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Housing Crisis Averted? GSE Approval of RON and RIN Saves Closings

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By Amy Tankersley

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The advent of digital closings has been a long, tedious, 20-year journey toward standardization and implementation. For many mortgage professionals, 2020 ushered in a new year and decade with the promise of realizing electronic closings (at last!) but the first quarter proved to be an unprecedented time for the real estate, mortgage, and title and settlement services industries. Few could have predicted that it would take a pandemic to finally push us across the finish line, but stay-at-home orders and social distancing practices have more companies taking a closer look at eClosing’s advantages.

The answer to the unique challenges posed by COVID-19? Remote online notarization (RON), and in some jurisdictions, remote ink-signed notarization (RIN) – considered one of the last pieces of the eClosings puzzle to fall into place. Legalization and adoption of both closing paradigms swiftly gained momentum in the COVID-19 national emergency, and thanks to the blessings of the government sponsored enterprises (GSEs), we have formally embraced eNotarizations. Here’s a look at RON, RIN and what the GSEs have to say about your ability to leverage both eNotarization methods to maintain business as usual – and keep the housing market moving.

What is RON?

Along with eDocuments, eSignatures, and eRecordings, eNotarization is one of the four elements that comprise an eClosing, or digital closing. eNotarization is defined as a process in which a certified notary uses a digital signature and digital notary seal to notarize digital documents, then validates them with a digital certificate.

Unlike its digital closing counterparts, which saw legalization and adoption efforts begin in 1999, eNotarizations did not see widespread authorization and implementation until 2018. That is when the Uniform Law Commission (ULC) – a nonprofit consortium of practicing lawyers, judges, and legislators that drafts uniform acts in areas of state law – updated the Revised Uniform Law on Notarial Acts (RULONA), a national standardized framework prescribing how eNotarizations may be conducted. These revisions, which can be found in Section 14A of RULONA, accomplished the following:

  • Enabled RON without geographic limits on the signer’s location, if the notary uses “communication technology” to notarize documents
  • Defined “communication technology” as “an electronic device or process that allows a notary public and a remotely located individual to communicate simultaneously by sight and sound”
  • Required the notary public signature block to state: “This notarial act involved the use of communication technology”
  • Required notaries to identify signers using a combination of identity-proofing methods, including knowledge-based authentication (KBA) questions, credential analysis, and biometric technology
  • Required an audio/visual recording of the transaction to be maintained for at least 10 years

With these uniform standards in place, state legalization began to gain momentum. By early 2020, 23 states had enacted some form of RULONA, with another dozen states having started the legislative process. At the time, experts agreed that full legalization and adoption would likely occur by 2025.

COVID-19 throws industry a curveball

In March 2020, several states confirmed cases of COVID-19, or coronavirus, an acute respiratory syndrome-related infectious disease discovered in China late last year. In an effort to slow the virus’ spread, most states ordered event cancellations, business and school closures, and social distancing and shelter-in-place practices. Workers identified as the “essential, critical infrastructure workforce” – including real estate, mortgage and settlement service personnel – were permitted to continue working with heightened safety and social distancing measures in place.

Technology allows us to do things that were unthinkable even just a few years ago.

– Keith Gumbinger, vice president of HSH.com

Although a decade ago, the housing market may have shut down during such a crisis, Keith Gumbinger, vice president of HSH.com, a consumer mortgage information website, noted that “technology allows us to do things that were unthinkable even just a few years ago.” RON provided an excellent solution for a revamped closing process with minimized human contact – but unfortunately, only about half of the country was authorized to use it when the COVID-19 crisis first hit.

GSEs greenlight RON

Legality was only one hurdle to overcome in leveraging RON to perform closings in the early days of the COVID-19 era. Another important consideration was whether mortgage loans closed via RON would be accepted by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Loans conforming to GSE guidelines may be subject to certain guidelines that require in-person or “hybrid” closings featuring a combination of paper and electronic documents.

On March 31, the GSEs modified their single-family seller guides to include temporary requirements for RON. The requirements for Fannie Mae and Freddie Mac differ slightly, but both set these minimum standards:

  • State law must permit the use of RON, or remote notarizations performed out of state in accordance with the laws of that state
  • Use of a secure RON platform that protects the proceeding and recording from unauthorized use
  • Notaries must use at least two of the following: Two-factor identity authentication, including using a government-issued photo ID that has a signature, credential analysis, and identity-proofing
  • Notaries must keep an electronic journal of the notarial act, including evidence of the principal’s identity, for at least seven years
  • Lenders must maintain the recording of the notarial ceremony for the life of the loan

The GSEs identified 43 states where lenders may sell loans closed with RON under these guidelines. Meanwhile, states without RON laws began to issue temporary orders allowing for notarial acts to be conducted using audio/visual technology, under certain conditions. Although those conditions vary, they generally permit the use of technology such as FaceTime, Skype, and Zoom to facilitate what would otherwise be a traditional, in-person, paper-based closing.

This alternative to RON earned several nicknames in real estate circles across the country, including wet-ink remote online notarization (WRON) and audio/visual online notarization (AVON), but in guidance issued in early April, Fannie Mae and Freddie Mac christened it “RIN,” or remote ink-signed notarization.

RIN vs. RON: What’s the difference?

RIN differs from RON, where the notarial documents are signed, stamped, and tamper-sealed electronically, in that a paper closing package is delivered to the borrower. The notary uses webcam technology to examine the borrower’s government-issued photo ID and witness the borrower ink sign the paper document. The borrower then returns the document to the notary (via mail, delivery service, or in person), who physically applies the notarial seal or stamp to the loan documents.

To avoid confusion, the GSEs also released minimum guidelines for RIN transactions, which call for the same level of security, identity-proofing methods and record maintenance used in RON transactions.

Your choice of using RON or RIN depends on what is currently legal in your jurisdiction and what your title insurance partners are willing to underwrite. RIN is considered an acceptable stopgap until a state adopts a RON law, but it may gain favor with lenders that are not yet approved to deliver eMortgages. The GSEs encouraged those lenders to use RON for notarization if it is available, and if not, to consider using RIN in jurisdictions where it is authorized. However, they also said they do not expect temporary state orders related to RIN to extend beyond the COVID-19 crisis – so stay tuned for more on the fate of RIN.

In these challenging times, States Title is committed to helping our customers navigate market forces and changes. For more information on RON and RIN – and digital closings in general – watch for our upcoming white paper, Digital Closings Clear Final Hurdles: A 20-Year Implementation Marathon Suddenly Becomes a Sprint in the Face of the COVID-19 Crisis.