Paperless closings almost a reality
One of the great promises of the digital age and the internet was the eventual elimination of paper. Probably no industry relies more on paper than banking and finance sectors. As anyone who ever has closed a mortgage loan knows, we love our paper.
To some extent, the mortgage industry’s love-hate relationship with paper stems from the overall complexity of creating loan programs that technically must endure for 30 years. There are a lot of what-ifs, wherefores, ands and buts in something that must be designed to stand the test of time.
A typical loan application package can easily start at 80 pages and if tax returns are involved, run into the hundreds of pages. If several wealthy individuals get together and buy a property and we go “full doc” (meaning we use tax returns and fully document their assets) the loan file for one property can easily run 500 pages or more.
In recent years there has been a trend to try and reduce the amount of documentation required in the application side of it, and rarely do we see files more that 50 pages or so (which, in my opinion is still far too much).
However, until this year there has been no attempt to cut down on the papers needed to actually close the loan. Borrowers must still sit for at least 30-45 minutes and sign a mind-numbing number of documents, and I have seen people actually be in considerable pain from writer’s cramp at the conclusion of closings.
Now, however, some relief is in sight, both for borrowers and for all those beautiful trees that give their all every year to become paper. It is a program called “e-sign.” It is now possible to digitally sign about 80 percent of your loan documents with the click of a mouse and never touch a piece of paper except for the 20 percent or so of documents that will still require “wet signatures” (which is the new name for original signatures).
Our company is currently one of the very few in the nation that offers this convenience, and right now we are only offering it on some versions of our 30-year fixed rate conforming loans. We hope to offer it on more products in the near future, and I would predict in a few years it will become the norm for all lenders.
In a conventional closing we e-mail a large file of documents to the title company to print out and physically present to the borrower. The title company then sees that everything is signed and disburses the money to the appropriate parties, returns the physical loan package to us and sends a copy to the borrower for their records. The title company also prepares their own documents that they require as well.
With “E-sign” we give the title company a password to log onto a web site and the loan documents are there. The borrower(s) then sit in front of a computer monitor and each document is presented to them for their review. They then click a mouse acknowledging they agree to the terms of the document and move onto the next one.
The only documents requiring a “wet signature” are the deed of trust as that is filed with the county and certain documents the title company generates for its own records.
We can also supply the borrower with a password to allow him or her to review the documents in detail prior to sitting down at the closing. This should result in a better-informed, less-overwhelmed consumer and give borrowers more time to consider the transaction they are committing to.
When the transaction is complete, the title company can either print out a paper copy for the borrower’s own files or e-mail a copy of everything or burn a CD for the client. The loan package is then instantaneously e-mailed back to the lender (saving the borrower a courier fee).
The advantages of this technology are enormous. Many times something doesn’t get signed at closing and it is an inconvenience for everyone involved to chase one piece of paper for a week or more to get the entire loan package completed. That problem should be eliminated. Closings will also take far less time for all involved, resulting in better efficiency for all parties, resulting in lower closing costs for all parties.
And over time, millions of trees will live to see another day and provide shade, wildlife habitat, erosion control and purify the air we all breathe. And millions of borrowers will no longer suffer writer’s cramp!
Chris Neuswanger is a loan officer at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related inquiries from readers.