eClose and the future of the digital mortgage process

We discuss all things “eClose” with Service First Mortgage’s Ian Kimball, Executive Director of Strategy, and Dee Hoyle, Executive Director of Operations. Ian and Dee uncover how the eClose process works for their organization, including both its advantages and challenges, and reveal changes they anticipate in the future as the mortgage process moves to being fully digital. They also walk us through the complete eClosing process and highlight what that experience is like for the customer.

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Transcript

Stephanie:

Welcome to Mortgage Connects by MGIC bringing you the latest insights from top mortgage professionals around the industry. I'm your host, Stephanie Budnik. Today we have the pleasure of having not one but two guests on our podcast episode Dee Hoyle and Ian Kimball of Service First mortgage. Dee is the executive director of operations. And in his position he's responsible for processing underwriting, closing loan delivery, secondary market, and servicing. Starting at Service First Mortgage in 2000 D has helped with the growth of the company by establishing new relationship with correspondent lenders, initiating a company hedging program and obtaining approval with government agencies. Ian is the executive director of strategy. He has direct responsibility for sales development, marketing, IT, accounting, finance, and project management, title and strategic planning, and has been in the housing industry since 1997. And he's focused at building Service First Mortgage's infrastructure, tools, processes, and systems. Thank you both so much for being on our show today. We're thrilled to be speaking with you. So we'll, there have been a lot of changes that have come from organizations on from lenders in regards to the pandemic. And some of those things have come out of processes and process changes that maybe make more sense to do so now. And a topic that's come up more recently within the industry is the e-close. And I know that some organizations have had success with it, some haven't. And from both of your experience, I know that you've started to dabble in this. And so I just wanted to get a read from you both on how that's working for you, what you've seen and kind of go from there. Why do you think, and it seems like that should be, no reason to not, but why do you think e-closing has been slow to gain adoption in our industry?

Ian:

Yeah, that's a great question. I think kind of the obvious one is that it's a change. So change in general is hard and looking at kind of the scale of this change might make it even harder, especially with the volumes that we've seen in the recent past. So you've got the change, you're already busy. And then there's this kind of general fear of the unknown that may make people hesitate to even start the process.

Dee:

And, you know, from, from my perspective to really working over the last couple of years, trying to be an agent of change and get people to adopt the e-close, because looking at it from, from an operations type perspective, I see that it's a better experience and I see that it's more efficient on my operations team, delivery into the secondary market, being able to get a loan purchase more quickly and really from the customer experience with not having to drive to the title company, sit at the title company, drive home from the title company. But regardless of those things, to me, it really came down to status quo and there wasn't a direct catalyst to make that change happen. So I think more often than not what I found when I would go and talk to title companies or a loan officers, or even borrowers, it was, they were used to the status quo and the status quo was working. So it wasn't a broken thing, you know, with doing a traditional e-close, but there wasn't a catalyst to really improve it until, until recently really with COVID and, you know, part of it too. I think also just with not having the catalyst, I think you needed something to make it happen, to have a change because there were so many pieces involved and so many people needed to be able to adapt to that change and have really the desire to adapt to that change. I think it was really difficult in general to coordinate those things. We had our provider to be able to do an e-closing, but that also was contingent on us working with a title company that also worked with that same provider. If they didn't, we were really at an impasse. We either had to try to get that title company up and running with the providers we use, or we had to get up and running with a provider that they use. So all of them were very specific requiring both the title company and the lender to be approved with the same provider. And again, it was really kind of the same thing without really that reason to change that direct reason to change rather than just for a better experience. It was really hard to get everybody on the same page and have that desire to move forward together with that.

Stephanie:

I could understand that I have been through a close and a refinance, both within the pandemic. And so when we closed on our first house, we did everything virtually. Then we go in for our new house. And so just the difference in those experiences and waiting, they're like, oh, well your papers aren't ready. So we're just going to wait. And so I can definitely, at least from the borrower standpoint at that time was like, yea I wish this was how I just signed from my couch for.

Dee:

Yeah. And I think so you have that experience and not really knowing that you, since you've done it before and knowing what to expect. I think that changes it too. I think once you have that experience you want that again, you don't want to go back to what was the status quo, but it was really that had been the challenge and it still is the challenge of getting people to understand that there is a better way to do it. You can take something that's a two hour process, three hour process out of your day.

