Electronic closing of a mortgage loan has been around for years – in a manner of speaking. Generally, some element of the transaction still requires traditional methods such as the physical presence of a notary public or signing of original documents in ink. Most, if not all, of the parties involved are still in the same room.
In what may be the preview for future mortgage closings, the Wall Street Journal reported on a remote electronic mortgage closing that took place in July. All documents were signed and notarized electronically, with participants spread throughout the country. The new homeowner was located in Illinois, the lender was participating from Michigan, and the notary services were performed by Notarize, an online notary service based in Virginia.
The online notary service is key. Currently, five states have authorized remote notarization (Virginia, Nevada, Montana, Texas, and Ohio). However, according to Notarize, documents that are remotely notarized through their service in Virginia are accepted throughout the US. In case questions arise, Notarize provides a handy reference by state to the relevant state laws regarding acceptance of out-of-state notarization.
Each participant logging into the notarization service begins by answering authentication questions as the first level of identification security. Next, participants hold up their driver's licenses to their webcams as the second security level. The licenses are scanned front and back for verification and storage. Finally, a sample signature for each participant is captured via webcam, digitized, and used to produce the necessary signatures on all electronic documents.
The closing process in the Wall Street Journal example took approximately 30 minutes – similar to a traditional closing process, but without the burden of getting all participants in the same room. Theoretically, this process may encourage homeowners to widen their search for mortgage lenders and a suitable deal, improving the efficiency of the marketplace. For the moment, too few lenders accept remote electronic closings to have a tangible effect on the market.
Advantages of remote electronic closing are not limited to the homeowner. With a fully electronic closing and notarized signatures, loans may be quickly transferred to the secondary market, freeing up a lender's capital to be used for more loans.
Overall efficiency will also decrease a lender's costs. According to the Mortgage Bankers Association (MBA), mortgage production costs to lenders averaged $8,887 in the first quarter of 2017. Given that costs to lenders have more than doubled in the past eight years, lenders are likely to accept remote electronic closings eagerly.
Are you ready for a remote electronic closing process? Efficiency can come at a price if you are not prepared. Make sure that you have received the necessary documents beforehand, including the Closing Disclosure that lists all the final terms. Review them thoroughly, and make sure that you ask questions to clarify anything that you do not understand. Whether electronic or in ink, remotely or in-person, don't sign anything until you are fully comfortable with the terms. Make sure you’re aware of all the ins and outs of closing your home loan.
If both lenders and homebuyers become comfortable with a fully electronic and remote process, we could see remote mortgage closings become the timesaving norm. Even so, one step may remain old school – that satisfying moment when your real estate agent hands you the keys to your new home.
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