A Lender’s Guide to Digital Closings During COVID-19
Last updated: April 6, 2020
Lenders are facing unprecedented challenges during the current coronavirus (COVID-19) outbreak:
- The shelter-in-place or stay-at-home orders issued by many counties, cities, and states have created increased consumer demand for remote closings.
- Federal and state governments are trying to quickly pass new legislation that would enable remote online notarization, and it can be difficult to keep up with these changes.
- Record-low interest rates are creating a surge in loan volume, while lenders are operating with remote staff.
These challenges have forced lenders to rethink the closing process and adapt. Now, more than ever, lenders need to digitize their processes and the closing.
Some lenders may be just starting out with digital closings during these times, while others are further along in adopting digital closings. No matter where you are in the process, here’s your guide to implementing digital closings and resources to help you be successful during these chaotic times.
You can also regularly come back to this page to find updates on how the industry and digital closings adapts to COVID-19.
For current users of Snapdocs, please see our response to COVID-19 here.
A digital closing is a mortgage closing that has one or several digital components included in the process. At least some or all of the closing process must be digitized. Wet closings, hybrid closings, and eClosings are all types of digital closings.
In a wet closing, all of the loan documents are printed on paper and signed and notarized in ink. The workflows around the closing are digitized, and the borrower can preview their documents before going to their in-person closing appointment. The documents that need to be recorded with the county can be sent via courier or mail. They can also be scanned and electronically recorded with the county.
A hybrid closing is a mix of a wet closing and an eClosing. Some of the loan package is signed or notarized in ink, while the rest is electronically completed. The documents that are wet-signed versus electronically signed are usually dictated by the lender or investor’s preferences. The borrower either electronically signs some of the documents before showing up to their closing appointment or they electronically sign those documents at the closing table. If the borrower electronically signs some of the documents prior to their closing appointment, they will only need to wet-sign the remaining documents when they’re at the closing table.
In a hybrid closing, the promissory note can either be signed on paper or digitized and electronically signed as an eNote. Because hybrid closings always have some documents that are wet-signed, they require an in-person closing appointment. The documents that need to be recorded with the county are either physically sent to the county recording office or they are electronically transferred and recorded.
The closing process is digitized and the entire loan package is electronically signed and notarized in an eClosing. This includes the promissory note, which is known as an eNote when it is digitized. Because everything is done digitally, the closing appointment can happen either in-person or remotely via audiovisual technology. When completed, the necessary documents are electronically transferred to and recorded by the county.
Low interest rates are driving a surge in purchase and refinance applications, and many lenders are getting crushed by the demand. Some are even throttling business by keeping interest rates at a level where they can ensure that they’re able to fulfill the business they’re getting. Lenders are starting to think that they won’t be able to close new loans for six months, due to the incredibly high demand.
However, digital closings can help lenders work more efficiently, no matter where their team is working. By automating steps in your closing workflow, electronically sending and receiving documents, and providing borrowers with the ability to review their documents prior to the closing appointment, lenders can shorten the closing process and increase the loan capacity of their closers. You can successfully grow your business during this time, minimize overtime, and handle increased volume without adding headcount.
“We’re looking at technology to increase full-time employees’ capacity. Say a closer can close 50 files a month. If I’ve got technology that takes away extra phone calls, extra corrections, extra emails — maybe that same closer can close 75, so I can now grow my business without putting a new body in there,” said Jan Valencia, Residential Mortgage Systems Project Manager at KS StateBank.
In-person interactions have been crucial to real estate transactions. However, COVID-19 has introduced the need to maintain social distance and stay at home as ways to slow the spread of the virus (also known as “flattening the curve”).
As a result, lenders need to transition their staff to working remotely and rethink the closing experience. By leveraging full eClosings and remote online notarization, lenders can protect their team, customers, and partners while abiding by shelter-in-place or stay-at-home orders.
While many lenders are trying to move as many of their staff members to working remotely, there’s often still a skeleton crew in the office to receive paper packages. With digital closings, lenders can electronically receive the completed documents as soon as the closing has been completed. They can review the package and fund without the paper documents.
