How eClose impacts lenders today and what's ahead for tomorrow's borrowers

0:03
Welcome to our open house. Instead of examining hardwood floors, closet space, and kitchen layouts, we're taking you on a tour of what's happening across today's mortgage industry. During each episode, we'll hear from industry leaders and subject matter experts to give us an inside look into a hot topic, Cuttingedge technology, or new trend that can help accelerate your digital journey. Thank you for joining us. Come on in.

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Hello and welcome to another episode of the ICE Mortgage Technology Open House Podcast. My name is Rebecca Frisbee and I am the Director of Product here at Ice Mortgage Technology. I'm excited to be here live at Ice's Experience 2022 hosting this episode today. I'm joined here today with by Jordan Brown of Marketwise Advisors, where we will be talking about the impact of E clothes on lenders today and what is ahead. Hi, Jordan.

0:54
Tell me a little bit about yourself and your background. Thank you for inviting me to do this podcast. I'm Jordan Brown. I run Marketwise Advisors, which is a management consulting firm that works with lenders and vendors across the mortgage industry. Done that for many years. And my background is all about mortgage in every way, kind of kind of the same way We all fall into that, right? Well, I started out in mortgage and I stayed in it so and I've. I've loved it ever since. So came up the ranks of.

1:22
Secondary marketing and risk management and built a bunch of systems across the industry and have had the pleasure of working with hundreds of lenders over the years. And one topic of particular interest is electronic closing. It's one people are talking about quite a bit. It's a impressive background. Jordan, why don't we go ahead and get it started. I think the first thing I'd like to talk about and we kind of alluded to this in your session today was opportunities and headwinds. I mean, really there are.

1:52
Headwinds in the mortgage industry today, but there's that also creates some unique opportunities. How do you see the expansion of the purchase market impacting the adoption of E close?

2:02
You know electronic closing has been around for a little while. You know when we can step back to what are sort of the fundamentals of what's really going on. You know, the first piece is an electronic consent to do things electronically online and we're almost at 100% at that point, right. So we do things like you know E disclosures pervasively throughout the industry at the 98% type of level.

2:27
With very few, you know, exceptions and opt outs. Very true. So that's really kind of the predecessor activity. Electronic closing really kind of came into its own at the very beginning of the pandemic. We were all faced with a, you know, a legitimate business problem which was.

2:43
We couldn't get people to come in and to talk to anybody, do businesses, you know, we can do anything as usual. We couldn't, we couldn't be within 6 feet of each other and you know, and the glass was not enough to keep us apart. Hybrid E closing came into its own and really evolved out of the pandemic as a solution. So it took the best of electronic signature, the best of some of the E closing pieces and cut through.

3:09
Chaff which were the headwinds piece which was really around the electronic mortgage and the electronic note and the recording the mortgage and getting through that. So I think hybrid E clothes kind of taint took into its, took it on a life of its own and there was significant adoption as a solution of business problem. So what we learned was when faced with a true business problem.

3:34
Electronic closing can really make a difference. Oh, absolutely. Yeah. Now as far as headwinds, we're still faced with some headwinds in that the industry moved to hybrid, but they haven't yet made that full leap into fully closed in a major way. So today we're sitting in about 1.4 million enotes that have been completed. Certainly it's come up significantly from where it was at even a couple of years ago, but we're still looking at a small fraction if we're looking at a 70 million plus.

4:03
Total mortgages that are out there, we're still looking at a fractional component, but we're making, we are starting to make some headway in terms of moving from hybridy close to a full close. You know, you're right of the, you know, the pandemic kind of made it not not just something that's way off in the future, but something we need to embrace this now if we're going to stay in business, right.

4:26
And I just my personal opinion just the amount of buzz and activity around the technology. I'm I'm I'm really feeling like I'm seeing the tipping point on the horizon. You know more and more people as you to your point have have adopted hybrid. It's really simple you get a little bit of lift out of it. I think you know the the pieces really are starting to come together where kind of the hesitations around Enote and around Enotary.

