the space and are willing to buy eNotes, Anderson noted — Wells Fargo, Texas Capital Bank, Quicken, some of the other major aggregators. “Which was a big, big deal, because before it was just Fannie and Freddie, and most of our lenders don’t sell directly to Fannie and Freddie, so that’s a big deal.”
The consumers are driving the push toward a fully automated process as well, he noted: “… We start the process fully electronic with a lot of automation from app up to closing, and then it drops off the cliff again back to paper again, and the consumer is, saying ‘Hey, I want this e-thing.’ Why not complete it electronically So, consumers are driving it. Investors are finally driving it, and I think we’re finally there on the whole kind of digital mortgage experience.”
After all, not only can you extract information from a digitized document — you can dispense with the paper version altogether. “What a revolution that is,” Anderson said. There’s less chance for error, no more missing documents, and a quicker overall funding process. You can have 100 percent verification pre-close to make sure the loan is investor-quality before it goes to funding, Anderson added, noting that currently maybe 20 percent of the total loan pools get verified before funding. “What industry would allow that to be accepted? If you were building cars, that would never fly.”
Government is adding to the momentum, too — “the states are now weighing in to try to make it more efficient for notarizing online,” he said. With 50 states involved, that may take some time to get everyone in agreement, of course. Anderson and Matthews noted the MBA’s commitment to invest money — $2 million — to hire staff to help the Mortgage Industry Standards Maintenance Organization in its work toward the standardization of data across the industry.
And headway is being made with home loan banks — Anderson said collectively there are 11 of them and they have been looking to join in. “I think they’re going to probably move about the same time as Ginnie Mae in late 2019, early 2020. Some pilots would be great, because if they start buying eNotes, then you’re going to see that major hockey stick pickup.”
Blockchain technology can be an excellent tool moving forward, offering “better data, better verification and control of the source data and auto certifying who owns that data,” Anderson said. And consistent data: “The data will mean the same thing to all parties involved. It’s treated the same way across the board as well. So that to me is perfect for mortgage, because you have so many players that touch and update the date and whatever else. Because of this, I think you’ll see adoption of Blockchain much quicker than anything else in this environment.”
So, what are some potential bumps in the road?
For one, there’s the tendency toward inertia — as noted, eMortgages have been talked about and talked about for years; people tend to think it’s still something for the future “One of the common comments was when the county recorders will start accepting it,” Anderson said. But that future is now: 86 percent of that total population are in counties where they eRecord.
“One of the other issues I heard when consumers start asking for it but the consumers are already there,” he said. “It’s the lenders that are pushing back the other way. The consumers truly are online already. They want to keep it online. That’s no longer a valid excuse to wait.”
For another, Blockchain may be a great potential tool — but you need a lot of links for a chain to work. “There’s a lot of players that (have) got to say yes and agree to your view of that” — to adopt a common view and way to do business. Easier said than done, he noted: “That’s always the problem. The only way you get a standard is, you get enough people to say, ‘I agree, that’s the way it’s going to be done.’ That’s always been the problem in this industry.”
And as government regulators work out new privacy regulations, Anderson sees the potential for trouble — though Blockchain could be helpful there too, he said.
Matthews raised the issue of a potential collision between privacy regulations and Blockchain usage: Once data is in Blockchain, it’s there — which can be an issue if Congress decides to give consumers the ability to “disappear” their data. Which is not unlikely, Anderson ruefully noted: “I see it going that way because they’re reacting to Amazon and Google and all these aggregators that are selling the data. They may take the total opposite approach and shut it down. That’s the problem when you see them (legislators, regulators) come in and not totally understand the business model or risk benefit.”
Finally, Anderson raised the issue of venture capital, as a double-edged sword. “We’ve got a lot of money now finally coming back in, which is good,” he said. “VC capital is coming and funding these new startups and we’ve seen this before with the .COM companies: The startups are fearless. They don’t think or even know what they have to worry about — regulatory compliance, laws, agency regs and government oversight considerations … They’re fearless, but that also creates problems, because there’s an educational curve that they (have to) go thru. They don’t know what they don’t know. They burn through a lot of cash to get educated. As they get further involved, they say, ‘Oh. This thing’s not as easy as we thought or were talking about.’ Because there’s a lot of players you’ve got to get involved … that have to say yes and agree on how this thing’s gets done and all the regulators can say ‘this is the way it’s going to be legal and compliant’ as well. We have seen this all before and as a result there’s going to be a lot of fallout, again. As a lot of those players are coming in getting educated and finding out the hard way just how hard it is to get acceptance and adoption
“We’ve not, as an industry, had a real good track record with startups founded by venture or hedge funds creating a lot of innovation in our space. One of the reasons is, this is a very difficult industry to disrupt because of all the regulations and because of all the players that are involved that have to say yes and agree to change,” he added — noting that startups are seeing more success in the commercial real estate area than in residential, as CRE is less highly regulated — “a little bit more of a Wild West out there.”
These are the opinions of Tim Anderson and not necessarily reflective of Pavaso.
Anderson is well known in the mortgage industry for his advocacy and promotion of innovative technologies that enhance the mortgage process. He brings over 35 years of industry experience on both the lending and vendor sides of the business. Anderson is an active member of the MBA Residential Technology Committee, MISMO eMortgage Workgroup, Electronic Records and Signature Association and the ALTA Technology Committee. He also serves on the vendor technology advisory committees for two government-sponsored enterprises.