Even with a hybrid closing that includes a paper promissory note, lenders can reduce the number of people who are in the office. While someone will still need to be in the office to receive the completed package, they would just need to pull the note from the package and send it off to the warehouse lender or investor. This is because lenders can also electronically receive the completed documents in a hybrid closing, and they can review and fund off of the electronic documents. If you’re not ready for eClosings yet, hybrid closings can still drastically reduce the amount of work that needs to be done in the office.
With eClosings, lenders can move to a completely remote operation and protect all participants involved in the closing. This includes borrowers, settlement agents, and notary signing agents. Instead of having borrowers meet in-person with the escrow officer or notary signing agent to conduct the closing, they can connect via audiovisual technology and electronically close from wherever they are.
eSigning is the act of electronically signing digital documents. If you’re still doing closings 100% on paper, eSigning is the first step in digitizing the mortgage closing for you and your borrowers.
Which states accept eSigning?
eSigning is recognized and considered valid by all 50 states in the U.S. This is due to the Uniform Electronic Transactions Act (UETA) and Electronic Signatures in Global and National Commerce Act (ESIGN). This means that there are no state issues with eSigning closing documents, including the eNote.
Is eSigning accepted in the secondary market?
Lenders should always work with their investors to understand what they do and don’t accept for digitally closed loans. This is because each investor has different guidelines for eSigned and eNotarized documents.
Out of eSigning, eNotes, and eNotarization, eSigning sees the most acceptance in the secondary market. Many investors accept eSigned documents, including Fannie Mae, Freddie Mac, Ginnie Mae, and the Federal Home Loan Banks.
An eNote is an electronic promissory note that is eSigned. eNotes must be registered on the MERS® (Mortgage Electronic Registration Systems, Inc.) eRegistry and stored in an eVault.
Which states accept eNotes?
eNotes only need to be eSigned. They do not need to be eNotarized. Because they are only eSigned, the CFPB states “the law is clear under ESIGN and UETA: eNotes can be originated, validated, and enforced on a nationwide basis, assuming stakeholders follow the legal requirements.”
This means that hybrid closings, with and without eNotes, can be conducted throughout the country.
Are eNotes accepted in the secondary market?
Although not as widely accepted as eSigning in the secondary market, eNotes are seeing growing acceptance.
Both Fannie Mae and Freddie Mac accept eNotes. While Ginnie Mae and the Federal Home Loan Banks are a few steps behind Fannie Mae and Freddie Mac, they’re taking steps to also support eNotes. Ginnie Mae is running a pilot program for eNotes, while the Federal Home Loan Banks are developing a solution to accept eNotes.
If you sell your loans to additional investors or if you work with warehouse lenders, be sure to check with them directly on whether they accept eNotes. As of March 30, 2020, there are 15 warehouse lenders and 15 investors who are registered on the MERS® eRegistry as supporting eNotes. You will also need to check whether your servicers and document custodians accept eNotes.
Do lenders need to have their own eVault for eNotes?
Lenders do not need to have their own eVault in order to do eNotes. “Lenders can originate and service eNotes as long as they have access to an eVault, and that can be through a third-party who provides an eVault. In fact, there are some lenders who are able to use that model to originate and service eNotes. So, you don’t have to have an eVault of your own,” explained Rajasekhar Penugonda, eMortgage Program Lead at Freddie Mac.
How long does it take to implement eNotes?
It typically takes about six to eight weeks to implement eNotes with MERS®.
eNotarization is the act of electronically notarizing digital documents. Instead of a physical ink stamp and ink signature, a digital notary stamp and eSignature are used for notarization.
There are two types of eNotarization: in-person electronic notarization (IPEN) and remote online notarization (RON). IPEN is the act of conducting electronic notarizations in-person, while RON is the act of conducting electronic notarizations remotely online. With RON, consumers and notaries do not meet in-person. Instead, they connect digitally through audiovisual technology, like a webcam, to eSign and eNotarize documents from wherever they’re located.
With shelter-in-place and stay-at-home orders issued across the country, there’s been more demand than ever for remote closings. This is why RON, in particular, is a hot topic right now.
Which states accept RON?
Because notary publics are governed by each state, IPEN and RON must be enacted by each state. While some states had already enacted RON prior to the COVID-19 outbreak, many states had not. In response to COVID-19, many of the states that have lagged behind with RON adoption are now moving quickly to issue executive orders that would make RON immediately possible.
Here’s the current RON status for each state.
The potential for nationwide use of RON
Since not all 50 states in the country have adopted RON legislation, the federal government introduced the “Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act of 2020” on March 19, 2020. If passed, this bill would allow the immediate use of RON nationwide. The act “authorizes every notary in the United States to perform RONs, requires tamper-evident technology in electronic notarizations, and provides fraud prevention through use of multifactor authentication.” Learn more about the specifics of the bill.
Is RON accepted in the secondary market?
RON, and eNotarization in general, sees the least acceptance in the secondary market.
Remotely notarized documents can be sold to Fannie Mae and Freddie Mac, as long as they follow specific guidelines issued by each. You can access Fannie Mae’s selling guide here and Freddie Mac’s FAQ on electronic loan documents here.
How can lenders implement RON immediately?
While it is possible to implement RON quite quickly, lenders need to complete a few steps prior to implementing RON technology. By following these steps, lenders can ensure a successful implementation and the results they’re looking for.
- Implement eSigning first in order to support hybrid closings.
- Implement eNotes and understand which of your investors, warehouse lenders, servicers, and document custodians accept eNotes.
- Understand which of your investors accept remotely notarized documents.
- Review the states that you want to do RON closings in. Make sure that they have passed RON legislation and that the legislation will take effect by the time you want to go live with RON closings.
- Discuss RON eClosings with your settlement partners. They will need to double check that their underwriters insure eNotarized documents, understand which counties accept eRecording, and get onboard with the new workflow that would be needed for RON eClosings. Because all documents will be electronically executed, settlement companies will need to also upload their closing documents to the RON or digital closing technology you’re using. If a settlement company isn’t able to upload their closing documents, you won’t be able to offer a completely digital and remote closing.
- Determine which of your loans are eligible for a RON closing based on the criteria above.
It is crucial for lenders to understand that the technology you choose to use for eSigning, eNote, and RON all need to be able to work together. It’s ideal to have a technology provider who is able to offer all the components needed for a remote digital closing. However, this can be difficult to find, so you need to double check that the different technology providers you use will be able to all integrate with each other. Otherwise, you won’t be able to provide a seamless digital closing for your customers.
Is it possible to do RON without eNotes?
Technically, you could physically mail the promissory note to borrowers, have them wet-sign it, and mail it back. All other documents would be remotely eSigned and eNotarized. However, this results in a poor borrower experience, so it’s not recommended for lenders to pursue this path.
eRecording is the electronic transfer and recording of completed loan documents. Recording is typically done by the settlement company. However, eRecording benefits lenders, as they can receive the recorded documents more quickly.
Which counties support eRecording?
As government offices, including county recording offices, shut down or severely limit the number of people who can enter, this is affecting title’s ability to successfully record documents.
Some lenders have heard that county recording offices have been closed during this time, which is creating uncertainty around whether loans can still be closed and if eRecording can still occur. Here’s a summary of the current status of real estate recording:
- In counties that allow eRecording and have policies that allow employees to work from home, eRecording can still occur.
- In counties that allow eRecording and do not allow employees to work from home, there may be no recording activity or there may be a backlog.
- In counties that do not allow eRecording, the office may still be open and operating with a skeleton crew.
American Land Title Association (ALTA) is tracking the status of recording jurisdictions, where you can see the operating status for the jurisdictions in each state.
Centers for Disease Control and Prevention COVID-19 information center →
World Health Organization COVID-19 advice →
Mortgage Bankers Association COVID-19 resources →
Fannie Mae COVID-19 approach →
Freddie Mac COVID-19 response →
American Land Title Association coronavirus resources →
How Lenders Are Succeeding During These Uncertain Times webinar →
The Definitive Guide to Digital Closings →