'E-mortgages' on the way
Homebuyers may soon handle their entire mortgage transaction electronically.
NEW YORK (CNNMoney.com) -- There's a quiet revolution going on in the mortgage industry: Home buyers soon will be securing mortgages and closing on sales almost as easily and conveniently as they purchase an airline ticket online.
Borrowers will go through the entire process, from application to registering with the county courthouse, without the mounds of messy paperwork currently required.
So-called e-mortgages have gained a lot of momentum recently, according to Ed Albrigo, vice president of enterprise programs for Freddie Mac, the government sponsored mortgage loan aggregator.
"In the past year," he says, "a more concerted push was made across the industry," noting that volume is small but growing. The first e-mortgage successfully sold was by Wells Fargo Home Mortgage to Freddie Mac in 2000 and other mortgage lenders such as First Advantage Mortgage and Greenlight Financial write a small number of mortgages electronically.
Harry Gardner, a vice president with eMortgages with the Mortgage Industry Standards Maintenance Organization (MISMO), which is coordinating the development of electronic standards for the e-mortgages, says the industry is in its infancy but gearing up quickly.
"There are already a handful of lenders doing the early-adopter thing," he says. "Others are preparing to enter but they don't want to be out on the 'bleeding edge.'"
Gardner thinks e-mortgages will be mainstream in two to three years and on par with paper in four or five.
How electronic are they?
There are several advantages for the home buyer.
Turnaround time Much of the time spent on loan approval comes from moving bulky paperwork from one desk to another. Not only can electronic forms be transferred almost instantaneously, but more than one person can access and work on them.
That can cut loan processing time in half, or less. Instead of a turnaround time of 30 to 45 days or so, it could take two to three weeks. There's a limit though. "Some of the time is spent on due diligence," says Albrigo, " and that can't be shortened too much."
Borrowers also will save lots of time by filling out just one, standardized, set of forms. One of MISMO's primary functions has been to develop and gain industry-wide acceptance of standards and protocols, so every lender will be able to access applications and process them easily. That can eliminate tons of repetitive work.
Cost "Much of the savings will come from eliminating the production, management and maintenance of paper," says Gardner. "Just the sheer delivery costs add up. There will also be savings in quality control. Errors can be found and fixed in many different documents much more easily and quickly. It has the potential to reduce manpower."
Loan officers should be able to process more loans, increasing their efficiency. MISMO estimates e-mortgage savings at about $250 per loan. Others say $500 or more is possible.
Gabe Minton, vice president, industry technology for the Mortgage Bankers Association, says lenders and settlement services providers might encourage consumers to do paperless transactions by offering discounts.
"I did a refi recently," he says, "and I saved $100 on the spot from the settlement services provider by submitting my settlement information online."
Gardner says once e-mortgages go mainstream, lenders should begin to pass along savings in the form of lower fees and interest rates.
Even a slight discount on interest rates can add up to big savings. A quarter point difference in the interest rate on a 30-year fixed $200,000 loan, could save a borrower $25 a month - $300 a year.
Accuracy: Corrections can be made in many electronic documents at once, rather than going through each individual hard copy.
The completed documents will be available for examination by home buyers before closing to make sure everything is clear and correct.
Typically, the first time all the paper work is completely assembled occurs at closing. Many times, discoveries are made then and there that have to be thrashed out on site and under pressure. Consumers often feel forced to make concessions because they don't want to jeopardize their purchase.
Consumers are ready, but what about courts?
Getting consumers used to e-mortgages and getting lenders geared up to offer them should be easy compared with instituting the third important component of the e-mortgage industry: converting 3,600 or so county courthouses to electronic record keeping.
E-mortgages have been executed without this last step but once it's in place lenders will be able to complete transactions without ever converting e-documents into hard copies.
If the local record keepers are not able to process electronic documents it wipes out some of the advantages of e-mortgages since everything would have to be done in hard copy eventually.
It will take a commitment of resources on the part of many state and local governments before the changeover is complete.
"There's a lot of difficult work ahead to get that done," says Albrigo. "But I've been dealing with this for five years now and I'm more optimistic now about seeing e-mortgages come forward than any other time."