ROBERT B. SEGAL
Security issue

When those in the mortgage industry dream, they dream about thinner loan files and a paperless office. The good news is that dream may come true in the next decade.

In the age where e-mail has replaced letter writing and Internet research has replaced cracking open a reference book at a library, it is no wonder that those in the mortgage industry have jumped on the electronic bandwagon.

“A lot of paper has been wrung out of the process,” said Jim Jones, founder and president of First Wellesley Consulting.

Paper usage has been minimized somewhat because loan information is being entered, stored and transmitted electronically between vendors, such as an appraiser or investor.

At the third annual New England Mortgage Showcase hosted by the Massachusetts Mortgage Association at the Seaport Hotel in Boston, paperless offices were a hot topic for those in the industry, and combating the cost of new technology and dealing with attendant security issues were just a part of the discussion among the panel members and audience.

A paperless office will never be completely void of paper, said Jones. The ultimate objective is to have the mortgage industry operate 75 percent of their business electronically, with the remaining 25 percent of the process being paper-based.

Jones said it will likely take a decade for more than 50 percent of mortgages to be done electronically, but those in the industry are taking certain steps now to prepare for the future.

Many lenders are now offering the electronic transmittal of the closing documents to the closing attorney.

Jones also said other steps in the mortgage process are ditching the paper and moving to the computer. Internet applications with point-of-sale decisions and transfer of information between Internet sites and loan origination systems can be done electronically. Jones said lenders are also able to use Electronic Partner Networks, which allows them to order various mortgage services, like appraisals and flood determination, all which were once done via fax or telephone. EPN’s are free to the lender and the vendor pays the EPN provider per transaction for the referral, Jones said.

While a big chunk of the process can be done electronically right now, Jones said there is still much more work to be done. He noted that there is still a lot of paper involved in the closing process and any documents going to the registry of deeds are still paper-based.

Robert B. Segal of J. William Mantz Investment Advisors said the trouble with going paperless lies in getting everyone to convert to electronic functions. He said a lot of companies will always issue paper-based W-2 forms, for example.

“A lot of people are going to do things manually,” said Segal.

The other issue, Segal said, is resistance to change.

“The biggest hurdle is getting people to do things differently,” said Segal.

Both Segal and Jones said they agree that the big push to move toward going paperless came when Fannie Mae released Desktop Underwriter and Freddie Mac released Loan Prospector – both automated underwriting computer systems – in the mid-1990s.

“[It was] an idea of centering the process around data instead of documents,” said Segal.

Shiv Verma of Natick-based Hadlock Law Offices, a developer of the Real Estate Regulatory and Compliance Web site, said the entire mortgage process actually begins without documents.

“All materials are paperless, but we tend to make them paper-hungry,” said Verma.

Just as companies have to store their paper files, the same storage is required for electronic files.

Williams Adams, vice president of ACS Systems in South Easton, which offers such services as data storage and recovery, said plenty of disk space is necessary but not always possible, especially for small businesses.

Cost of Keeping Up

Another concern related to electronic storage is regularly backing up data. Jason Denio, a partner at Fore-Site Technologies in Northborough, which provides various technological services for businesses, said it’s important to rotate backup tapes once a year.

But storing information electronically creates an issue of security. The fear of hackers gaining access to personal information, such as Social Security numbers, is great in the industry.

“That battle [against hackers] will never be won,” said Jones.

Denio said understanding what type of technology is available and knowing what your office uses is crucial.

“It’s important to have someone come in and take a look at what you have in place,” said Denio.

Jones said if vendors and technology companies, such as Microsoft, keep up with the best security measures, the threat of an outsider getting hold of information is lower.

Denio said one security measure, which is especially important when loan information is e-mailed, is to encrypt the e-mail.

Segal said there have always been fears that information would land in the hands of the wrong person. He said it can be problematic when physical documents are in an office and an outsider, such as a maintenance person, sees them.

Denio said having a strict employee policy is crucial to prevent information from getting out.

“Polices are very important to protect the company,” said Denio.

Exposing data to someone outside the firm may can happen other ways, as well. Verma said all the information that is secure in an office’s online server is exposed to the world when an employee brings work home on a laptop where no firewall exists.

One way to prevent this from happening is by using a remote system where data is not transmitted, said Denio.

The cost of going electronic still weighs on the mind of many practitioners in the industry. Adams said the price of certain services, such as scanning, is still high and the lower-end products don’t produce satisfactory results.

Denio said spending $1,000 on equipment to make $1,000 may not be worth it and some companies may spend a lot of time and money before they get the electronic features right.

“It comes down to cost-effectiveness,” said Denio.

Verma said technology prices will decrease when people buy more of the products and services.

But some of the products are apparently saving lenders money now. Jones cited a 2003 mortgage focus study done by Fannie Mae which found that automated underwriting costs approximately $1,000 less than if a lender underwrote manually.

Jones said if a mortgage company or broker doesn’t eventually utilize the new technology when everyone else is doing so, the cost to operate manually will become so extreme that business could suffer.

While analysts estimate it will be another nine or 10 years before the entire industry is paperless, there are numerous products and services emerging today, such as electronic signatures and Web-based products.

In April, Virginia-based VirPack, a technology provider offering e-packaging, document management and imaging solutions designed for the mortgage industry, released VirPack Direct for Countrywide Home Loans.

With VirPack Direct, Countrywide can electronically deliver entire imaged loan files for purchase review.
“VirPack users have realized a reduction in cycle time from closing to investor delivery by up to 22 days and improved loan production on existing warehouse lines by 30 percent,” Michael Coar, president and chief executive officer of VirPack, said in a press release.