Old paper trail hits mortgage buzzsaw

Online: Things such as closings are coming along more quickly, now that the mortgage industry is going paperless.

April 29, 2001|By Gus G. Sentementes | By Gus G. Sentementes,SUN STAFF

Anybody who has bought a home knows about the avalanche of paperwork that's required before a property can change hands.

From the opening steps of the loan application all the way to the final documents at the closing table, it's a tedious process. Though vastly improved in recent years, the process continues to be marked by reams of paper, overnight delivery of packages and considerable waiting.

Today, the mortgage industry is on the threshold of something revolutionary: a paperless mortgage process. Now that federal laws give legal weight to electronic signatures, a wide range of players - from software firms and lenders to title companies and local governments - are tackling the nuts-and-bolts obstacles of transferring a property entirely online.

"Believe it or not, the vast improvements in technology aren't dot-com [mortgage] Web sites," said Keith T. Gumbinger, vice president of HSH Associates, a mortgage industry research firm in Butler, N.J.

"Most of the improvement in technology has happened behind the scenes with connected communication between firms involved in the mortgage process. Mail communication that took days or weeks now happens instantly with e-mail. Credit checks happen at the push of a button."

In an industry that can take from 20 to 60 days to close a mortgage, that time cycle will progressively drop over the next 10 years, said Michael Grad, senior vice president of consumer real estate for Bank of America.

And, with better internal processes and the advent of paperless mortgages, "we'll limit our 20- or 30-day cycle to below 10 days," Grad predicts.

At ground zero in the mortgage industry's technology push is the Mortgage Industry Standards Maintenance Organization, or MISMO, an offshoot of the Mortgage Bankers Association of America. MISMO was formed two years ago to standardize real estate finance transactions, and about 85 companies, from banks and underwriters to title insurers and technology firms, now belong to it.

The companies work together through MISMO's Web site to develop the Internet "architecture" for exchanging data between parties, said David Barkley, MISMO's chairman.

"MISMO is trying to find ways to make the mortgage process more efficient, reducing the cost to the borrower faster, and then moving it all through the process," said Barkley. "Besides originating a loan, we're looking at the whole closing process."

A working group within MISMO has been pursuing a paperless, fully electronic mortgage since the Electronic Signatures in Global and National Commerce Act, or E-Sign, and the Uniform Electronic Transaction Act became law last year. Both acts give legal standing to electronic contracts.

The legislation has given MISMO the green light to focus on creating guidelines for electronic mortgages, Barkley said.

But a purely paperless process, the Holy Grail of the $4.6 trillion mortgage banking industry, is still in its infancy. "We're not there yet, and probably 99 percent of the industry is not there yet," said Neill Fendly, the National Association of Mortgage Brokers' president.

Fendly, an executive vice president at Northeast Mortgage Co. in Phoenix, Ariz., said his company over the last two years has incorporated electronic underwriting, digital document preparation and wire-fund transfer systems to streamline the loan process.

"The end result is the incredible reduction of time and frustration on everybody's part," Fendly said. A few years ago, "a borrower was given a list of items that they would need in advance, and come back with the sequel to `War and Peace,'" Fendly added. "It was a horrendous amount of material that was turned into a package and turned around and submitted."

A fully electronic mortgage process - with county land recorders, lenders, borrowers, underwriters and other parties in a secure online environment - is still years away from mass implementation, analysts said. But at the forefront of the push for paperless mortgages is a Baltimore-based technology company called eOriginal Inc.

Its patented process involves getting all the mortgage players - from lenders and title researchers to county land record offices and brokers - to participate online and use their technology, software and services.

eOriginal's process creates electronic mortgages that are unique and unalterable, and executed with an electronic signature. Customers use a stylus to input their signatures through an electronic screen.

The company has closed electronic mortgages for consumers in Florida and New York and plans to conduct a closing in mid-June in Maryland, said Susan L. Penn, eOriginal's public relations manager.

"The difficulty for us is being able to link those participants electronically," said eOriginal's founder and president, Stephen Bisbee. "To accomplish that isn't something that's going to occur overnight. It's going to be slow in the beginning, but then it's going to enormously accelerate. Until this year, we weren't able to do electronic mortgages."

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