The End-to-End Paperless Transaction – When? – With the market slowing and revenue declining, organizational leadership is now in dire need to enhance or upgrade current systems.
How many times have you heard that we are close to an end-to-end paperless and electronic real estate/mortgage transaction? With a reverence worthy of mysticism and royalty, I've read numerous articles written in the last decade advocating that we were "months away." So, it begs the questions: How close are we really and what have been the challenges that are delaying the realization of cost savings, cycle times and process efficiencies?
Already in 1999, research presented by Accelio, determined that the benefits of migrating from a paper-based transaction to an electronic-paperless process would result in a 96% savings by reducing labor costs, salvaging lost opportunities and mitigating fraud. We've watched the resulting impact of this landmark study spur many technical, cross-domain initiatives.
Most early investments backed the technologist – realizing that tech advances in the real estate and mortgage industry were sorely lagging. The belief was that the entity to streamline these processes would find "gold at the end of the rainbow." Instead, when reality set in, the tech-based companies burned through these monies to be first to market only to find the "ladder was leaning against the wrong wall."
Still today there seems to be a genuine disconnect amongst the major solution providers. To complete a true paperless end-to-end solution there are many critical paths that must be connected in order for any serious type of adoption to occur. As we know, the opening of the real estate transaction generally begins when there is an accepted offer from both buyer and seller. That's when the paper starts to become intensive – contracts, escrow instructions, loan applications, disclosures, etc., are processed, delivered, executed and returned all in typically a 30- to 60-day period. The settlement performed in escrow states has these documents moving in all directions during this period until closing.
Furthermore, a major cause of delay over the past several years has been that the entire industry has seen record volumes and the only technology that caught the attention of senior management were those that were able to solve their immediate pain. Even though these organizations were buried in a sea of paper, their interest in looking at a solution would offer tremendous benefits. However, it will only work when the county recorder accepts electronically, title insures the mortgage, e-notary is approved, and the secondary market will buy the e-note. In the end, many decision makers echoed "not today – come back to me later!" With the market slowing and revenues declining, organizational leadership is now in dire need to enhance or upgrade current systems while seeking those solutions that will reduce paperwork, labor, increase margins and offer a sustainable competitive advantage.
So how do we electronically move this intensive paper-process over the Internet? What are the challenges we need to overcome to realize a sustainable solution that benefits not only the industry, but all the players within the real estate and mortgage life cycle?
First, you need active sponsorship and buy-in from all the players – title, escrow, lender, notary, county recorder and secondary investor. Any holdouts or laggards and the realization of end-to-end electronic integration is off. Therefore, collaboration is a critical component and understanding this before anyone builds the "dream platform" is a basic ingredient. Too many fragmented technologies are being offered today without much thought of integration or connecting the dots.
This is a significant challenge as not every critical player is ready to move forward with paperless adoption – counties do not have national standards in place. It should be recognized that MISMO is getting close pending decision to adopt SMART PDFs as an additional standard to the MISMO SMART Doc standard. Additionally secretary's of state are not on the same page as to electronic notaries and attorney generals are asking for oversight while Wall Street is just waiting.
Some of the more notable, discrete challenges include:
* Consistency by State authorities to permit e-recording and e-notarization.
* The ability of early adopters to go "off track" for limited testing with a capability to see big picture impacts while realizing that you need to start with the first e-transaction in order to move forward with complete electronic transactions. Unfortunately, many organizations are now spending too much focus and resources on "digitizing" paper documents as opposed to the paperless "digital" solution.
* AB578 in California limits the type of e-recording docs and the attorney general now has complete oversight over Electronic Recording Delivery Systems. Currently Orange County and San Bernardino County are the only two counties permitted to e-record (prior 1997 legislation).
* Recognizing that an independent e-system and/or workflow needs to connect all documents to all parties, including consumer, escrow/closing agent, broker, title, lender, county recorders, notaries and investors.
At Settleware, we have been in production with complete paperless and electronic documents in pioneering Orange County, but needless to say, it has not been easy. Back in April 2004 we had all parties perform the e-closing completely over the Internet. Mirroring the Southern California escrow process, the lender prepared the deed of trust, submitted it to escrow for review, and then forwarded it to mobile notary to present to the borrowers (via laptop and signing pad). Once signed and e-notarized, the document went back to escrow, forwarded to the title examiner and then to county examiner for e-recording. This entire process took less than five minutes (absent the time for borrowers to review documents). This process eliminated all courier and FedEx charges, typical rejection errors for incomplete or missing information and approximately 6.5 hours of labor for a cost savings of more than $300.
However, from our critical lessons learned, any organization contemplating the adoption of an end-to-end paperless process should recognize that the following actions must be planned for and achieved by your organization, project teams and vendors if you are to be successful.
* Mandatory integration with a national e-registry is needed to prove "single authoritative copy." (Note: For many years, the mortgage banking Industry has been challenging with the question: How do I know this electronic note you want to sell us is the original? With MERS eRegistry in place that problem has since been resolved.)
* Application system is needed to support three levels of e-recording – one platform supporting all levels of e-recording. (Note: there is no national recording standard and the standard setting bodies seem to be advocating obsolete TIFF technology.)
* Significant challenge of individual integration with each county recorder. Flexibility is required to start e-recording less "legally sensitive" documents such as reconveyances/substitutions and an ability to move to higher security deeds within the same platform used by county recorders.
* Monitor the MBA's struggle with amending the MISMO standards concerning SMART Docs and SMART PDFs – significant impact.
* Recognize that the only investor currently purchasing e-notes is Fannie (limited to only conforming loans). Furthermore, the same system of record needs flexibility to sell to and meet the many different investor requirements and interfaces.
* Allocate the investment and time in software that can meet E-Sign tamper resistant guidelines.
* Obtain the necessary personnel, skills and partners that can not only deliver the initial solution, but maintain the process as business evolves and technology infrastructure changes.
* Inclusion of seal, non-repudiation, secure audit journal, e-vaulting, etc., with any system solutions.
To move the process forward, you need an affordable business-driven technological solution that empowers the customer to test the reliability and performance of the solution in small deployments and expand their usage over time without absorbing any additional upfront costs. This segmentation allows for the user to move forward as certain markets that are ready to accept, thereby integrating all the pieces to this complicated puzzle – addressing the requirements of the county recorders, state officials, and the registration/sale/transfer of the e-notes to the secondary investor. All while keeping your eye on the "pot of gold" which still is the complete end-to-end real estate and mortgage transaction.
The timeframe is shorter than you think.
Rick Triola is President and CEO of Settleware Secure Services Inc., based in Laguna Beach, Calif. http://www.mortgage-technology.com http://www.sourcemedia.com