4:53
Those are starting to slowly get addressed. I mean it's a big shift to turn right, change of process, right. So you know when we look at what is the impact. So there's certainly a financial impact and an operational impact moving to any closing provides internal rationale, but it's it's more than that, right. So there are this can, this involves the entire ecosystem from borrowers that have a slightly change of process to lenders they're changing their closing process.

5:23
To the settlement agents and even downstream into investors. So you know we're moving a big engine. So hybrid was a nice solution to bypass some of the problems downstream that we had and now that we've gotten sort of past the hybrid level and now moves into the journey towards fully closed and you know I look across the industry.

5:46
Included we had hybrid clothes, it was $134 impact for hybrid clothes and the overall journey is somewhere in the 450 to $500 range. So there's a significant sort of cost pressure and getting back to your, you know, as we move into a purchase market, yes, we're moving into a purchase market for sure. We're not in this 60% refi market anymore and especially going on into what 23 looks like, we're looking at a significant decrease.

6:15
In the total pie of originations. So we're going to have both margin compression as well as a decrease in the overall pie of mortgages that are available to lenders. So doing more with the same number of you know with the same more or less mortgage and getting more out of it in terms of decreasing your costs and doing it smarter is really the ones that survive and and excel.

6:40
Will be the ones that embrace technology. If you think about it, you know the the the operational impact you really can't underestimate that. We've seen a lot of lenders really underestimate that. And I kind of see you know with the challenges with a purchase market and the margin compression. I see it as almost an opportunity that you know lenders are have a unique opportunity to kind of take a step back look at their workflows and and really kind of figure out how the automation can benefit them and and how these kind of new features. And so that's a it's a unique opportunity.

7:10
So both at the lender level as well as a settlement agent level, you know, when things are crazy busy and you're doing, you know, we're an industry built for 2 1/2 to $3 trillion. We're not an industry really built and staff to 4 1/2 trillion dollars of mortgage origination when you step back into the 2 1/2 to $3 trillion level of mortgage origination, which is, you know, still.

7:38
Historically is still a solid market. Yeah, definitely. But lenders are going to have to get the highest profitability out of the mortgages there. Now I will also say it's not just about profits. I've certainly a little right. They're absolutely key. It's also what is the consumer experience.

7:59
Because one leads to the other having a digital experience that for consumers are is an investment that lenders are have made, have embraced in some ways and and many in piece meal right maybe at the point of sale maybe within their Los, maybe within other pieces around it, right. You know E closing is really the communication point from the very beginning of the loan all the way on through to.

8:28
The closing of the loan to be an effective tool. Yeah, no to to your point, you know we saw just a few years ago lender spending significant amounts of money on point of sale and and and attracting those borrowers and getting them to their websites and getting applications that way and then you know they get the borrower all the way through the process and then the clothes, it's like everything downshifted into paper.

8:54
And it just was such a it it it, it could be, it had the high potential of turning this really great consumer experience into a really terrible one right at the end, right where the stress is at the highest and you're just wanting to get it done.

9:09
So it's really great to see that all this technology is addressing that so that lenders can provide that experience end to end. If you start out fully automated and you automate just the point of sale, that's a great first step and then you move further downstream into processing, underwriting closing. But if you miss the mark and you end at creating a manual process back to paper.

9:34
Into closing what you're doing is you end up having issues downstream closing post closing QC on into servicing. And you know truly when we did the latest ICE study one of the biggest components of value was in the post closing area. Forget our post closures, right. Well, I mean less mistakes, less errors, yes and of trying to figure it out so.

10:02
You know that translates even further downstream into, you know, what delivery package, what pool you can actually get your loans into, how long they're sitting around. If the mortgage lender on a warehouse line or an even you know or you know, sitting around trying to fix it post closing, you know, for an investor. And that is a costly, that's a costly problem that can be eliminated in large part with a reduction of errors.

