Owning a house is a key element of the American Dream. However for this dream to come true, there are specific steps that one will need to follow to get the most suitable home with the least amount of hassle and stress.

Normally, buying a house is extremely complicated, even to existing homeowners. Therefore, digitalizing the various steps involved in buying a house in the USA, especially involving mortgage loans, is starting to garner more attention and improve the mortgage closing process.

Image 1: Home-buying journey in the USA.

Banks and credit institutions are currently employing multiple solutions to provide customers with a digital experience, even digitalizing the entire mortgage process. Key elements to these changes in the home-buying process include:

  • Changes in customer expectations – Customers are expecting end-to-end experiences in important life matters, like home-buying, car purchasing, and education.
  • Changes in the market’s nature – Eventual reduction of workload and required fees.
  • Technological developments – New and more advanced technologies and platforms are allowing new functions and speeding up distribution.
  • Profitability pressure – Rising production costs, along with ineffectiveness in back office jobs had badly impacted costs and flexibility. As such, operations are under extreme pressure to improve efficiency. According to Mortgage Bankers Association (MBA), the average cost of originating a mortgage had peaked at $8,957 USD in the first quarter of 2018.
  • Increased focus on regulation adherence and quality – Lenders are required to follow an increasing number of regulations, as well as to clarify, monitor, and report their risk contracts to determine remedies.
Image 2: Digitalization of the Residential Mortgage process.

One of the most important and time-consuming steps is Closing – the finalization of the home-buying process. According to an October 2019 report from Ellie Mae, a software company that specializes in processing real estate mortgage applications, the average time spent for closing is 47 days.

At the point of completion, involved parties often have to do the following:

  • Meet at one specific location.
  • Sign legal documents, normally consisting of 2 types: the agreement between the lender and borrower regarding the terms of their real estate mortgages, and the agreement between the buyer and seller regarding the ownership transfer of real estate. Involved parties must pay close attention to these documents before signing.
  • Paying the closing and escrow fees – Many fees are relevant to mortgage and ownership transfer.

The complicated and time-consuming procedures had led software providers to develop applications with new technologies in order to simplify such process. The closing step has been redefined as eClosing, where all necessary documents are accessed, presented, and signed digitally using electronic signatures (eSignature). All closing operations must strictly adhere to the laws in each state as well as to customer behaviors.  This means that while eClosing has not managed to fully replace traditional closings, the method is still strongly developing, due to its convenience and innovation. To satisfy the diverse market demands, there are currently 3 types of eClosings in use, including:

  • Full eClosing: Meetings between the parties will still be done, but all documents are digitally verified and signed using eSignature.
  • Hybrid eClosing: Meetings between the parties will still be done, but not all documents are signed using eSignature. Only the Promissory Note (a legal instrument, in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms) and some other documents are printed to be hand-signed and verified traditionally, while others will utilize eSignature and digital verification.
  • Online Closing: All documents are digitally verified and signed using eSignature via teleconference. This method will free involved parties from needing to have direct meetings at one specific location, while enabling them to close a mortgage with all valid signatures.
Image 3: Types of eClosing.

eClosing has transformed the home-buying closing process, while at the same time providing many conveniences:

  • Improves transparency in the home-buying process to both the buyer and seller, lender and borrower, as well as to real estate agents.
  • Allows careful considerations of documents before finishing, enabling the buyer and seller to know all necessary information and consider them before signing.
  • Accesses and distributes digital documents to the buyer, seller, and lender.
  • Eliminates document runtime errors.
  • Ensures data and document integrity.
  • Reduces costs.
  • Reduces time to complete and settle fees.

During the current Covid-19 outbreak, where it is encouraged or compulsory for all but necessity workers to stay at home, the importance of eClosing technology is clearer than ever. As such, many US States’ legislatures are starting to recognize the benefits of eClosing, and thus have supported its widespread application via various legislations. This is especially apparent in the recent years, where many states have added laws that support remote working for notaries. Remote Online Notarization (RON) is a process where notaries can notarize documents with signers in virtual online environments without a direct meeting between the two parties.

RON is greatly beneficial to consumers and the entire Mortgage eClosing market alike. And having recognized the importance of RON, US leaders have decided to immediately provide a legal framework to support the utilization and application of this technology.

On March 18, 2020, it was announced that if passed, a federal law would immediately authorize all active notaries to perform their work remotely across the nation. Furthermore, the bill would also allow states to request updates and maintaining of existing state laws, while also enabling remote notarization from outside the country.

As of April 2020, the complete laws and regulations of RON had come to effect in 23 states, including: Arizona, Florida, Idaho, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wisconsin.

As the demand for RON has increased throughout the country due to Covid-19, some states have issued temporary authorization for remote notaries under the guidance of the state’s governor or other enactment instructions. This is to resume necessary notary services while social distancing measures are being employed.

Case Study

With over 10 years of experience, the FSG.VN.DNE team is proud of its participation in the development of different applications and services in America’s real estate field.

With client is one of the innovative technology companies in the field of real estate, formed from a leading company in providing software products and services for the real estate industry in North America, FPT has provided comprehensive development services to create innovative eClosing products and solutions, suitable for different customer demands.  The Digital Close application provides a secure platform for the creation, configuration, and processing of real estate closing orders. The system supports all aforementioned types of eClosing, so when real estate insurance companies upload their files and data to the system, sellers and buyers will get access for online review and signing on the closing date.

With its widespread adoption across the US market, the platform has attracted hundreds of thousands of users, not only satisfying business demands from customers, but also proving itself as a scalable system. With the product, FPT’s customer has become a leader in providing eClosing solutions.

Image 4: eClosing Platform.

ThuyPTT, LienTT, AnhTCC FSG.VN.DNE, FPT Software

References:

  1. https://www.bankrate.com/mortgages/understanding-the-closing-process/
  2. https://advisory.kpmg.us/content/dam/advisory/en/pdfs/digital-mortgage-whitepaper.pdf
  3. https://www.mba.org/assets/Documents/PwC%2012.11.15.pdf
  4. https://www.visitcss.com/realtor-solutions/real-estate-closing-faqs/what-eclosing-and-how-does-it-work
  5. https://bdmag.com/innovations-knocking-on-the-door-of-real-estate/
  6. https://www.docmagic.com/node/8882
Related posts: