A new vision for mortgage lending
First Houston is an all-retail operation licensed to lend in 16 states. It has 100 employees and has been in the business about 10 years. Current loan volume hovers in the range of $30-$40 million per month.
President David Zugheri described the company as a “small lender that acts like a big one. ”
For him, the primary drive for moving to e-mortgages was removing paper from the process. First Houston started moving in that direction about three years ago by implementing electronic loan files. It began working with loan documents in PDF format and set up a basic Web site that offered access to the documents.
It ran “hybrid files” — both paper and on-screen images — for a while but in the last 18 months has gone fully paperless.
Still, something was missing: the closing piece. First Houston still had to paper out to send documents to the title company.
“I thought, ‘I’m never going to get this. This industry just needs to catch up with electronic signatures at the closing table, ’” Zugheri said.
Zugheri had done some investigation into e-mortgage platforms that address that problem, but he didn’t see anything that met his needs. He was also turned off by the fact that most vendors he spoke with didn’t seem to understand the particulars of the lending business.
“Very few people provided me the ground-level detail to make it happen, ” he said. “There’s a huge knowledge gap between the people who are tech-savvy and the people who know the mortgage business. Most of the vendors I ran into have been in my office. They were the tech-savvy people, but they didn’t know what I wanted or needed at the ground level. They were oblivious. They didn’t know what a Good Faith Estimate was, what a Truth in Lending (disclosure) was, what are recorded documents or what documents go to a title company for a closing. ”
At that point, fate stepped in. While at the gym one morning, Zugheri by chance discovered that his neighboring locker was used by Andrew Krieger, COO of e-mortgage technology specialist Encomia. They started talking, and Zugheri realized that Encomia’s system would fill the gap. He signed on.
First Houston started using the e-closing and upfront e-disclosure components of the system. It’s using the software as a toolkit for creating SMART Docs, electronic signature capability and secure document archival. Using the system, its loans are stored in the electronic vault of GMAC Bank.
Zugheri said he expects to alleviate dependency on communication and document transfer via telephone and fax, which should help First Houston process loans faster.
In addition, the e-mortgage software will go a long way toward preventing errors and allowing for quick document review by providing a communication platform between the mortgage company, buyer and title agency.
First Houston has closed its first e-mortgage with a title partner — the loan was sold to Fannie Mae. Although the note was electronic, the recorded instruments were not sent electronically.
“The two of them (Fannie and GMAC Bank) had to buy into it — especially Fannie Mae because they bought the note on an electronic signature, ” Zugheri said.
That deal was essentially a proof of concept, he added.
“We set out to become paperless, and Encomia closed the end part of it. The reason we did it was because, if not, I was going to get out of this business. I will not take this business and the margins with the amount of work that surrounds handling a bunch of paper documents. I can’t afford to, and I don’t want to, ” he said.
In the next phase, he’ll attempt to build volume by getting title partners to sign on.
First Houston is working with SMART Docs, which means it can tap loan information in image and data formats. It would like to make better use of the data behind those documents, but much of that will be driven by the secondary market.
“Whatever the investors will accept, I have to feed their machine, ” Zugheri said. “If they’ll take data from me, I’m all for it. But right now, they don’t take data. They take pictures, PDFs. Most of them want an original wet-signature note before they’ll buy it from me. ”
It’s currently difficult to close a high number of mortgages electronically, Zugheri said, because the deals for First Houston are limited to certain criteria:
“The perfect candidate has not resurfaced in my office, or we would be doing more, ” Zugheri said.
Because other lenders will likely face similar problems — being able to do e-mortgages only for certain deals and with certain title companies, for example — e-mortgage adoption will be a slow haul for the time being.
“Immediately, yes, it’s going to be a problem, ” Zugheri said. “Nobody wants to risk that they’ll close this loan and not be able to sell it. ”
First Houston, however, is taking a long-range view.
“You have to start somewhere, ” he said. “Should we not do it because the title companies aren’t ready? Because the recorders aren’t ready? No. What we should do is take the story to the recorders and title companies. ”
To that end, Zugheri sent out a letter to every title company First Houston has done business with explaining the technology and encouraging them to get involved by making the necessary investment.
“It’s a $100 piece of hardware, the signature pad. And the software’s free — we’re giving it to you. Get involved. This is coming, ” Zugheri said.
He acknowledged that major title companies are making progress with their own e-closing and e-mortgage investments but noted, “They’re just not ready. "
Matt Smith is the editor of Real Estate Technology News , the only full-time newsroom in the country devoted solely to mortgage technology and real estate data. Real Estate Technology News is the essential knowledge tool for professionals whose livelihood depends upon keeping pace with state-of-the-art mortgage technology and real estate data that powers these critical valuation and collateral risk systems. Real Estate Technology News is a publication of October Research Corp . , the nation’s premier provider of real estate news and data.