10:29
On signatures and things like that's not right. If when everything's digital there's it's hard to miss signatures. You can't. Yeah. I mean and missing pages for that matter. Missing pages and missing signatures and the most egregious case, a missing note. Yeah that's not good not good at all. But it happens more often than we would anticipate and it's it's really an innocuous error that you know hey if you have 50 signatures and on a closing package or.

10:59
Or more yes, of initially conservative estimate. I I was trying to be kind, you know, it's real easy even for the the best of closers with the best intentions to miss one.

11:11
Yeah, especially if you're busy and you got a lot going on. So talk a little bit about adoption. What are lenders saying about the different flavors of E clothes today? So you know, I think we talked a little bit about length about hybrid, right, in terms of where it's going. So lenders are curious how do I get kids to the next level, right. So we've experienced together hybrid. We know how to do that now. They've also worked with their closing agents.

11:40
And closing agents are now enabled and well heeled in understanding Okay this is a hybrid versus a manual and they understand the different process flows there. So they're two, really two sets of other steps. So step one might be to go from a hybrid to a true hybrid plus Enote, so you get end up with a full electronic package.

12:05
You can electronically close it, electronically sign it. That path is taking on some, you know it's grown significantly over the last 18 months, which is a natural extension of hybrid. The other piece is electronic notarization and remote remote notary as well as E recording further downstream, right so.

12:28
So electronic notarization, there has been a significant uptick in the number of participants in that market, you know, coming out with solutions. And what I would say there is there's a significant financial impact and also just it takes a lot of the time out of it. One, one really easy way to think about this, it's 60 minutes that we budget for every closing hybrid cuts it in half, cuts it in half of what we budget now, what they actually do, what they budget in terms of the closer stop.

12:57
Ron further cuts it entirely in half. So if I could do a full a full clothes in 15 minutes and I have a complete digital package with an Enote and a online asset that travels through into MERS on cutting all those operational additional post close operational costs. It's it really is a win win for everyone. It's a win win win for borrower lender.

13:25
And investor is you have an electronic trail of the actual closing that can live with the electronic note. You know we've seen as as we've on boarded lenders on to encompass E clothes. We've really seen over you know I've talked to lenders that you know dove in and just started doing enotes because it really fit their business model which was if they're they're not they're the exception and not the rule. But for the most part lenders that take that crawl walk, run approach where they.

13:55
Do hybrid because they're going to get some bang out of the buck, They're going to get their feet wet. You know, they're going to really kind of roll out and you you discover quickly or a lender can discover quickly within their organization which of their processes are incredibly manual. And where there's opportunities. Because if you really look, there's a lot of opportunities for automating some of these kind of more, you know, manual processes and you can get that out of the way before you go into Enote.

14:25
And into and to run as well with any new technology, it's always an opportunity to relook. Yes, exactly. And you know cut through the chaff of why are you doing these things. You know my favorite is what we're doing it because that's how we've done it as a consulting firm, you know I walk into problems, right? Yes. And it's usually around, well that's how we've done it and you know then look at it and we dissect.

14:52
What is going on into the smallest pieces that we can And in this regard it's usually a lack of acceptance and understanding of what is the new technology and it's not threatening to that somebody's job. That's usually what is the key driver. Now in this case, this is not threatening. We're just doing something the same thing a different way and we've done these types of things where it's the same, you know?

15:17
Taking a manual process and automating, yeah, we're going to make things easier, but also we're going to make it easier for the selling of a loan. It's going to compress the time. We saw that consistently. The latest I study, we took out a couple of days, right. It was about two and a quarter days out of the cycle time. And cycle time makes a difference, but it makes a difference both from a financial sense, but it also makes a set a difference in a purchase market being able to to deliver.

15:46
A full approval and closing that is in a shorter period, in a shorter period of time. To that point, what do you see are the key drivers of value amongst lenders for E close? When I look at the value stream

of electronic closing, it really breaks down into can you do more Closings with the same staff. You know I'd like to call that operational leverage. Can you get more leverage?

