May 16, 2021

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Mortgage News

Why is hybrid mortgage closing still a thing?

If COVID-19 was the No. 1 talking point among real estate professionals in 2020, Remote online authentication was arguably number 2 as lenders, title / settlement agents, and real estate agents all struggled to keep their pipelines moving in the face of social distancing requirements and / or stay at home orders. With the pandemic stretching into 2021, much remains uncertain, but with increasing awareness of RON on both the business and consumer side of the home buying process, the question that can (and should) be answered clearly this year is ): “Why is the industry still pushing hybrid closing transactions? “

By the time the calendar rolled to January 1, 2020, 22 states had enacted RON legislation or should do so in the coming year, which meant that almost half of the country did not have the legal authority to remotely conduct document notariats (NOTE : Today the number The number of states approving RON or introducing invoices is 30 per American Land Title Association). The most common objections to RON were related to the security of the process and associated technology, and the perceived potential for an increase in remote or in-person authentication fraud.

By March 2020, that state had changed quickly, with almost every state rushing to issue temporary permits to allow some form of socially distant notarial act. The misunderstandings that had prevented many states from enacting permanent RON laws prior to the pandemic became apparent in these temporary approvals, as several states chose to approve remote ink notarization (RIN) instead of RON.

Most RIN permissions allowed general video conferencing software to be used to allow signers to appear before the notary before the signed documents were sent to the notary for authentication or faxed. While this certainly solved the problem of notarizing documents while maintaining physical distancing requirements, RIN did very little to modernize or maintain the integrity of the notarial act. In fact, it created a more complicated and less secure process for completing an activity that will serve as the legal basis for the real estate transaction (does anyone remember Zoom bombs?).

Additionally, most temporary RIN authorizations do not require a record of the signing ceremony or verification / authorization of the signer’s identity beyond the presence of a government issued ID – all contained in RON and ultimately secure the transaction. Without these key characteristics, title insurers are unlikely to insure these transactions, putting these transactions at serious risk.

In many ways, the preference of RIN over RON – despite its obvious flaws and deficiencies – reflects the attitude of the mortgage industry towards digital mortgage technology as a whole. Instead of investing in future-proof technology that would allow them to have an end-to-end digital mortgage process at all times, lenders followed a step-by-step strategy of adopting technology – often on the recommendation of their chosen vendors – and adding only those components that could be used immediately. As a result, lenders have chosen a hybrid eClosing process as the industry’s newest “innovation,” but this process is far from.

Without a clear definition of what constitutes a hybrid eClosing, most lenders have adopted a model in which the closing details are electronically transmitted and signed, but the recordable documents are printed on paper and signed wet in the physical presence of the notary. RIN fits well into this model when the end goal is simply to avoid physical contact with another person. However, the mere presence of eDelivery, eSignatures and a video conference is neither an innovation nor does this method achieve what has long been regarded as the actual goals of a digital final transaction – convenience, increased security, access / participation by multiple parties (in particular) important for lawyer closure states) and an overall better borrower experience.

For those fortunate enough to operate in states that have temporarily or permanently authorized RON, these goals have been achieved in no time – even without an eNote and with almost every major title insurer now ready to secure these transactions is RON really a 50-state solution despite the lack of permanent, nationwide RON legislation. By completing 99% of the transaction in a really remote and online manner, the signing and signing of the note just becomes a coda for the closing ceremony. Additionally, it’s certainly worth noting that the addition of Ginnie Mae and the Federal Home Loan Bank system to the pool of investors who accept eNotes has dramatically improved lenders’ ability to issue eNotes on a large scale.

Calling today’s definition of a hybrid eClosing “obsolete” is polite. Now that many borrowers are aware that RON is an option, demand will only increase and those who have not made RON a priority will lag behind their competitors. If the mortgage industry pandemic has shown anything, it is that its ability to innovate far exceeds its current efforts, and the introduction of emergency procedures like hybrid eClosings and RIN in favor of true innovation will only further slow the growth of the industry.