JAMES DOUGHERTY
‘Streamlines the process’
When a stamp is lifted off a freshly notarized document, the mark of an official seal is left imbedded on the paper. But what happens when paper is no longer part of the equation?
For the mortgage industry, the elimination of paper would streamline the process – saving both time and money – according to Daniel J. Greenwood, director of the E-Commerce Architecture Program at the Massachusetts Institute of Technology and author of a recently published white paper on electronic notarization.
Greenwood said electronic notarization is in demand, but the proposed methods of turning the concept into a widespread practice vary and are imaginative.
In his paper “Electronic Notarization: Why It’s Needed, How It Works and How It Can Be Implemented to Enable Greater Transactional Security,” Greenwood examines the role electronic notarization would play in industries such as mortgage lending.
“We are seeing examples of electronic filings right now around the country,” said Greenwood. He added, “Electronic notarization is sort of the next step. We will see continued experimentation. You just have to kind of start somewhere.”
Pennsylvania took a statewide leap into the next era of notarization last week, launching uniform technology for electronic notarization and giving industry leaders and government officials a chance to see how electronic notarization works. Pennsylvania is the first state to adopt a statewide system powered by the National eNotary Registry. Under the new system, a secure electronic notary seal will replace the traditional method used by public notaries.
Richard Hansberger, director of e-notarization at the National Notary Association, said the official launch celebration last Thursday was a historic day and a sign of where Americans are headed when it comes to processing and verifying documents. He also said Pennsylvania’s system has the capability to detect unauthorized alterations to a digital document after it has been notarized.
Though Pennsylvania may be the first to fully introduce electronic notarization into the marketplace, it definitely won’t be the last, according to Hansberger. He said some states are close and may take the necessary steps to catch up to Pennsylvania’s progress within the next year. Hansberger said he does not believe Massachusetts will be one of the next few, but the Bay State might not be too far behind. And the commonwealth did take action by passing the Massachusetts Uniform Electronic Transactions Act, following the federal E-SIGN law, he noted.
‘Kind of a Bug’
Jim Jones, president and founder of First Wellesley Consulting Group, predicted that in five to eight years, more than half the mortgages around the country will originate as electronic transactions. Jones said the process will never be 100 percent free of paper, but thinks 60 percent to 70 percent could be done electronically in the coming years.
“It has been an entirely paper-based activity,” said Jones. “Absolutely we need to have e-notarization come into that event. E-notarization fits right into e-mortgage. The mortgage industry very much wants to get a paperless mortgage process. They want to make the mortgage lifecycle as electronic as it can be, and throw away the paper.”
But Jones said he thinks many Massachusetts lenders are taking a wait-and-see approach.
“As the trend continues, it will migrate over to a state like Massachusetts,” said Jones.
Today, 25 percent to 50 percent of Massachusetts-based lenders seem to be aware that the change is coming, said Jones. He said some of those companies are starting to think about how the new process will be adopted into their business practices, but it is a long-term plan. At the same time, the top lenders in the country are actively working on ways to see e-mortgage strengthen their business. The bottom line is that it will save time and money, said Jones.
Mortgage companies are expected to fully utilize electronic notarization as a step toward making the entire mortgage process more electronic in the future.
“They want to see it happen. It is kind of a bug that has bit the industry,” Hansberger said.
“The topic has been around for years simply because it streamlines the process,” said James Dougherty, executive director of the Massachusetts Mortgage Association.
But Dougherty added that he believes Massachusetts mortgage professionals might have some reservations about switching from paper to electronic notaries. The idea sounds enticing in theory, but with the number of computer hackers in the world, many might question the true level of security, he said.
“There are inherent dangers. I think it makes everyone nervous,” he said.
However, if the process gains momentum and becomes something that gives companies more of a competitive edge, it will become something more sought-after by Massachusetts-based lenders, he said.
Of course, security is an issue weighing on the minds of people likely to rely on electronic notarization, said Greenwood. Mortgage fraud has become a growing problem that many say will never go away. Greenwood noted that he believes electronic notarization is coming soon to the mortgage process, but the step needs to be taken with caution.
“Without safeguards, of course, it would be possible for anyone to pretend to be a notary just by typing information on a screen,” he wrote in his paper.
“Fraud will never be removed from the mortgage system because there is just too much money,” said Jones. “We want to ensure fraud prevention becomes better. Security is a very high concern.”
While some larger and national companies are working on developing systems, others are expected to observe for a while, Hansberger agreed. He said there is some question as to how state laws and protocols will differ as they abandon the old-fashioned paper format. Since notaries are state-controlled, it could be hard for companies to develop a uniform approach as they make the transformation, he said. But the thought is already on people’s minds, he added.
“The biggest concern we have heard is the national question. Large lenders worry about having to develop state-specific systems,” Hansberger said.
A necessary part of the mortgage cycle is the notarizing of documents. And to move forward with electronic mortgages, laws, procedures and systems for electronic notarization will need to be put into place.
“It will take time for people to settle on common standards. It’s hard to know how to regulate technology,” said Greenwood.
But all that aside, many believe the mortgage industry is on the cusp of embracing new technology such as electronic notarization which, if properly executed, could prove quite lucrative for the industry.
“Electronic notarization is faster, cheaper, better. And that spells more dollars in markets like the mortgage industry,” said Greenwood.