16:14
Out of your existing staff and do more smartly with the same staff you know that makes both staff happy and it also gives you the ability to increase your volume without hiring new staff. Now once a organization is sized to the appropriate expectation of what their volume is, it also gives operational leverage or technology leverage. Gives you the ability to scale up. Encompass more broadly has been fairly famous.

16:44
For the degree of operational leverage in the ability to scale and and really push the industry and do $4.4 trillion, you know, so operational leverage is the first piece. The second piece is understanding loan quality differences through a new process. Are you making less errors and what does that really mean in terms of less errors? You know it really pivots if you're if you have missing signatures.

17:13
If you have missing pages, can you sell the loan, can you accelerate the funding cycle time? You know for example you close an E note is immediately available for sale without any delay and it takes a couple of days to get things back for sale. Well that is a fundamental difference from both the best execution standpoint, but just a you know how long am I actually carrying that from a hedging standpoint so I can potentially decrease.

17:39
My hedging cause those are the two biggest drivers of value. Anytime you have a new process that's the right opportunity to look at everything right in that closing post closing loan delivery department and to understand why am I doing these things and usually you can take time.

18:01
So if I could do things in an automated basis and I could take an hour or two out of that equation, $3540 on average, fully loaded for a time of people that you're also sort of.

18:14
Winning back as a lender, yeah, I mean on top of the you know less time on your line the you know it's saving money on staffing etc. I mean it all kind of there. It's like nickels, the Dimes all over that really add up into into a really good benefit like we say you know hybrid that we looked at hard for the ICE client base was $134 per loan. It was a significant ROI, it was 8 to 1 type of return, you know anything above 5.

18:42
I consider really good anything above 10 is just outstanding and for a relatively new out of beta new product to market that's a very strong result. More broadly out in the industry when you migrate across the whole ecosystem would be closing in the journey of fully closed is roughly 450 to $500 that's from a lenders perspective and then there's additional potential impacts down for investors title you know title companies and others.

19:10
So let's take a take a minute and talk about trends of this year, last year, this year. And looking ahead, how do you see the evolution of E clothes concerning adoption strategies and implementation? If you haven't done E clothes today, you're a little bit behind the 8 ball. It's time to move forward or you really will be left behind your peers. So to 1 extent, there really is a competitive pressure here to be a digital platform and to have the sort of digital assets that you can deploy. It's few and.

19:40
Between that aren't doing something in terms of having a an E closing initiative, but it's a it's a far cry between the E closing initiative and being fully closed in terms of trends. One is those lenders, I think there's a rationalization realization that this is here to stay. So I'm starting to see a significant movement both on the regulatory front as well as on the lender front, which is nice that they're reasonably In Sync electronic notes acceptance.

20:10
As well as on electronic notarization. The acceptance of an E notary and the acceptance of E notes widespread have always been two fundamental hurdles that we've had as an industry that has restrained and that's kind of where where I was going with I'm I'm really feeling we're on the horizon of seeing a tipping point because of.

20:30
You know a lot of correspondent investors are starting to take a look. They they have their own, you know quote UN quote initiatives with Eno. They're starting to see the benefits and they want to remain competitive as well. I think the other thing and and this is kind of one of those things that you know as being a part of a technology provider, I kind of have a different lens on it, the types of questions that our lenders are asking.

20:51
A lot more deep than what is hybrid, what is, you know they're really getting down into the weeds with our questions. And what that tells me is they are really thinking about how adopting these technologies are going to improve their internal workflows. Well, I think you've got a couple of pieces competitively out there in the marketplace. The fin techs that grew up look at our industry as entirely automatable and E closing is.

21:20
An extraordinarily basic piece from a Fintech perspective, we do have a Fintech influence or an Fintech influencer that is moving downstream from consumer lending into mortgage more mainstream. So you have a trend of market trend that is a positive market trend for electronic closing, but also the traditional lenders.

