Technology promises to make mortgage deals an afternoon delight
By Michael D. Larson • Bankrate.com

What if borrowers could fill out online mortgage applications, get approved within minutes and close on the same day? Or if getting a loan required little human interaction, cost half as much as it does now and didn't involve getting buried under stacks of paper at some attorney's office in the boonies?

We're not there yet, industry experts say. But if lenders, technology suppliers and closing agents have anything to say about it, inexpensive, convenient "e-mortgages" will soon be headed to a loan office near you. For borrowers, that means buying homes and refinancing may never be the same.

"Technology in and of itself is not a cure-all; it's the creative use of the technology that makes a difference," says Joe Bryant, president of the real estate group at eOriginal Inc. The Baltimore-based company provides computer and communications systems that allow borrowers to close loans using electronic signatures and allow lenders to process records and sell them more quickly. "The capability is there now to take out so much of the cost. All the component pieces are there for the industry to wake up" and use.

Ready for a mortgage revolution?
"With some of the more sophisticated systems that exist today," he adds, "you can apply in the morning and close in the afternoon."

Online lenders made a big splash a couple years ago, but in some ways, the mortgages they made weren't that revolutionary. After all, lenders have been doing loans through call centers for years and in many cases, Internet lenders did little more than substitute a Web page for a telephone, take applications and process them the same way their offline counterparts always have.

But electronic mortgages, or e-mortgages, are an entirely different concept. Roughly speaking, they are loans that need little, if any, human contact from beginning to end.

A typical loan starts when a borrower fills out an application online. That application gets sent directly to an automated underwriting system, such as Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Prospector, with no human input. The system analyzes the borrower's debts, assets, income, credit history and things such as the value of the subject property, and then tells the lender whether the loan is good enough that the agency will buy it.

The use of automated underwriting eliminates many of the old steps that used to come next. The lender doesn't need to call the borrower's employer to verify income, nor does it need to contact the customer's bank to check up on assets.

When the automated underwriting systems comes back with an approval, the lender's system automatically orders third-party services such as appraisals and title work via the Internet or a dedicated connection with a national vendor. Those vendors have computer systems that automatically route the orders to the computers of local staff appraisers, company-owned title offices or independent contractors. The appraiser has to drive by to make sure the property is still there.

But that's about it because the automated underwriting system already did a preliminary analysis of its value based on sales and other information in a database.

OK, computer, let's finish this deal
Meanwhile, all the title-company representative has to do is log into the county courthouse computer and research the property's chain of ownership and outstanding liens. Both vendors send their reports back to the lender in electronic format within hours.

The lender's computer system then organizes the information into a package and prepares the appropriate closing documents. They, in turn, are sent to the closing agent electronically. That attorney or title company has a computer set up that includes an electronic stylus and pad, which resembles those used to authorize credit card transactions at some retail stores, as well as hardware that affixes the agent's "digital signature" to any documents.

The borrower reads the closing documents on the computer screen, signs the pad and the agent gives them the stamp of approval. After that, the agent sends the closing documents along to the county courthouse and the lender, which transmits the completed package and ownership of the loan to the end investor. Copies of the loan documents are also sent to an electronic filing cabinet, which the borrower can access in the future as needed.

Getting it together
"The step that we've taken so far is a big step," says Robert Davis, senior vice president of global e-business development at HomeSide Lending Inc. in Jacksonville, Fla. "The entire lending community -- and when I say that, I'm talking about service providers, appraisal providers, lenders, investors, all those companies -- you're starting to see them come together to build partnerships and alliances such that they can speed up the process even further.

"Significant investments in the technology have been made such that this can be more like going online and trading a stock."

Just like online trading helped slash stock commissions, electronification of the mortgage process should cut borrower costs, too. Lenders routinely quote fees of $250 to $400 or more for document preparation and $50 for courier services, for example. Those charges should decline or disappear altogether as the flow of paper ebbs between lenders and other parties involved in the mortgage process.

Three- or four-week closings may fall by the wayside, too. If lenders can get loans approved within minutes and third-party vendors can finish their work in hours, then borrowers should be able to close in a couple of days or less.

"The more you can speed up that process, the more efficient you can make it, the more you can drive costs out of it," says Davis. "The consumer is going to be interested in the same thing most people are interested in: time and money and whether you can save time and whether you can save money."

Speedy technology vs. slow industry
Still, the mortgage industry isn't turning on a dime, and that means many consumers will be getting loans the old fashioned way for a while. The first fully electronic mortgage didn't close until last July in Florida after a state law gave electronic signatures the same validity as handwritten ones. Since then, Bryant says eOriginal has participated in less than 25 closings.

"For whatever reason, the mortgage industry has been a slow adapter of technology," he says. "You look at what the credit card industry has done, the leasing industry, etc., and they have been way ahead.

Many counties aren't technologically advanced enough that title workers can perform property searches remotely, adds Darren Ross, director of e-commerce for Stewart Information Services Corp. That makes life a little harder for the Houston-based company, which provides title search, insurance and other closing services to lenders.

In many cases, the same automated underwriting systems that approve the best borrowers in minutes will only issue conditional approvals for those with high debt-to-income ratios, little money in the bank and other problems. When that happens, someone at the mortgage company has to contact the borrower's bank to obtain balance information, get written tax records from the customer or do other things that are straight out of mortgage lending history.

"We are focused really on streamlining the transaction as far as we can," Ross says. But "I'm not aware of too many lenders that are doing a totally electronic transaction at this point."

That should change, however, now that federal legislation giving e-signatures the same status as pen and paper ones is in place. That law, called the Electronic Signatures in Global and National Commerce, or E-Sign, Act became effective Oct. 1. Experts predict it will help electronic mortgages gain wider acceptance among technologically savvy lenders and the masses.

"The more you can automate those processes or possibly eliminate those processes, that's going to save costs and save time," says HomeSide's Davis.