Bridget Thayer Melien – ‘Major shift’
Last year, Mark Bellenger, president of Vested Technologies in Rocky Hill, Conn., prophesized that in New England, “We will complete the first mortgage e-closing and recordation by the end of 2000.”
That hasn’t happened. Instead of ignoring his untimely prediction, Bellenger recently held a workshop to analyze why not.
The seminar, “E-Sign – One Year Later: The Practical Realities,” was held at the 14th annual New England Mortgage Banking Conference held last week in Newport, R.I.
Although it’s been over a year since the federal Electronic Signature Act was passed, there have been only a handful of true e-closings and recordings around the nation, said Bellenger. Many professed e-closings are not totally electronic because, at some point during the process, paper was involved.
“There is no one doing this on a mass scale. There was a lot of hoopla and hype. The main thing we’ve seen is just because you pass a law, it doesn’t mean it’s going to happen,” he said.
Instead, the mortgage industry seems to be wringing its hands with trepidation over which firms will be the first to pioneer efforts.
“Congress started jumping in before business was ready to say, ‘Here’s what we want,'” he said. “There’s a complete lack of leadership in how to do it.”
There are a number of other reasons why the process hasn’t moved forward, including the fact that most recordings in New England take place in towns and not counties. That translates to small budgets and a huge number of individual systems to upgrade. Add to that the confusion between the ESA and the Uniform Electronic Signatures Act, which some states have implemented and some have not.
But the biggest hurdle of all is the very people electronic transactions were envisioned to help: customers and business people. Few consumers are clamoring for the service and lenders are waiting for cues from Fannie Mae and Freddie Mac about what standards will be acceptable. And for both consumers and lenders, it’s hard to get over the fear of change, said Bellenger. No one wants to invest only to have their costly systems rejected by these two powerful government-sponsored enterprises.
“People are also waiting on the financial benefit,” Bellenger said. “Is there going to be an extra kicker to doing it this way?”
‘Fight Like Crazy’
As far as the worry over legalities involved, Edmond R. Browne Jr., vice president of legal and industry affairs for the Connecticut Attorneys Title Insurance Co., based in Rocky Hill, Conn., there’s a simple way of looking at it. Despite the high-tech aspects, E-signatures are akin to a return to feudal times because what passes legally is a mark of some type instead of the full signature.
Legal electronic transactions and contracts must have four elements: authentication, to ensure the person you think is signing the document really is that person; data integrity; privacy and confidentiality; and non-repudiation, or a way to ensure the person cannot back out of the contract once it is executed. Despite concerns over security, it’s much easier to guard privacy and confidentiality in an electronic document than a paper one, Browne said.
But while the government has gone to great lengths to ensure its legality, many smaller businesses have been overwhelmed by the prospect of electronic transactions, thinking that if they partake they must eat everything on a very full plate.
Not true, according to Todd Dillard, vice president of the real estate group at eOriginal in Baltimore. Companies can still benefit from e-mortgages even if a transaction is not totally electronic. Firms must look at the issue and decide what’s most important to them, then concentrate on that aspect of the transaction, he said.
Another misconception is that all the businesses that interact in order to finalize a mortgage, from the originator to the closing attorney to the recorder, must be up and online and ready to process e-signatures. If businesses look at it that way, of course they’re going to think the process is too complex, said Dillard.
“That’s so funny,” said Dillard, because if you make a flowchart of what a closing file must go through, you’ll see that it’s not easier to stay with the status quo.
In fact, many of the largest title companies are already adopting platforms to allow for electronic execution, as are document preparation companies and software providers that specialize in recording programs.
“This is starting to happen. It already may be happening and there are pockets of these [electronic] transactions popping up,” he said.
In New England, many companies already make use of hybrid transactions; e-mailing closing documents to be printed out and signed, for example. It’s not that much of a technology leap to take it one step further, he said. “Early adopters generally set the tone of what becomes the standard,” Dillard said.
Another motivating factor is that once one company accepts a full electronic format, the domino effect comes into play. If companies don’t prepare for it now, companies may find they can’t keep up. Some banks, like Webster Bank in Connecticut, gave closing agents a deadline to set themselves up electronically or be cut out of the business loop. This was no idle threat, according to Bellenger. Later banks gave deadlines of as few as 60 days. Not very much time if a company isn’t doing the initial groundwork, he said.
Of course, telling people they should be ready and getting ready are different. Bridget Thayer Melien, director of business and technology development at Meriden, Conn.-based ClosingsUnlimited.com, found that even she had to change her frame of mind in order to incorporate a fully electronic system.
The main challenges she sees to acceptance include reluctance from lenders who are waiting for definitive leadership from Fannie and Freddie and recorder reluctance and fear. “Until they get comfortable enough with the fact that no one is going to take their job away, they’re going to fight like crazy,” she said.
“We have seriously been in the trenches developing a model we believe will work,” she said. Ironically, the company went outside the industry to adopt a system in use by United Parcel Service. ClosingsUnlimited.com currently has a system that completely eliminates the need for a paper file but she found herself adhering to the old way of doing business.
“I’d do a title commitment, print it out and keep a copy of it. What for? This [switching to all-electronic files] was a big jump for us,” she said.
Every single document, even those with signatures, can be put in the electronic database, which saves time and money, Melien said.
One example of just how worthwhile her installation was came recently when a lender called her requesting a copy of a loan that closed three years ago. The lender needed the third page of the note with the initials of the client acknowledging the terms of the prepayment penalty. Adding to the problem was the fact that the lender could only supply the social security number of the client.
Even if the company was so organized it cross-catalogued its clients by social security number, the company would have to send someone to the storage facility, retrieve the file and pay a staffer to go through the inches-thick file piece by piece.
Instead, she was able to look up the information while the lender was on the phone and send the document to the lender via e-mail.
“This was a major shift in our office and it’s still going to be a major shift. We have attorneys that have been in business for 25 years who ask, ‘Where’s my file?'” expecting paper, she said. Instead, she directs them to a computer terminal.
She saves an average of 150 pieces of paper for each file.
Although the ideas are good and the era of totally electronic service is coming, she can’t promise when, or who will lead the technology revolution. Instead, Melien points out how different the thought process is for younger generations that have grown up with Nintendo Game Boys and computers. They expect and trust electronic transactions and demand the speed and ease of use that brings, she said.