21:45
The, the the I MB's and banks and credit unions that have been mortgage for many, many years, you know have had nascent efforts and then it grew up a little bit a lot quickly into hybrid two years ago as a response. So now you've got a couple of market forces going together, both of them a competitive standpoint, but you also have a broadening investor standpoint and investor base that's acceptance with the acceptance of enotes.

22:15
And you have a broadening regulatory piece where you know there's less resistance at both a state of federal, state and even down to a local level and local recording office level come into play here. So who are, who do you believe are the primary benefactors of adopting E closing? So I'm going to kind of give you a couple different scenarios and and tell me who benefits from E closing and how.

22:44
OK. We'll start with the borrower. Is it multiple choice? No, no, no, we'll go do. We're doing the different stakeholders there we go. So from the borrowers point of view, how do they benefit from he closing and how? So the borrower is maybe the primary beneficiary, which is a good thing here, right, because unless unless the borrower is the ultimate beneficiary of any any of this, it's all for not. So from a borrower's perspective a you get it right the first time right to it's convenient.

23:14
You can close from your home and you could close in two different states. You can have be moving to a new state and you be back at your old residence and be closing on your new home. It's, you know, if you're buying a One of the most innovative and really smart use cases that I've heard recently was, you know, a home builder handing the keys to a new homeowner in that house.

23:41
And after you know doing an electronic closing and notarization and Enote hear your keys and they're done. So from a borrower perspective, ease of ease of closing, confidence digital and the ability to not have the type of pull back errors on a closing which.

24:05
Can chase individual for, you know a signature on on an ancillary document that they don't really want to sign and they don't really want to go back by your investor is not the easiest thing. So it's not a great experience for a borrower. I think that they're #1. So how about from the lender's point of view, The lender's point of view, it's the ability to get leverage in their closing department and to make less mistakes and to do it and serve and be more competitive from a digital perspective hopefully in that process.

24:34
They'll also decrease their costs of delivery, which is a great benefit creating a better mousetrip and decreasing your cost and but even break even serving your customers and certain doing a better job with your customers. OK. So how about the investor? So from an investor standpoint and I think this is really the part that of the closing of the promise of the closing as opposed to the realization of the closing at this point in time, the promise of the closing.

25:04
Is that an electronic note and an electronic digital asset of the actual closing itself and digital documents produce a better loan in terms of less errors on that loan that I got to rework. It's extremely clear who signed it, where is the note and we don't run into some of the problems that we had during the Great Recession.

25:27
And in the mortgage during the mortgage crisis, some questionable signatures and yeah, where is the note? Where's the note and who signed it? Right, exactly type of thing exactly. So kind of wrap up a little bit here. What are your thoughts on experience 22 so far? So it is one is it is fantastic.

25:46
Be back on site at a conference, too. It's nice to see Buzz at a conference instead of being online. You know, Vegas is a great location, so I'm glad to see Ice back at the win and I think everybody's enjoying it.

25:58
And it's been a very informative conference so far. We're only on day one, right? Seems like it. Well, I personally, I'm really, really excited to be back here, especially in Vegas. This is, but you know, a place that we've had many, many of our experienced conferences and it's always fun to come back here. This really is, from my perspective, my favorite event of the year. You can't. You know, we did a, the team did such a great job pivoting to virtual over the last couple of years, but you really can't. Even with all the great content, you really can't replace the energy.

26:27
That you feel when you're here. And so for me it's just been, I was been so excited to be able to see folks in person and to your point to kind of hear the buzz and hear people talking and and having conversations and hugs of people we haven't seen in a couple of years. It's been great to talk to users, partners, yourself. It's just been really, really wonderful. So with that I'll give you a huge thank you, Jordan for joining me. My pleasure.

26:53
At the podcast booth at ISIS Experience 2022 in Las Vegas and talking about my favorite subject, E close.