Jim Voth of Falcon Capital Advisors on Digital Mortgage Adoption

Jim Voth leads the Digital Mortgage practice at Falcon Capital Advisors, Washington, D.C., where he manages digital transformation engagements for GSE, government, and banking clients. He can be reached at [email protected].

Q: Conventional wisdom is that digital mortgages thrive in a refinance environment, and less so in a purchase market. Is this in fact the case, and has the pivot to purchase resulted in a big drop in eNote origination?

JIM VOTH: Certainly, the prevailing view is that most of the progress to date with digital mortgages has been on the refinance side of the business. Not surprising really since the nation’s largest originator, and by far the biggest source of eNotes registered on the MERS Registry has been a refinance powerhouse.  At the moment there is no industrywide source that specifically tracks and publishes the purchase and refinance split for eNotes. However, there are other large lenders, including the one we’ve already mentioned, who are doing eClosings for purchase as well as refinances.

That said, overall eNote volume was down in the first half of 2022, according to the MERS eRegistry. As a percentage of total originations, however, eNotes are tracking at 6% of all originations, slightly ahead of the 5% they were at in 2021. There are simply fewer of them because overall mortgage volume is down. Purchase loans now make up more than 50% of overall volume, which suggests that lenders are creating eNotes using purchase loans.

The logistics for a full digital closing are easier in a refinance transaction because the lender has more control over the settlement and notarization methods.  But at the end of the day, the manufacturing process for digital mortgages is the same for both purchase and refinance loans.

That doesn’t mean that there aren’t some cultural and logistical challenges when it comes to fully digital purchase loans where the note, security instrument and other loan documents are signed electronically. In a purchase transaction, the seller, or more often the Realtor®, selects the title company. To do a fully digital mortgage, the title company must have access to an eClosing platform with in-person electronic notarization (IPEN) or remote online notarization (RON) capabilities, and of course access to an eNotary. Not all of them do, but this is rapidly changing. The lender can also provide the title company access to these tools via their digital mortgage vendor relationships.

Another challenge is that traditional in-person closing ceremonies are often encouraged by loan officers and real estate agents for purchase transactions. But there is no reason why these can’t remain traditional in-person ceremonies but with electronic signatures and eNotarization (i.e., IPEN).

Q: In a smaller, way-more competitive purchase market, is it wise for lenders to try to introduce eClosings to the borrower experience?

VOTH: One of the benefits of technology is that it gives consumers more options. Viewed from this perspective, lenders aren’t trying to shoe-horn borrowers into a single path. Many borrowers select lenders based on their promise of making the origination process faster and less painful. You know what’s not fast and not without its pain points… being given a pile of important legal documents on the day of closing to read through for the first time and sign while a settlement agent, notary, and potentially others wait on you. I think most people would agree that a much better experience is when you are given a chance to carefully review those documents in the comfort of your own home and, in some cases, sign them before coming to the closing ceremony, which by the way is now shorter because you’ve already reviewed and signed many of the documents beforehand.

In addition to offering a more modern customer experience, eClosings have significant economic advantages for lenders. Recent ROI studies have found that fully digital mortgages can save lenders and title companies over $400 per loan. Given that the most recent MBA numbers show that in Q2 the average lender lost $82 per loan, a gain of a few hundred dollars is not insignificant.

Not everyone will be persuaded immediately, which is why it will take a while before the majority of mortgages are fully digital. But make no doubt about it, those who think we’re going to scrap digital innovation to stick with ink are betting the wrong way.  Fully digital is the future and the benefits are too great to pass up.

Q: What can lenders do to make the eClosing process more “purchase mortgage friendly”?

VOTH: As we’ve mentioned, they can offer borrowers more options. This could include fully remote closings, hybrid closings (i.e., where one or more of the closing documents are signed electronically, be it remote or in-person)) or fully in-person closings ceremonies but with digital signatures. For the foreseeable future I think many borrowers will still want a traditional in-person ceremony for purchase transactions.  That’s why we anticipate an increase in IPEN to enable this latter option.

Q: What can lenders do to ensure adoption of a digital mortgage program across both purchase and refinance?

