Can Servicers Dig Out From Paper Heaps?
Six years after the launch of the Mortgage Bankers Assocation’s (MBA) e-mortgage development workgroup, much of the servicing world is poised to make the leap from mostly paper-based recording and documentation to e-notes and related technologies.
Already widely adopted by lenders in the form of e-mortgages and hybrid e-mortgages that contain both e-documents and paper, electronic lending delivers numerous labor-saving benefits to users at all stages - from loan processing and underwriting through post-closing and servicing operations. For servicers and their pre-existing paper systems, however, these advantages of e-notes are accompanied by myriad complications that must be addressed during the transition.
Preparing for the switch will take some time, remarked Diane Cooper, vice president of servicing at Wells Fargo Home Mortgage, during a session at the MBA’s recent National Mortgage Servicing Conference and Expo in San Diego. Downstream servicing applications, she explained, face potential harm from the introduction of electronic documents unless adequate enhancements are made beforehand.
Electronic title policies and initial certification of the note are among the areas currently receiving upgrade attention in preparation for the adoption of e-notes. Cooper added that servicing transfer procedures that have traditionally depended on paper evidence for validation are likely to be especially problematic: custodial certifications, document retention and document retrieval, for example.
Technological advances since the 1980s have resulted in a 50% reduction in direct servicing costs, according to Christos Bettios, senior production manager of e-mortgage initiatives at Fannie Mae, who urged servicers to embrace the technology to service e-mortgages.
Shorter funding cycles, a reduced number of errors, improved customer support, and a higher level of consistency and data integrity, he pointed out, are among the other advantages enjoyed by lenders, servicers and government-sponsored enterprises that have made the switch.
“This is not some experiment,” Bettios commented, adding that Fannie Mae has been working with e-mortgages since 2002 and now buys e-mortgage loans nearly every day as lenders convert from paper to electronic at a rapid rate. This year and next, he noted, will be key implementation years, with “a critical mass of lenders” expected to have e-mortgage capabilities.
Meanwhile, other major servicing procedures demand attention to ensure that servicers can successfully make the electronic transition as well. Loans paid in full present a dual complication, Cooper pointed out.
With loan documentation stored electronically, the return document becomes a non-negotiable instrument in some states. Also, updates of both investor records and records in the MERS e-registry, which identifies current controllers and locations of the authoritative copy of an e-note but does not store the e-note, will also be necessary.
In its ideal form, e-lending offers “a near-paperless data-centric closing transaction encompassing the loan cycle,” said Cooper. If foreclosure or bankruptcy becomes part of that loan cycle, however, the necessary advance considerations and potential snags multiply.
Issues to address in the foreclosure area include not only investor and MERS reporting but also integration with attorneys’ records and possible procedure alterations from the legal side, as well as the effects of electronic recording on foreclosure processing. Bankruptcy presents similar complications.
Further, Cooper noted, the loss mitigation and loan modification processes are not yet defined from an e-notes perspective.
In order to meet these challenges, servicers should seek assistance through stronger partnerships with technology vendors, suggested C.C. Miller of MortgageFlex Systems Inc. During this transitional time, she said, “You are going to have to rely on your vendor.”
Thus, the vendor evaluation and selection process has taken on a higher level of importance as servicers move to e-notes. A technology vendor’s devotion to e-notes and e-mortgages - as well as its thorough knowledge of and adherence to MISMO standards - must be proven “beyond a verbal commitment,” recommended Miller.
Key areas of focus for the technology provider include investors’ and customers’ access to information, process improvement and cost containment, she added. Specifically, the vendor will likely play a major role in e-registry transactions, including process payoffs and reversals, assumptions updates and modification executions.
Vendor versatility to ensure ease of migration is critical, according to Miller. Although some of the needed fixes for successful transition to e-notes have been clearly identified, new issues may also emerge and require the joint repair efforts of the servicer and technology vendor.
“We are entrenched in a paper world,” Miller observed. “Digging ourselves out of it would be wonderful.”
New Century Bankruptcy Motion
Addresses Servicing Operations Sale
The U.S. Bankruptcy Court for the District of Delaware has approved a motion permitting New Century Financial Corp. to access, on an interim basis, up to $50 million of the debtor-in-possession financing arranged for the company by The CIT Group and Greenwich Capital Financial Products Inc.
The court also approved a hearing, which was scheduled to occur a few days ago, to consider the bidding procedures for New Century’s agreement to sell its servicing assets and servicing platform to Carrington Capital Management LLC and its affiliate.
Additionally, New Century’s other “first day” motions were approved, facilitating the company’s operations as it pursues the sale of its assets and operations through the Chapter 11 process. Among the relief granted by the court were motions permitting New Century to continue its customer programs uninterrupted, as well as its employee benefits programs and insurance policies.
“Over the next several weeks, we will continue to work diligently to sell the company’s assets and operations through an orderly process,” says Brad A. Morrice, president and CEO of New Century.
© Copyright 2007 Zackin Publications Inc. • All Rights Reserved.
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