eClosings and eMortgages: Implementation and Adoption

The following is an excerpt from Chapter 9 of Volume II of The Mortgage Professional's Handbook:



Harry Gardner, Vice President, eStrategies
Ellie Mae

How it Works: Real-World Implementation
We’ve talked about the hypothetical “perfect” eClosing process and all of the benefits it can entail. But the eMortgage landscape is far from perfect at this point in its evolution. We’ve covered some of the most common implementation compromises already — paper Notes to avoid the complexity of a full electronic vault with MERS eRegistry transactions (or for FHA loans, because FHA does not yet accept eNotes, though they do accept other documents in electronic format), paper Security Instrument and other recordable documents in counties that don’t yet support eRecording, and paper Notarized documents where eNotarization presents an obstacle.

Combinations of electronic and paper documents like this are called hybrid eClosings, and comprise the vast majority of the 300,000+ eClosings that have occurred since the MERS eRegistry went live in 2005. But a small number of true eClosings have occurred in locales where eRecording and eNotarization were both supported and the eNotes were in SMART Doc format for delivery to Fannie Mae or Freddie Mac.

Similarly, pools of loans that include both paper and electronic Notes have become relatively commonplace in recent years, requiring servicers to add electronic vault capability to their systems in order to accept delivery of the eNotes in such hybrid pools.

Technology implementations of eClosing systems have taken a variety of approaches. The key components include the closing data feed from the Loan Origination System or LOS, the generation of the closing documents from that data feed, the tagging of the closing docs for eSignatures, the eSigning engine that ingests the documents and presents them for electronic signing, and the electronic vault that manages the specialized eSigning of the SMART Doc eNote as well as the MERS eRegistry transactions for initial registration, transfers of control, and more.

Some eClosing providers have started with an existing mortgage document library capability and added the eSigning and vaulting components to that, either by building their own or by licensing a third-party engine like eSign Systems (now owned by DocMagic). Others have developed their own standalone eClosing capability (some without the SMART Doc eNote functionality), and then partnered with one or more doc providers so that a set of closing docs is generated by the doc provider and transmitted to the eClosing system for the actual electronic closing event.

Some observers feel that the most effective and logical place for the eClosing and electronic vault functions to reside are with the LOS provider, especially if the LOS includes its own full doc library that most of their customers use. This would provide tighter linking between docs and eClosing, since both components are controlled by the same entity. If the LOS, doc provider and eClosing system are separate entities, then multiple interfaces are required: LOS data feeds to the doc provider(s), eDocument delivery from the doc provider into the eClosing systems (tagged for electronic signature points using whatever technology the eClosing system requires — one might use Adobe Form Fields, while another could use X-Y coordinates to locate the signature points), and reverse connections to return the signed, executed eClosing docs back to the LOS.

Moving forward, we will continue to see standalone eClosing technology providers partnered with document vendors, and will likely see growth in embedded LOS solutions. Ellie Mae’s Encompass LOS platform currently performs very large production of eDisclosures each month, and the company’s product roadmap contains an integrated eClosing platform intended to enable their lender customers to move to a completely paperless loan process.

Title and settlement agents are faced with learning and supporting multiple eClosing systems and their User Interfaces because of this industry reality, and so eClosing providers realize that it is incumbent upon them to ensure that their process flows and screen designs are as completely self-explanatory and easy to use as possible.

Overall industry adoption has been slow and somewhat difficult, for a variety of reasons. Lenders want more investor acceptance in order to broaden their options for best execution beyond the mainstream of Fannie Mae and Freddie Mac. Investors say that they haven’t heard their lenders asking for eMortgage acceptance, and their legal teams typically raise an abundance of caution over the perceived risks that were described above, so they have been slow to move forward.

One challenge for broader adoption has been the perennial Catch-22 of the mortgage industry’s cyclical nature: During a boom cycle, originators are so busy making loans and keeping up with production pipelines that they don’t have time to implement a new system and process flow for eClosings. Yet when the cycle dips and production is slow, lenders are concerned with cost management and reluctant to invest in new technologies.

Industry adoption seemed to be gaining some real momentum back in 2007, two years into the MERS eRegistry production operation, but the foreclosure crisis was developing and hit the entire industry hard for the next four years. All momentum toward eClosings ground to a halt as lenders struggled to survive. Now in 2015 and beyond, we are seeing renewed interest in eClosing, and slow but steady growth.

One hurdle that some participants identify is the fact that the eNote requires an exception process, being in MISMO SMART Doc format, compared to the rest of the eSignable PDF closing documents. Again, the new SMART Doc Version 3 format has the potential to resolve this, by providing a universal intelligent electronic document structure that is equally useful for all documents.

Read the rest of this chapter in The Mortgage Professional's Handbook!

Harry Gardner is the Vice President of eStrategies for Ellie Mae®, a leading provider of enterprise level, on-demand automated solutions for the residential mortgage industry. Ellie Mae hosts Encompass®, an end-to-end solution providing the core operating system for mortgage originators that spans customer relationship management, loan origination and business management.

Gardner was formerly President of SigniaDocs, a national eMortgage solutions provider. He is a frequent speaker and writer on eMortgages, mortgage technology, industry standards and enterprise data management issues. Mr. Gardner was previously the Vice President of Industry Technology for the Mortgage Bankers Association, and was the President of MISMO, Inc.

In October 2012, Gardner received the Steve Fraser Visionary Award at the Mortgage Technology Magazine annual awards ceremony. The award is “a lifetime achievement award that recognizes the accomplishments of an outstanding mortgage technology innovator, visionary or evangelizer.” Gardner was also named one of Mortgage Banking magazine’s 2009 eMortgage All-Stars.

Gardner is a graduate of the University of Virginia, with a bachelor's degree in electrical engineering. He can be reached at or 202-409-5903.