VOTH: There are several factors that a lender should consider to ensure the successful adoption and scaling of a digital mortgage program. Best practices include executive sponsorship of the digital transformation effort, clear transformation strategies, managing to objectives and milestones, and dedicating resources through full adoption. Not getting stuck in pilot mode is also critical.

Our conversations with lenders, as well as other recent industry research, has shown that internal resistance to change is one of the biggest challenges to digital mortgage adoption. One proven way to move the culture forward is to make eClosing the default setting in the origination process. In addition, a phased roll-out beginning with hybrid digital mortgages where some of the closing documents are eSigned can be an interim step to introduce change more gradually.

Falcon Capital Advisors Expands Leadership Team to Accelerate Growth

Alexandria, VA., August 4, 2022Falcon Capital Advisors, a leading business advisory firm that provides strategic advice, technical expertise and engagement execution to financial institutions and government agencies, today announced that it has hired industry veteran Walter Allen as its Managing Director; Natisha Dawson as its new Director of Finance and promoted Ken Yoo to Chief Operating Officer.

“We are pleased to welcome Natisha and Walter to the team and to elevate Ken in an expanded role,” said Armando Falcon, Chairman and Chief Executive Officer of Falcon Capital Advisors. “This latest infusion of talent, as well as our recent announcement that Phil Bracken has joined us as Vice Chairman, reinforces our position as the premier, full-service consulting firm dedicated to serving the needs of the mortgage and capital markets. The timing couldn’t be more advantageous, given turmoil in the mortgage market and the digital transformation that is taking place. Clients are looking for strategic counsel as they readjust their business models and for direction and implementation assistance as they digitize their lending and secondary marketing operations.”

Allen will be responsible for business development across Falcon’s major practice areas: financial institutions and government advisory services and its eMortgage consulting practice. Allen is a recognized industry veteran and digital business strategy leader with more than 20 years of experience utilizing technology solutions to drive transformational business initiatives in both the government and private sector. Prior to joining Falcon, Allen was the President of HouseAmp, a fintech company where he managed and oversaw all aspects of the operation. Prior to HouseAmp, Allen spent nearly 13 years with data and technology leader CoreLogic, most recently as Vice President of Government Solutions working directly with federal government clients and agencies. Earlier, he was the Vice President of Global Capital Markets where he oversaw a team of product specialists and subject matter experts focused on key financial services customers and the Rating Agencies.

Dawson brings more than 20 years of finance and leadership expertise to Falcon. As Director of Finance, Dawson will be responsible for leading all finance and accounting matters in the firm. Prior to joining Falcon, she was the Founder & Chief Financial Officer of The Griffin Way, a firm designed to provide outsourced finance and accounting services to small- and mid-sized businesses. Previously, she held executive financial roles at large, global marketing, public relations and communications firms.

As Chief Operating Officer, Yoo oversees Falcon’s daily operational and administrative functions. Yoo’s areas of oversight at Falcon include daily operational supervision, strategic planning, M&A planning and integration, IT and physical infrastructure management, and governance/risk/compliance activities. Yoo has more than 25 years of senior leadership experience in banking, housing finance, consulting risk management and regulatory oversight. During his tenure at Falcon Yoo has been responsible for managing teams, relationships and projects for both commercial and government agency clients. Yoo’s involvement in those engagements have included initiatives related to program management, asset management, risk management and quality control, data analytics, grant and loan administration and financial analysis for the housing, financial services and healthcare industries.

About Falcon Capital Advisors

Falcon Capital Advisors (FCA) is a Washington, D.C.-based business and technology advisory firm that provides strategic advice, technical expertise and engagement execution to financial institutions and government agencies. The FCA team is comprised of industry experts who have developed deep financial services expertise by serving as regulators at federal financial regulatory agencies and as top business and technology executives at leading financial institutions. FCA’s capabilities span the entire mortgage landscape, from origination and servicing to government agency consulting. The firm’s technology consulting practice is known for its expertise in digital transformation, its ability to implement as well as design solutions, and its vendor agnostic approach. For more information, go to falconcapitaladvisors.com.

Q&A with Tim Renner, Co-Chair of the MISMO eVault Standards Development Workgroup

What are the MISMO eVault Standards DWG?
• The MISMO eVault Standards DWG is a development workgroup formed by MISMO to create mortgage industry standards for eVaults.

