The demand for e-closings is high – Millennials seem tailor-made for paperless mortgages; the Consumer Finance Protection Bureau (CFPB) wants to see more of them; and real estate attorneys are ready to make the jump. So why aren’t more lenders offering the option?

After running a small trial study comparing customers’ experiences with e-closings – loans that are originated, closed and sold electronically – and customers’ experiences with traditional loans, the CFPB wrote a 91-page report that heaped praise the process and expressed great optimism about its future.

Specifically, the report said e-closings were associated with better consumer understanding, a more efficient process and greater feelings of consumer empowerment.

“We are ardent believers in the promise of technology, including electronic closing technologies, referred to in this study and commonly known as e-closing,” CFPB Director Richard Cordray wrote in a statement accompanying the report. “Using the power of technology has shown the potential to simplify the closing process and empower consumers with better organized information, more time to review that information, and the ability to embed educational resources.”

The problem, according to real estate attorney Hugh Fitzpatrick of Fitzpatrick & Assoc., is in the secondary market. For years he has been trying, without success, to lobby lenders into adopting the technology that would make e-closings possible.

“I’m trying to create a movement,” Fitzpatrick said. “The most resistance is in the secondary market. I have folks in a local credit union who are interested. They are overladen with redundancy. My position is that we have to start challenging these guys. There’s a better way to do mortgages.”

Most mortgages are ultimately sold to Fannie Mae or Freddie Mac, and until lenders can be sure that those entities have enough faith in the e-closing process to buy those loans, e-closings will not get off the ground, Fitzpatrick said.

Electronic notarization has been another big sticking point for the banks – how can a notary be sure a buyer or seller is who they say they are if they’re not in the same room? In response, the American Society of Notaries has developed standards for e-notarization and several states have already enacted electronic notarization statutes.

“Why won’t big banks accept it? They can’t deny that it’s legal, they just don’t want to change their process,” Fitzpatrick said.

The shift to e-closings may be inevitable – and Kosta Ligris of Ligris & Assoc. says he’s looking forward to it streamlining the closing process.

“The CFPB has made it very clear they want more technology involved. There are a couple of technical pieces that will have to be worked out, but I’ll be surprised if we’re not there in 10 years,” Ligris said. “Look at commercial closings. We’re using old-school couriers. Nobody gets in a room together. It’s all done with escrow letters.”

For their part, Realtors are generally on board with the idea. Keller Williams Realtor Janet Porcaro said the paperwork involved with traditional closings can be “a nightmare.”

“Often times that’s where things get caught up, even before TRID,” she said. “I’m practically paperless now. I put everything in a drive and after the closing, I put everything in [a real estate transaction management program], erase the drive and throw the folder in the shredder. We’re not keeping paper files anymore.”

Still, Porcaro said the technology has to improve enough to make lenders and the secondary market comfortable with it before they will uniformly adopt it.

“I would love to see that happen,” she said.

Sensitivity Concerns

Lenders have legitimate concerns about security of sensitive information, Ligris thinks those concerns are exaggerated.

“The mortgage itself doesn’t contain any information that doesn’t become public,” he said. “Electronic mortgages are probably as secure as paper. The weakness is typically on the consumer end. Doing things over WiFi is always risky. But if you’re home and plugged in to your router and you have your spyware, malware and virus protection in place, you’re probably OK.”

Fitzpatrick said there’s an age component to consider as well. He and the other attorneys interviewed for this article are in their early to mid-40s; lenders, he said, are typically much older and less comfortable with technology.

“Part of my responsibility is to be an advocate for our clients,” Fitzgerald said. “We want to change the industry. We need some visionary lenders. The focus has been on the banker, the lawyer and the Realtor. We need some tools that are focused on creating a better consumer experience.”

On the other side of the age spectrum are the Millennials, who are poised to enter to the homebuying market in droves, likely demanding a paperless transaction. When that demand reaches critical mass, Fitzpatrick said he thinks lenders will begin to offer e-closings as a matter of course.

“Student loans are done that way,” Fitzpatrick said. “Why has the mortgage lending industry not caught up? Companies like Ameritrade and Scottrade trade billions of dollars electronically every day and lenders are worried about fraud in the mortgage transaction? Maybe some folks are afraid they’ll be replaced.”

Time Is Money

Once they reach market saturation, e-closings will likely drive down the cost of closing and the time it takes to do it, said Rich Vetstein of Vetstein Law Group, a real estate attorney and a proponent of e-closings.

“I measured it the other day – a typical closing involves over an inch of documents per purchase,” Vetstein said. “A cash deal is four to five documents and you’re out of there in 10 minutes. With a cash deal we can be much more liberal. There’s no reason why the same can’t be done with a mortgage deal with the proper identification protocols.”

Vetstein compared e-mortgages to the electronic recording of deeds, which is faster and cheaper than sending the original documents to the registry via courier.

“It’s still at least five to seven years away, but I think it’s coming, and when it does, we’ll be early adopters,” Vetstein said.

Six local and national lenders were asked to comment on e-closings for this story; three declined and three did not respond.