The digitization of businesses all over the world has been underway for some time now, and ever so slowly, it is beginning to seep into the mortgage industry but in 2018 I believe it will accelerate greatly, making 2018 the year of the Digital Mortgage.

The front end of the lending process has largely gone digital already, with borrower loan application processes having been pushed to websites and interactions being more electronic than telephonic or in person. There are claims that 90% of all purchase money borrowers start their home searches online, and a large number of them continue that process by searching for and finding lenders online (our research indicates at least half of existing home owners, and the majority of first time home buyers). Virtually all lenders we talk with now complete the loan disclosure processes digitally – having borrowers electronically sign their loan estimates and related application documents. Subsequent documents needing execution are electronically signed as well.

With so much of these processes being digital/electronic, lenders and borrowers wonder why the closing processes are not yet all digital/electronic as well. The answer has been that the barriers to doing so are not technological but rather legal and practical: while electronic signing is authorized in all states, electronic notarization (in person or remote) is not, and even where electronic notarization is legal, acceptance of electronically notarized documents varies county to county, thereby complicating a more widespread adoption of electronic closings.

Today, about 30 states authorize (in person) electronic notarization, and only two (currently) authorize remote notarization. The latter is about to change significantly, as at least 3 states have already approved legislation authorizing remote notarizations, and many more (approximately 10) have legislation pending that will authorize remote notarization (FL, for example, has had a bill doing so recently filed).

The legal barriers are significant, and can be overcome with legislative changes – but that takes time, and the movement toward digital may not have the patience to wait for state by state changes. And this is where it gets interesting – and where change can accelerate. Without having legal authority to remotely notarize documents, title insurers have been wary to also insure such transactions. The main reason is that such mortgages could be vulnerable to challenges by foreclosure or bankruptcy attorneys, leading to significant claims and losses. Title insurers have been doing a considerable amount of research to assess the risks of insuring remotely notarized mortgages, and one or two have been testing this in a few states. While every insurer likes certainty, it is unlikely the momentum toward digital will wait for state law changes. As a result, one or more title insurers will likely decide to take on some risks and extend insurance in a number of states where they feel they can manage the risks of remotely notarized mortgages where state law does not specifically authorize them.

Were this to happen, remote closings will become more widely accepted, and accelerate the pace toward a fully digital mortgage lending process.

That said, the one considerable barrier remaining will be acceptance of remotely notarized mortgages in counties that electronically record. In over 1300 counties that accept electronically recorded mortgages, our research indicates over half will currently not accept electronically notarized (both e-notarized and remotely notarized) documents.

So while the move toward digital will pick up its pace this year, we will need recording offices to stay apace in order to fully digitize the mortgage lending process.