Ian:

And I think that as more and more people experience these different ways of closing, that's just going to create more momentum throughout the industry and consumer behavior for the process. But getting back to the adoption question, another key component to that I think was just the complexity. So there's a lot of technology involved in implementing the systems needed to be able to execute an e-closing and with that technology comes investment. So you need to kind of scope what's out in terms of the different products, make a decision on that, invest money, invest human resources, time and implement all these things. So to give you an example of all the technology, there's a number of pieces. The first is a point of sale system. So we wanted our point of sales system to be that entry point to not just the e-closing, but all aspects of the mortgage transaction. So that's one. Another one is warehouse lines. So if you're an independent mortgage banker funding loans on a warehouse line of credit, you have to ensure that your warehouse bank accepts e-notes and that they have an e-vault to be able to pass the, you know, from the lender to the warehouse bank. And then back to the lender within passes that onto the secondary market. And Dee there's more that you can speak to as well.

Dee:

Yeah, for sure. Yeah. Those are just a few of the ones involved. And again, it's coordinating that with all parties involved in testing those to make sure it's fully accepted. So you, as Ian said, you've got the e-note, the actual document, the electronic document is key to making sure that that's something accepted by the secondary market, by the agencies that works with the e-vault that works with our warehouse banks. So that's, that's the key component is just having that provider for the document itself, but then even from there if you want to do an e-close, you have to be with MERS, you have to be able to do the online E registry. You can't have a traditional paper assignment with this. So, you know, most, most companies, it seems at this point, or at least MIRVs approved, but there's a second level of approval required with Merz to be able to do E registry, to be able to track that electronic note from vault to vault the same way you would a traditional note going from, from company to company, from title to warehouse, back to lender into the secondary markets, it's that Merce testing required, as he had mentioned that e-vault itself, the electronic storage of that document. So at any given time, even though it's a electronic document, it only has ownership to one party at a time. And having that vault, that controls, who has that copy of the note, the authoritative copy that shows them who has ownership in that loan is another key component of that. Also the dock custodian, if you're doing securities with, with Jenny Mae or with Fannie Mae, you have a doc custodian, they review the traditional paper file and making sure that that, that is configured properly, they review the documents to make sure that it's a real loan, essentially making sure you've got the borrow information that assigned as it should, that it's executed properly. The doc custodian also has to be approved to be able to do an e-note in addition to being able to do a traditional paper note. So having a custodian that's approved for that is also another piece of the puzzle that you have to have involved. And then finally, really just outside of the technology, it's making sure that you have outlets in the secondary market to accept that up until really COVID really was again, the catalyst to get people to expand and start looking to accept any notes. But prior to that, really prior to 2020, it was really just the agencies, just Fannie and Freddie that were accepting an e-note. Our investors didn't seem to have a big appetite for that. Again, they, it was working as they needed to. They were really trying to figure it out as well and working with the agencies, but they weren't extending that to the lenders to be able to deliver an e-note to them.

Stephanie:

It seems like you're talking about the things that have made the experience better. Are there any other items that you would want to cover that have made maybe the pandemic has made the experience easier? Now you're saying there's a little bit more appetite with their investors, any other items to cover there?

Ian:

I think we've kind of alluded to this, or even mentioned it directly. That COVID was really the catalyst for this. So previously to COVID the need or the use case was primarily a relocation. So someone is moving to a new city and so maybe they wanted to sell their home in their old city. And then e-closed on their new home and come down or we saw a lot of deployed military personnel. So they physically weren't in the country to be able to close. Those were really the main drivers of an e-closing prior to COVID. So now we see COVID comes in and people are wearing masks and they're social distancing, and this whole new paradigm where we're seeing where title documents are passed through the window of a car, or people are signing, you know, where you walk into a room sign and then you leave and then the title agent comes in after you. So you're in the room alone. So that was really kind of the driving force that started to make people look at e-closings and make it better. Another was the technology is evolving so rapidly that we're seeing vendors now that were you'd have to have one vendor for the first piece and another vendor for the second piece. And the third vendor for the third piece, we're seeing them kind of come to these all-in-one type of solutions, which really eases the implementation and makes it easier for all lenders to be able to execute an e-closing. And lastly is the demographics. So millennials are now the largest segment of home buyers. It seems like we've been talking about the millennials getting into the home ownership game for a long time. It's finally come. And so you get that demographic and a lot of them grew up with technology. So there's a better understanding just intuitively of being able to close on your phone or on your tablet or on a computer. Whereas other demographics may have been slower to adopt that and more comfortable with a manual or paper execution in the past. I think that's helped as well.

