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Paperless Mortgage Still Years Away

Paperless Mortgage Still Years Away

MBA sees “a lot of growth over the next two years”

October 13, 2003


Three years after the first paperless mortgage transaction was consummated, is the mortgage industry any closer to ripping the paper from the process of applying, documenting, and closing a loan?Mortgage industry giants Freddie Mac and Fannie Mae think so. The Mortgage Bankers Association of America (MBA) says so. And optimistic brokers hope so.

But all agree that the day of true paperless mortgages for every loan transaction is still years away.

“The day will come, I believe, when obtaining a home loan will be as simple as sliding an ATM card,” Daniel C. Diaddiago, president of the Jarvis Street Group, a mortgage brokerage in Dawsonville, Ga., said in an email response to questions. “Any new delivery system or technology that edges us closer to that day is a step toward the future. Presently thought, technology is outpacing the realities of the marketplace.”

Harry Gardner, director of industry standards for the MBA, expects “a lot of growth over the next two years” toward more paperless mortgages, also know as “electronic mortgages” or “emortgages” for short.

“A true electronic mortgage is differentiated from what is taking place in the industry,” Gardner said in an interview. “There are online originations with people applying for loans (on the Internet). But the loan is executed and closed on paper. The buyer still signs on paper. A true emortgage … from the outset will be done electronically. The application, origination, closing, to recording, to deliver into the secondary market and the payoff and lien release.

“That is being done in a limited fashion and there are some pilot projects,” Gardner said. “But almost one is truly producing (emortgages), though a lot of folks are working to develop that capability.”

The Washington-based Mortgage Industry Standards Maintenance Organization, or MISMO, created in 1999 by the MBA, “is working to develop, promote and maintain voluntary electronic commerce standards for the mortgage industry.”

And Fannie and Freddie have established standards for helping lenders create, sell and deliver paperless mortgages.

Harvey Trimble, managing director of eBusiness for Fannie, said in a statement that emortgages “have tremendous potential to lower the cost of homeownership by eliminating paper, and reducing time and errors in the mortgage origination process.”

But in a statement released Oct. 6 Freddie Mac said there are still “technology and infrastructure barriers that must be overcome.”

“Developing systems that ensure the same integrity as a signed paper document is a challenge, and these new electronic documents need to be accessible far into the future,” the agency said. “There is neither infrastructure to connect all the parties, nor standards for data transmission or file formats. In addition, there are no methods in place for most county clerks to be able to accept data for electronic filing.”

Sam Lloyd, a principal with AAA Mortgage and Finance in suburban Atlanta, has invested heavily in technology, much of it developed by Microsoft, and can cut 95% of the paper used in processing loans.

“One of the chief problems in the mortgage industry as a whole … is local government,” Lloyd said in an interview. “Their systems are outdated, and some don’t have systems” to electronically record loans.

Through pilot programs and other initiatives around the country local governments are slowly giving county clerks and recorders the technological capabilities needed to handle emortgages, Lloyd said.

Ingeo Systems Inc. of Logan, Utah, has developed an electronic recording system where county governments can accept digital lien release documents for recording, a major step toward a broader use of emortgages. Among the places using the system is Lancaster County, Penn.; Orange and San Mateo counties in California; and Washington and Racine counties in Wisconsin.

“Electronic recording of lien releases will reduce our paper document workflow by at least 20 percent,” Norm Harrison, president of Peelle Management Corp. of Campbell, Calif., said in a statement. Peelle is a provider of assignment and reconveyance preparation for the mortgage industry and a user of Ingeo Systems technology.

“With a two-year streak in unprecedented refinancing of mortgages, electronic recording is a significant step in curbing the amount of paper being generated in the business,” Harrison said.

Encomia, a Houston, Texas, firm that develops and markets tools for emortgages, has established what it calls the “eMortgage Institute,” an online “learning resource dedicated to providing educational workshops and resources targeting mortgage executives who need to learn about eMortgages from an industry-solution point-of-view,” the company said in a statement.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at:

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