Three reasons the mortgage industry is embracing eClosing
Buying a home is often one of the most significant purchases an individual or family will make in their lifetime. Whether a borrower is a first-time or veteran homebuyer, securing a mortgage can be a complex and time-consuming step in the journey of finding a new home--especially during a global pandemic. Fortunately, lenders are increasingly adopting digital tools to streamline the process from application to close. For banks and financial institutions, eSign and eClose capabilities offer a number of benefits, both during and post-COVID-19.
Enabling a safe and seamless close
When it comes to the financial services industry’s digital transformation, COVID-19 has effectively hit the “fast forward” button. The pandemic has prompted significant shifts in people’s daily activities--from the way we go to school, to how we shop for groceries, and more. The same is true for buying a home. Borrowers who have become accustomed to interacting online in other aspects of their lives expect the same from the process of applying for and securing a mortgage. According to a recent survey of homebuyers and lenders, conducted by Finastra, 81% of consumers now prefer to sign their loan documents electronically.
In addition, safety protocols have incentivized banks to implement electronic document processing and eSignatures. “When lenders get an envelope full of closing documents, they are forced to negotiate the safest possible in-person signing experience” says Steve Ribultan of DocMagic, a leading mortgage technology innovator that partners with Finastra to offer e-enabled document generation, eSignature and eClosing capabilities to financial institutions.
With many lenders still operating remotely, the manual process of safely underwriting a loan in hard copy becomes even more challenging and time-consuming--whereas a cloud-based electronic process enables multiple remote parties, including the borrower, to access documentation at one time. Fortunately for lenders and borrowers, GSEs have loosened requirements for eSignatures and notes. However, regulations vary from state to state: for example in some states, borrowers still need to sign closing documents in the physical presence of a notary, while others allow a fully digital eClose.
Boosting efficiency and reducing time to close
At the same time as the pandemic has complicated the traditional closing process, historically low interest rates are driving increased demand for mortgages, applying further pressure to lenders’ operations. According to the National Association of Realtors®, existing-home sales grew for the fourth consecutive month in September of 2020.
“Banks are overwhelmed by the current volume of mortgage activity,” says Ribultan. “By switching the majority of loan documents from paper to digital, lenders can reduce a loan closing from hundreds of pages to just a few. Prior to closing, borrowers can access the platform to preview and electronically sign documents.”
The Finastra survey found that 64% of homebuyers named the time it takes to close a loan as the “most stressful factor” in the process of obtaining a mortgage. Particularly for borrowers who need to meet real estate contracts or rate lock time frames in order to secure a property or afford a mortgage, time is of the essence. Making the process as efficient and smooth as possible contributes significantly to borrowers’ peace of mind.
Competing with online mortgage providers
According to a 2019 analysis by McKinsey & Company, financial institutions have ceded 25% of the mortgage lending market to nonbank players who are capable of meeting consumer preferences for an online or mobile mortgage origination experience. Fifty-two percent of respondents to Finastra’s homebuyer survey indicated that an online/desktop solution was their preferred way to apply for a loan.
“Automating the mortgage process helps banks and other financial institutions compete with digital mortgage providers,” says Ribultan. But particularly among first-time homebuyers, the demand for speed and convenience is coupled with a desire for personalized guidance and education. In the current environment, it’s the institutions that combine superior customer service with digital tools to streamline the origination process that will ultimately win customers from online lenders.
The mortgage industry is just one sector of a rapidly evolving financial services industry. As digital tools like eSign and eClose become more prevalent, borrowers and lenders alike will reap the benefits of a safer, more streamlined, and more seamless mortgage process.
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