Debunking eMortgage myths: the full adoption of eMortgages is inevitable. Current myths about the obstacles to that adoption won

The effort to achieve the industrywide adoption of eMortgage has rolled on for nearly eight years now. As an early member of MISMO[R] and the eMortgage Alliance, an activist for electronic mortgages and a business owner who discusses this topic daily with leading financial institutions, I am asked frequently to comment on the current status and the many myths surrounding eMortgage development and adoption. [??] Over the last two years, the mortgage industry has made significant strides in aligning itself for meaningful eMortgage adoption. Yet, we have not yet seen this technology universally embraced and applied. [??] The inescapable truth is that eMortgages will eventually be standard operating procedure. The questions of what, how and when have yet to be answered. There are also many myths that need to be exposed. [??] The following are some of these myths, and insightful comments from industry leaders about the current status and future of eMortgages.

Myth No. 1: There is one universally accepted definition of eMortgage.

One of the major obstacles standing in the way of electronic mortgage adoption has been that the mere definition of an eMortgage varies from day to day and from company to company. Take, for example, the following three definitions of eMortgage.

According to Mortgage Technology magazine: "In typical usage, any mortgage for which the loan application commences in cyberspace. More narrowly, all-electronic (paperless) mortgages, which have been completed successfully several times on a pilot basis in recent years. See E-SIGN [Electronic Signatures in Global and National Commerce Act], UETA [Uniform Electronic Transactions Act]."

According to MISMO: "A mortgage where the critical loan documentation--specifically the promissory note, assignments and security instrument--are created electronically, executed electronically, transferred electronically and ultimately stored electronically. [Also known as] the paperless mortgage."

According to Fannie Mae's eMortgage Guide: "An eMortgage is a mortgage for which the promissory note and possibly other documents (such as the security instrument and loan application) are created and stored electronically rather than by using traditional paper documentation that has a pen-and-ink signature."

As you can see, there is no uniform definition (or spelling) of an eMortgage, because it is many things to many different entities. Some define it as a totally paperless process, while others see the technology as a tool to eliminate certain manual steps in the underwriting process to increase efficiency and cut costs.

Harry Gardner, the Mortgage Bankers Association's (MBA's) senior director of industry technology and vice president of eMortgages for MISMO, agrees there is a wide variation in the understanding and definition of eMortgage. According to Gardner, MISMO is in the process of developing an eMortgage informational packet for the 2007 MBA Technology in Mortgage Banking Conference this month, which will include key definitions, a high-level description of the process and the benefits it will provide. "This information will provide an eMortgage introduction and help frame our more in-depth MISMO publications, including the eMortgage Guide, the eMortgage Closing Guide, the eMortgage Vaulting Guide, and the eClosing Cost Benefit Analysis and ROI [Return on Investment] Template spreadsheet," Gardner adds.

Myth No. 2: Technology for a comprehensive eMortgage solution is not available.

In the early years of eMortgage development, it was all too common for vendors to claim to have created the technology for eMortgage. Some even claimed to have executed an eMortgage. We know now that such was not the case.

However, while these vendors played on the false hope of some mortgage lenders, industry leaders such as the Mortgage Bankers Association; Vienna, Virginia-based MERS[R]; Fannie Mae and Freddie Mac chose the high road and spent several years working to create the standards and industry infrastructure for vendors to leverage in designing their technology solutions.

Today, technology vendors have rolled out eMortgage platforms, and lenders have implemented production emortgage operations and are registering eNotes on the MERS eRegistry every day. In fact, a recent brochure created by Fannie Mae states: "For some lenders, eMortgage transactions are no longer part of the distant future--they are an everyday reality."

Myth No. 3: There are no immediate savings resulting from the use of eMortgage.

There are immediate cost savings as a result of moving toward an electronic mortgage process. The issue is how to determine this cost savings. The MISMO eMortgage Workgroup has identified four areas where cost relief can be found early in the process. These include:

* Fewer resources needed for paper processing, and additional savings through the elimination of paper delivery charges.

