Year after year, at conference after conference, mortgage technology leaders insist that paper-based housing transfers are about to give way to electronic alternatives. Yet, time has proven these predictions well off the mark, at best, and at worst, a pipe dream.
None of this is to be taken as criticism of the e-faithful like Gary Clark, chief information officer, Pasadena, Calif.-based IndyMac Bank, which will lend $60 billion in mortgages this year. Clark says proudly that every page of documents sent to IndyMac, “is originated and sent electronically and virtually all underwritten electronically.”
Formed in 1985 as a REIT (Real Estate Investment Trust), today IndyMac is a depository (bank); the ninth-largest mortgage originator in the country – second in alternative-A loans – with $19.6 billion in assets.
Despite its full commitment to electrons over paper, Clark concedes the company must do business with “many people who have little incentive to provide data electronically.”
Clark presented his realistic views before an audience of colleagues in Las Vegas this month, noting that some players in this market, “title companies, Realtors, the appraisers, the inspectors – are not always interested in providing electronic data.”
“Not all players see the same benefit for electronic data versus paper-based transactions,” the CIO said.
In particular, he said, “Digital signatures, when tied to legal documents, still are a hurdle that has to be overcome. The e-signature law was passed several years ago, (and) the states got a little pissed off because in the federal legislation, they were pre-empted from making any changes.”
Hinting at possible retribution by these jilted local officials, Clark said, “There is one, little aspect that they do have control over and that’s the Notary signature. The Secretaries of State are able to administer that function and there are some hurdles to overcome (there).”
Offsetting any foot-dragging in government circles, consumers continue to become more comfortable with online transactions – albeit more slowly when it comes to mortgages.
A research report from The Tower Group, Needham, Mass., earlier this year measured online lending at no more than a 10 percent share of all loan originations.
Craig Focardi, research director/consumer lending for the TowerGroup, says, “The real lift that financial services organizations are going to get is in integration with the online banking side.” That way, you have “an environment where you can cross-sell other products and services and this gets a lot easier and importantly it also becomes a major cost saver.”
Of course, as more consumers become comfortable with online banking, financial institutions will have an easier time offering online mortgage origination and servicing options, according to Focardi, who recommended that checking account customers be cross-sold mortgage products, and vice versa.
“All of a sudden, the end-consumer can have a unified view of what all their accounts look like with that organization,” he explained.
Another Tower Group executive reports that IT costs for financial institutions will total $450 billion a year by 2010, with about 60 percent of that going toward maintenance of existing systems. Kathleen Khirallah, research director of retail banking, says that, “As banks are compelled to continue that maintenance work they don’t have the opportunity to invest in new systems and continue to innovate.”
“That’s why it’s important for them to start thinking about the applications and solutions being used,” she says.
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