Although e-Document, e-Recording, e-Vaulting, and e-Delivery technologies are being completed effectively, the obstacle in the way of end-to-end e-mortgage is the e-Note. Fannie Mae takes the position that e-mortgage will not be considered until the electronic signing of promissory notes takes place and the papers are saved digitally. Keeping in mind that e-notes have been around for long, a research conducted recently shows that only a meager 350,000 e-mortgages have been processed. Fannie Mae, Freddie Mac, and only a few other banks in the US have started accepting e-notes.
This leads us to a very interesting question. Is the mortgage industry in the US not yet ready for going digital? Following are the reasons why lenders are still hesitant about abandoning the paper-based process and embracing e-mortgage wholeheartedly:
- The saying, “Old habits die hard,” perfectly applies to most loan officers. For years they have been processing mortgages manually through paper documents and have grown comfortable with that. They naturally would not want to disrupt the familiar flow through the intervention of technology that they are unfamiliar with. Their plight is evident. Moreover, a lending process doesn’t include just the loan officer and the borrower. A number of internal and external parties (like county recorder offices) have to agree to a fully digital process and build up their capabilities. Even though lenders are willing to embrace a digital process, major investors except GSEs are not buying e-notes currently.
- The system being followed by lending institutions is several years old and has to be changed drastically if the lenders are to accept the digital-only mode of a transaction using Mortgage Technology software. Despite the fact that benefits of embracing the technology are many, the initial investment needed is prohibitively high. Also, the transition process is painstaking. It involves intensive training and capacity building for personnel.
- Security is a major concern for lending institutions. They are dissuaded by the potential for hackers disrupting the business processes. Experts have said that cases such as the attack on the mortgage origination framework, could be cited by lenders to justify them continuing with manual, paper-based loan origination. Something like the Target Hacking Scandal or an industry-wide breach is quite a nightmare for them. Rather than dare the challenges of malevolent hackers that can wreak havoc in the entire system, they are contented to pursue the current legacy and paper-based systems with all the pain and lost profit that it entails.
In spite of the incentives that technology holds for US mortgage businesses to go digital, lending institutions keep expressing doubts about the transition. Overall expenses and operational inefficiencies can be curtailed to achieve competitive advantage—something lenders cannot avoid for too long.
Drawn between two extremes, lenders find the challenge quite daunting. On one side they face the threat of extinction at the hands of smarter and agiler young upstarts who are online pure-play lenders or originators. On the other hand, they are afraid of the chances of methods and technology going amok. However, with the advancements in technology and the mandates for compliance—which necessitates huge volumes of documentation—sooner or later organizations shall be compelled to fully digitize their lending processes.