Stephanie:

Yeah. I would agree with that with the millennials being the home buyers, I just was reading an article about somebody I knew posted on LinkedIn about being a geriatric millennial. And that was me, and like bridging the gap between both being able to think and do things the way maybe more people were accustomed to, and going to the place where people are changing to. So that sounds like that's what's happening here too. I know that there is a big concern from people that I hear or loan officers that I speak to that when you do an e-close, you're losing maybe some of that relationship across assess or they're worried that there'll be a disconnect. Can you walk me through maybe the process so that we can better understand the full equals and then what the customer experiences like?

Dee:

Yeah. I'm more than happy to do that because again, even before there was the direct need I felt like there was always a big enough benefit of e-closing to make it worth the time to invest. As Ian said, invest in the technology to do this and, and, and really put the processes and procedures in place. So I get the same thing, Stephanie, I hear, you know, we hear that from our loan officers too, about, you know, worrying about the relationship with the title company and all of that can still happen. And we're seeing that now where they're working with the title company that advanced, and it's really just a change of mind to being proactive instead of reactive with the closing, working with a title company, advanced communicate with the borrowers, making sure they're interested in doing any closing, making sure they understand what's involved. And I think that's really key as well as to set those expectations in advance. So the borrower knows what to expect. Title company knows what to expect and the lender knows what to expect. And with that, I think that's where we've seen improvement really over the past few months, especially with more demand for it, more need for it, is that proactive communication and setting those expectations because there is a lot involved, there are a lot of moving parts and it's not too dissimilar from what you have on a traditional closing with paper documents, but you have to kind of adapt to how you do this in an electronic environment. So really the first thing is getting a lender and title company on the same page, making sure that they're both aware how docs are gonna get into the e-room and the e-room is where your borrower's going to go to review their documents in advance is where they're going to go to electronically sign those documents and ultimately going to go into the remote online notary session. So that way they can also take care of their notarized docs virtually as well. So that's really the first step is lender and title communicating, how are we going to get those docs into the e-room? What do we need to do in advance? We need to make sure they're tagged for the trip that doesn't happen automatically. Title also needs to get their documents into the rooms of the borrower can execute the title documents electronically as well. From there. This is to me is really what I love about it. The most is, is the ability to be proactive and let the borrowers see their documents days in advance before they go into closing. And Ian was talking about the need that we had in the past prior to COVID maybe where we've got the one-off scenario, where you've got a borrower that's out of the country and they may not be back in time. And that would delay closing. You may have a seller that's not willing to push date out or something like that. So we always had those scenarios. And when I think about the proactive ability to review your document documents in advance from a borrower perspective, I think back to a very specific scenario, we've received a couple of years ago, actually, where we had a borrower who was an attorney not to stereotype, but what we found already was with his initial disclosures. He wanted to take his time and really look at everything and follow up with the loan officer and ask a lot of questions, which is fine. That's what we're here for. But he knew the same thing would happen at closing. And he knew that closing session may go to four hours. So he was like, this is a great opportunity to do an e-closing because not only does the borrower not have to go to title, but he can get his documents, days in advance. He can review those documents. If he has any questions, I, as the loan officer will be available to answer those questions. So that way, when he goes to title, it can be expedited. So that's the ability when you set it up for an e-closing, the documents are sent to the borrower in advance, they get to review their documents. They get to approve them, be comfortable with it, ask any questions with their loan officer or title company before they actually go in and do the closing session. So in this scenario, bar reviews reviewed as docs, ask questions to the loan officer, got everything done. So when he went to closing, it was a 10 minute process instead of, you know, an hour, two hour, three hour process. So that's the big piece of it is being able to get those documents to the consumer in advance, letting them review it at their leisure and signing off on it. So once they go on the scheduled closing date and start that close process, that Ron starts through remote online notarization, all you're doing is executing the documents that are already approved. Shouldn't be any questions it's just following through. Go back to Stephanie to talking about that relationship with the title company, it's still there. It can be a casual conversation. It's not going through and having to go and review the documents. That's already been done. Title company and borrower can, can greet each other, go through, execute the documents and be done with it and take something that's an hour process or more, and take it into 10, 15 minutes.

