Recent developments related to the COVID-19 pandemic have provided an urgent need for mortgage lenders to take closings digital in the face of social distancing and government-mandated closures – yet, shortly before the national emergency, refinance applications were up 479 percent year over year, according to the Mortgage Bankers Association.
Considered “essential” to the critical infrastructure workforce by government officials, lenders are embracing digital closings and tools such as remote online notarization (RON) to keep business flowing and offer an important boon to one of the nation’s most important economic sectors.
“Lenders are providing a lifeline to consumers, but COVID-19 creates new constraints on the way that we serve our customers,” said Dominic Fahey, Vice President of Strategy at States Title, in a recent webinar discussing best practices and guidance on the eClosing solutions lenders can use in the current environment. “County recording offices are impaired, and this may delay the recordings of your deeds of trust and new lines. We also have social distancing rules from the government that complicate our in-person notarizations. In-person meetings are being discouraged, and we have even seen some notaries who are unwilling to witness signings in person. This all results in delayed recordings and preliminary reports, rescheduled closings, and potential issues with what is colloquially known as ‘gap coverage’ in title policies.”
To ensure business continuity for its customers in the wake of these various challenges, States Title quickly moved to address lenders’ pain points and ensure that closings could proceed unimpeded.
“We believe these tools and services comprise the most comprehensive solution for today’s lenders to weather through this crisis,” Fahey said. “They give you the benefit of a fully remote signing, a convenient customer experience, full gap coverage with no exceptions whatsoever, and secondary market acceptance.”
This week, States Title successfully completed a first remote closing for a top five lender, the same lender we helped to achieve a 23% (2.8-day) reduction in business days to close, additional revenue realized per month, and a 93% CSAT.
Here is a look at five solutions States Title offers lenders that are looking to navigate the COVID-19 crisis.
Leaders in the States Title family of companies have been closely monitoring the legalization of RON across the country since 2010, when the Uniform Law Commission promulgated the Revised Uniform Law on Notarial Acts (RULONA) to pave the way for the performance of eNotarization.
Prior to March 11, when the World Health Organization declared COVID-19 a pandemic, a total of 23 states had enacted RON laws, and most of these states had also implemented the accompanying regulations necessary to provide uniform standards and a legal framework for conducting RON closings. Most other states have issued executive orders or emergency legislation to temporarily allow for closings conducted via RON or remote ink-signed notarization, a new industry acronym known to most as RIN.
To give lenders this flexibility, we partner with Notarize, a leading RON platform provider. Our national team of associates are contracted with Notarize to execute remotely notarized closings in states that have authorized the use of RON technology and promulgated rules and standards for how they are conducted.
Even in states that are not authorized to do RON closings, States Title is working to give lenders viable workarounds. For example, in California, which has not enacted a RON law or temporary RON authorization in response to the pandemic, borrowers who wish to have their documents notarized remotely can obtain services from a notary in another state that is authorized to perform RON transactions.
“For years, we have been working to pass an eNotarization bill in California,” Fahey noted. “It hasn’t happened yet, and therefore is not authorized. That may change, as it has in some states that we have seen issue temporary executive orders.”
Although historically, the use of a special power of attorney (POA) has been discouraged by title insurance underwriters, it has become a useful tool during the COVID-19 emergency. In the event that the principals to a transaction are unable to personally execute closing documents, States Title assists borrowers with executing a limited power of attorney (LPOA) via RON technology, authorizing closing agents to sign on their behalf.
“The borrower signs into a RON session, reviews all of their documents, and signs those documents that can be eSigned,” Fahey said. “At the end, the borrower signs a special LPOA, allowing the title insurance company to sign any documents that require their signature, such as the deed of trust or promissory note, after the RON signing session.”
Even prior to the COVID-19 pandemic and resulting public closures, county recorders nationwide faced significant delays in recording real estate documents, thanks in part to the refi boom. Some county recording jurisdictions – particularly the 40 percent of counties that do not yet offer eRecording – began operating on a limited basis or working from home, and concerns are mounting that offices may face significant backlogs in recording documents.
This challenge is contemplated in the 2006 ALTA form, which provides for “gap insurance” for any matters arising between the loan closing date and the mortgage recording date. Unfortunately, some title insurers are reluctant to assume this risk, and their title commitment includes an exception for any encumbrances that attach subsequent to the effective date of the commitment, but prior to the date that the deed or mortgage is recorded.
To alleviate these concerns, States Title offers gap coverage from the date of closing through the date of recordation – without exception.
The limitations placed on government offices have also impacted courthouse closures, preventing some title and search examiners from timely accessing court files, tax assessments, and other sources of underwriting records.
Over 80 percent of States Title refi transactions are instantly underwritten, removing some of the dependency on county recording offices and courthouses.
“By replacing the time and labor-intensive title search process with a predictive analytics algorithm, we’re able to deliver a final, curative-free commitment in less than a minute,” Fahey said. “This means your transactions are processed faster, increasing certainty and reducing risk.”
Although lenders are embracing RON to keep business flowing, many remain concerned about whether loans whose closing documents were signed outside of the physical presence of a notary would be accepted by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
On March 31, the GSEs modified their single-family seller guides to add temporary requirements for RON and POAs. The RON requirements between Fannie Mae and Freddie Mac have slight differences, but both require the RON platform used to meet these minimum standards:
The GSEs also said they will temporarily accept the use of LPOAs to execute loan and closing documents on the borrower’s behalf. In general, the GSEs’ guidance requires the use of an online, interactive, internet session to execute the LPOA and certain express statements. They also prohibit an employee of the lender from serving as the attorney-in-fact. Fannie Mae’s guidance can be found here, while Freddie Mac’s guidance can be found here.
On May 5, the Federal Housing Finance Agency (FHFA) extended these flexibilities until at least June 30.
“These loan origination flexibilities will continue to facilitate loan closings and go a long way to keeping the market functioning effectively during this national emergency,” said FHFA Director Mark Calabria.
For more on eClosings, download our white paper, Digital Closings Clear Final Hurdles: A 20-Year Implementation Marathon Suddenly Becomes a Sprint in the Face of the COVID-19 Crisis.