Why are eVault Standards important to the mortgage industry?
• Two primary functions of eVaults are to store electronic records such as eNotes and to send and receive copies of such records, and information about them, to/from other eVaults. Having a single set of standards for the mortgage industry will help to ensure interoperability among different eVault providers and serve as baseline requirements that can be leveraged by investors and other interested parties when evaluating eVaults, as well as by technology providers when developing them.

What are some examples of things that might be addressed by the planned eVault standards?
• The eVault standards are intended to cover the functionality, features, and security aspects of eVaults. One such item planned for consideration by the DWG is a set of rules for the validation of SMART Doc eNotes sent and received between eVaults.

Who is participating in the eVault Standards DWG?
• The DWG is open for participation by all MISMO members. It currently consists of representatives from mortgage lenders, the GSEs, Ginnie Mae, the Federal Home Loan Banks, and technology providers.

How can one participate in the eVault Standards DWG?
• MISMO members can sign up for the DWG via MISMO Connect. It currently meets on the second and fourth Wednesday of each month from 11 am – 12 pm ET. The next meeting is on May 25th.

Falcon Digital Mortgage View

“Leadership is the art of seeing the invisible” – Jonathan Swift

I was thinking of that quote the other day as I was reading about the recent blockchain transaction between Figure Lending and Apollo. To me, the nature of the eNote mortgages on-boarded as unique digital assets and the use of blockchain in their transfer demonstrates that innovation is alive and well in the mortgage industry. This was also the case last Fall when Redwood Trust and Liquid did the first blockchain non-agency RMBS securitization.

Clearly, these leaders have seen and acted on something that the broader market is just beginning to recognize. In fact, the most recent Fannie Mae Mortgage Lender Sentiment Survey® (MLSS) found that only 25% of lenders said they were familiar with blockchain and its possible applications in the mortgage business.

Will blockchain transform the secondary market? Maybe in the long-term. But in the nearer-term, high-visibility deals like this one will make the private-label market more receptive to eNotes. – Armando


Digital Transformation Will Continue Despite Slowdown

Will a slowdown in the mortgage market result in lenders cutting back on tech investments? Not necessarily. Check out Jim Voth’s latest interview with MortgageOrb on why now is not the time to pause a digital transformation.

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People on the Move

Last month was a big month for leadership changes across the industry. Ginnie Mae named Sam Valverde Executive Vice President and Chief Operating Officer and Felecia Rotellini as Senior Advisor and Chief of Staff to the President.

Stavvy appointed Brooke Adams General Counsel and Chief Compliance Officer. Truist announced Dontá L. Wilson will now lead its Retail Community Banking and Marketing activities.

 

ICE Mortgage Creates eClose Ties with 3 POS Platforms

ICE Mortgage Technology has integrated with three leading point of sale vendors — Roostify, Maxwell and Floify — to allow for cross-platform operability for eClosings. Commenting on the integrations, ICE’s SVP of Business and Client Development, Parvesh Sahi said,
“We are making it easy for lenders to adopt automation and start gaining the competitive advantages that come with our eClose solution.”

 

New MERS eRegistry Participants

Last month 4 new members — 2 originators, an investor and an eVault provider — completed their integration with the MERS® eRegistry. The new members include Nova Financial & Investment Corp., Zillow Home Loans, Colorado Housing & Finance Authority and International Document Services, Inc. Congratulations to these innovators for joining the growing list of organizations that can transact eNotes across the mortgage ecosystem!

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eSigning Technology Enhancements

Qualia, a digital real estate closing platform, launched a series of new features and updates to its RON technology. Qualia RON is now available in Texas, Tennessee, Washington, Maryland, Utah and Nevada. Pavaso, a digital real estate closing technology company, has also updated its eSigning experience with new process improvements and an entirely new look and feel

 


Have an eMortgage related news item you want to share? Want to make sure you and your team are on our distribution list? Have a question about Falcon’s digital mortgage advisory services? Send us a note at [email protected]

2021 Year in Review

Take a look back at some of the biggest developments in the digital mortgage space in 2021.