* Higher loan quality created by the ability to check compliance and data integrity issues at any point in the process.

* Lower risks due to the higher loan quality and a shortened process cycle.

* Higher customer satisfaction due to fewer mistakes at closing, improved communication and less time between application and closing.

It is important to note that the implementation of eMortgage technologies requires organizational change on two levels. First, the appropriate technology systems must be in place. And second, even before that point, lenders must organize their existing business flow to accommodate these systems.

It is the organization of business flow--in preparation for technology deployment--that provides the most value in an electronic mortgage environment. Best of all, return on investment can be achieved through lower costs, higher loan quality, lower risks and higher customer satisfaction before the first eMortgage solution is ever implemented.

Bill Moody, chief executive officer of Lenders First Choice (LFC), Simi Valley, California, a national provider of settlement services and title insurance, puts it best: "Eliminating paper and reduction of overnight mail costs are not the only reasons for implementing eMortgages," he says. "In fact, they aren't even in the top five reasons."

Myth No. 4: It is OK to delay serious consideration of eMortgage.

The fact that the implementation of eMortgage technologies can provide immediate ROI is important due to the current state of the industry. The myth that lenders can wait to seriously think about preparing for eMortgage, an attitude often promoted by vendors threatened by eMortgage, can be especially harmful in light of the current pressing need in the industry to cut costs.

"With the downturn in business throughout the industry this year, now is the classic time to regroup and reassess IT [information technology] infrastructure and business strategy to gain an advantage over competition in the future," adds MISMO's Gardner.

Since the ball dropped in Times Square to mark the start of 2007, we have read numerous accounts of lenders--primarily in the non-prime arena--closing their doors. What these institutions learned, albeit the hard way, was that cost-cutting technology initiatives take time to implement--often several years. This is due mostly to lengthy decision-making procedures and complicated vendor-selection practices. By the time those lenders forced to close their doors earlier this year realized the need to cut cost to offset losses on the secondary market, it was too late.

Industrywide adoption of electronic mortgages will not happen on a specific day at a specific time. I believe organizations that have yet to begin adopting will find that they, too, have waited too long. In a presentation to attendees at MBA's 2006 Annual Convention in Chicago, Eric Stoddard, executive vice president of Des Moines, Iowa-based Wells Fargo Funding Inc., concluded: "With recent technology advancements and industry standardization, a fully integrated eLending environment is not only feasible, it is required to maintain a competitive advantage in the lending services arena."

Myth No. 5: eMortgages must be 100 percent electronic to be effective.

eMortgage is not an all-or-nothing process. Much of its ROI comes through process improvements that can be achieved during early stages. "Some lenders, brokers and consumers aren't ready to bite off the entire life cycle, but can benefit from the components," says Cary Burch, chief executive officer of Lender Support Systems Inc. (LSSI), Poway, California, a global provider of lending and loan servicing technology solutions. "Elimination of manual processes such as mailing and printing is beneficial--especially eDisclosure."

MBA's Gardner adds, "There's a misconception that you have to adopt an entire eMortgage process to receive a benefit. However, companies are realizing that there are benefits to implementing certain aspects, starting with the eNote and delivering it electronically, and progressing toward additional electronic documents."

Myth No. 6: Title companies will not support eMortgages.

For years, lenders and title companies have played "chicken," each waiting for the other to be the first to take on the cost of investing in the tools necessary for eMortgage. However, over the last several years, some lenders have paraded their eMortgage initiatives in front of the media, while the title companies have quietly made significant progress of their own.

In our own 2007 survey of title companies, an overwhelming 98 percent of 500 respondents said that they would "support an eMortgage initiative by setting up the capability to support electronic closings."

LFC's Moody backs up this view. He says, "Not only will title companies support eMortgages, they will embrace them." He adds, "The technology is already available, and most title companies could adapt relatively quickly to any technology issues. The standardization of loan documents would help most parties in the loan process and deliver a better experience to the consumer."