Stephanie:

I like how you emphasized about the relationship and with the loan officers. Like, it's hard to think about how you can keep that relationship building piece in, because I know that sometimes people go to closings just to be there at that exciting moment and missing out on that could feel like a let down. But I like the reviewing of the documents and feeling like you really are their trusted advisor and have their best interests at hand so that you can go through the documents and really make them feel at ease because it's a big thing. I mean, it's not something you do every day. So buying a houses is something that you, you would like to take time and not sign your life away in a room and just be like, I have no idea what I just signed for.

Dee:

And we hear too Stephanie from that just reminded me. I wanted to mention this too. We are here from the other side, from the title company perspective that they were concerned about. Well, I'm not seeing this borrower in person. How do I validate who this person is? And you had some reservations on the title side as well. And that's another thing when we talk about expectations for them as well, how do I validate this person's identity? And, you know, doing the Ron, do the remote online notarization, you have the ability to, to be able to add this. Borrower has answer security questions. Basically a credit report. Alexis nexus type report is pulled in. The background, gets history questions from the borrower. You know, where did you go to school in X year? What's your mother's maiden name? Things that really only that borrower would know they're random questions. They do that to validate that they're actually that person, right. Then they have a limited time period to answer those questions. And then you still have the same verification of identification that goes on. You want to answer those questions to make sure they are who they say they are at the same time, you're doing a zoom, almost like what we're doing, Stephanie. So you see them face to face, but they also have to download and send a link to the consumer where they basically take a picture of the front and back of their picture ID that goes back to the notary and the notary can validate that way as well. So you're getting multiple levels of validation, the same way you would in person that gave our title company peace of mind. That's what we'd see. Sometimes they're like, I'm a little leery. I don't know how I'm gonna validate this, not seeing this person in this individual in person. And that was a way to give them peace of mind with it as well.

Stephanie:

Are there any additional challenges that you see that people are going to need to be able to overcome besides the, just the big one out there and like change? Change is always hard for everybody. Is there things that you find there are going to be continuous obstacles with e-closings?

Dee:

Yeah, for sure. And I think a lot of those obstacles are being addressed now. Ian mentioned earlier, just the investment in the technology to do that. That's at a cost and until you really get the buy-in and you start to get a return on that investment from, from e-closings, you know, we're, we're really investing in that upfront. So one of the things that's already helping with that that's changing is when we went to looking at e-closing, we had to make sure that we had investors that would buy those. And our investor stack was diminished. If we would do an e-close, we only had a few outlets for those. We may be having to give up some additional money in the secondary market that we otherwise wouldn't. So we were limiting our best execution and that's continued to evolve. So at this point, when we're able to deliver a full e-note to not just a Fannie Mae, but now we've got multiple investors. So we can still from a secondary marketing perspective, get bids on that loan from multiple investors. So we're really not giving up money in the secondary market, and we're able to pick up additional funds as well, because we're not having to pay for shipping. I mean, that adds up quick just to FedEx, between a warehouse, to investor and title company, all of that saves money too. So right now we're finally getting to a point, I think, where we're able to see a return on that investment because the secondary market is opening up to accept those. And the other piece, I think, too, that I think this was a huge catalyst for Ginnie Mae for government loans prior to last year, I, candidly I don't really know where it was on Ginnie Mae's radar to be able to accept the notes Fannie and Freddie were there. And my feeling was fam Ginnie would lag behind. And, you know, for us personally, we do a lot of government business. So we didn't have the ability to fully e-close a government loan and Ginnie Mae since last year now as a pilot program, they have several lenders that are testing this out. We have a direction to go on that we want to be up and running on that as soon as possible. So we can continue to execute e-notes on the majority of our files instead of the minority of,

Ian:

Yeah, I think challenges, you mentioned one already, Stephanie one is the concern around the relationship piece. And I would ask the question, is that a concern for us as industry professionals, or is that a concern for consumers? So as a real estate agent or a loan officer or an escrow officer, do we have the need to be at that closing and build that relationship? Or is it a consumer need? We had a similar question in a recent town hall that was asked of me and I put it back out to the group and I said, raise your hands. Who's closed the alone in the last six months. And number of hands were raised and I said, did you feel a need to be at the closing as a consumer to buy that house and have that connection? A hundred percent of the people answered: No, they did not have that need. So I think you're right, that it's a huge milestone in someone's life in many cases. And there's a celebration point that needs to be rallied around and celebrated and talked about. But maybe that's just done in a way differently moving forward than it has been in the past. So instead of that happening at the title company with the picture that goes on social media, maybe there's another way to celebrate that where you don't need to be in person, but you still get that same reward from it. So I do think that's one, the other that jumps to mind in terms of overcoming challenges is just, this is going to take education and experience. It's repetition. So everything is kind of siloed today will where you'll see a lot. The mortgage company knows how to do their portion of the e-closing. And then the title company knows how to do just their portion of the e-closing and the consumer. They're being taught how to do just their portion of the e-closing. But as we continue to educate all parties around this, and they have a better understanding of how these pieces fit together and who does what, so when questions come up or challenges come up, those can be answered by any party involved in the process. That's going to be a big step in overcoming those challenges. There's just not enough repetitions out there across the population yet in order for this to happen smoothly, every single case.

Stephanie:

I appreciate you turning that question back, honestly, made me think, just putting myself in that shoe was it is an expectation for me. I think it was just based on what I thought was normal. Like everybody would just show up and be there and it's like a part of the experience. And so having that all taken away, it was like, I didn't, it almost, they thought you didn't matter, but it's how you can stand out still amongst your peers and others being in that role to do that. Cause that's celebration pieces. So it's kind of what you think if you think of being handed these keys and like study everywhere and like that didn't happen. And so it was like, what was that like, we just, you know, so I think it allows you to differentiate it and still have that opportunity to do that. So I appreciate that turning back. Cause it made me actually think so

Ian:

Well. And if you think about the people who are closing on their first home, as they're coming into this environment where maybe e-closing becomes the norm, they're never going to have that experience of going to a title company. They're only going to know this moving forward. So as that population grows where they've never done a paper closing, it just becomes more and more socially acceptable.

Stephanie:

Do you see that there's a need for additional changes in the future of closing and even technology and things that need to continue to happen?

Ian:

Yeah, absolutely. I think relatively speaking e-closing is in its infancy. And so it's actually been around for a long time, but as we've talked about that catalyst is just in the recent past to kick it off. So I think a number of things need to happen and are going to happen. One of which we talked about a little bit with systems consolidating. So taking some of the complexity out of it as industry professionals, being able to adopt and implement and teach and train and execute, that's going to become easier with fewer moving pieces than there are today. So that's one, the second is making sure that interface is a single consumer interface. So let me give you an example of what we're trying to do is have everything be mobile. So you download our app and you log in, you create your account and you fill out your loan application through the app, and then you upload your documents through the app, and then you sign your upfront disclosures through the app, and then you sign your CD, your closing disclosure through the app, and then you go in and you execute your e-closing through the app. And I don't think everyone's there yet today. There's you use this technology for this piece and this second technology for that piece. So the ease of use from a consumer perspective that really needs to move along in order for this to have the best experience that we possibly want. Another is there's a lot of counties across the country that, that do not accept e-recording today. And so that's another thing that as we see over time, those counties morphing to, or coming up with, there are some temporary provisions in certain states to allow for an alternative execution for an e-recording, but really all these counties getting up to speed and accepting e-recorded documents will be a big step forward. And then finally kind of this digital transformation or some people call it digital compression has kind of been happening in the industry for the last five or so years. Now, our industry is behind relative to some others, but we're finally going through a digital transformation in the mortgage business to make everything electronic. And what's happened is a lot of FinTech companies have jumped in and tried to capture that market share because it's changing. There's an opportunity to gain market, share, gain consumers. And I think what we're going to see is that's going to start to sort itself out. We're going to start to see some winners and losers. So maybe you won't have 15 choices for this one technology that you want to use. Maybe there's three or five or seven really industry leaders that shake out to make it a lot simpler for us as an industry to identify which suits our needs the best and make a decision versus having to sort through so many, which is, it seems like we've been doing for the past few years.

Stephanie:

Well, I really appreciate all the insights. I think everything that you've provided in essence of e-close will help people that are maybe in the infancy thinking about doing it. What maybe some of the things they're wondering about, you've answered a lot of great concerns and questions and, and things, comments that people may have about it. So well with that, thank you so much for everything. And we hope to talk to you soon.

Ian and Dee:

Thanks Stephanie.

Stephanie:

Thank you so much for listening for all the latest industry insights described a mortgage connects with them, MGIC on apple, Stitcher or Spotify, or check out mortgageconnects.com until next time.