Will e-mortgages become the norm?
If electronic communication is creating a paperless society, then the process for getting a home loan is pretty far down the road.
As any home buyer who has signed closing papers for a home loan knows, the stack of paperwork from mortgage lenders for a loan is thick. While that process is unlikely to disappear anytime soon, progress is happening.
There are three main steps to getting a mortgage loan: Applying, lender interaction with the consumer to get more information, and closing, says Alec Cheung, vice president of eLynx, which offers online, paperless compliance services for mortgages.
The first step of a loan application is where lenders are currently focusing most of their attention to improve the consumer’s experience, Cheung says. The other areas are slowly improving, he says, with closings being the most difficult to make paperless.
“It has lasted this long because the typical consumer doesn’t do it that often,” he says.
An online loan application is the easiest step because it requires getting secured information from an applicant. It’s mostly a one-way process during that first step.
Jose Tijam, a real estate agent at Grand Avenue Realty & Lending in Los Angeles, says he bought a home two years ago with a loan he applied for online, and found all but one lender offered electronic filing.
“The lenders had a portal where you would input all your personal and financial information for processing,” Tijam says. “The clients I’ve worked with that have purchased homes also went through electronic applications.
“My older clients prefer speaking to a person, whereas my younger clients are more comfortable completing their applications electronically online.”
Regardless of age, everyone expects some sort of online capabilities with a home loan, says Aaron LaRue, who runs the MortgageMonks blog and consults lenders to build online origination platforms. Some may need more help than others, LaRue says.
“Not all customers are the same — some people just want a website to login and track progress, while others maybe comfortable in a self-service online experience,” he says.
The loan evaluation process runs smoother electronically, Tijam says, because the documents that are needed are itemized through the application. Applicants upload bank statements, driver’s license, paystubs, W-2 forms and other documents, and the online process makes it more difficult to miss a document, he says.
Tax forms and other documents needed by lenders can be uploaded in many ways, Cheung says. These include as a PDF or simply taking a photo of documents. Customers will get an electronic copy of their completed application back from the bank, which they can download and save to their computer’s hard drive, he says.
Lender interaction electronically
Once an online application is submitted, the lender will likely have some questions that can be resolved online, and tracking the loan through the process will begin. This is where compliance with federal regulations can come into play for lenders.
For example, the TILA-RESPA Integrated Disclosure rules (also known as TRID) from the Consumer Financial Protection Bureau are designed to make the online mortgage disclosure process easier. The forms are streamlined and are meant to help consumers shop and compare loan offers.
Instead of sending forms back and forth via overnight shipment with loan applicants, lenders can save time and money working with them online, Cheung says. Errors made by someone manually keying in information from a paper form can be eliminated with electronic forms, he says.
There are no federal regulations that mandate using paper for mortgage loans, Cheung says. Laws allowing electronic signatures have been around for years, and e-signatures still allow customers to have an option to receive information on paper.
This last stage of the home loan process is the most difficult online because a lot of documents are needed. Closing is a high-risk activity that can lead to a loan not being approved if something isn’t done properly, LaRue says.
“Borrowers generally need someone to walk them through the process,” LaRue says. “And lenders need a third party to handle this step to protect themselves — they want to be a neutral observer in this process, they do not want to put pressure on someone to close a loan.”
ServiceLink specializes in online closing services, he says. Customers log into a Skype-like chat, and a live person walks them through the paperwork. “It’s very interactive, and you can ask questions while you digitally sign your documents,” LaRue says.
Electronic signatures at closing are obviously a lot faster than in person, but borrowers will still need to go to an office at closing, Cheung says.
“You’re going to want to have someone there — a face — to help you get through it,” he says, adding that it could be done through a video chat.
Some closing processes may still need to be done the old fashioned way, Cheung says. An in-person notary is still needed because electronic notarization standards haven’t been set yet, he says. Also, not all county offices accept electronic documents, so recording deeds at the county administrator’s office still requires paper and must be done in person.
Slowly and steadily, momentum is building for home loans to be done online from start to finish, Cheung says. Borrowers just shouldn’t expect that thick stack of paperwork to go away anytime soon.
“I don’t just foresee that paper processing is going to go away,” he says.