Efficient Real Estate Closings - Utilizing Technology
As the economy recovers from the Great Recession, mortgage interest rates have risen slowly but steadily since 2012. In the earlier stages of these rising rates, the mortgage re-financing trade didn't slow down much, but since spring of 2015, the number of re-finance transactions has been in decline. The September 2016 Ellie Mae Origination Insight Report shows that re-finance transactions represent 45 percent of all residential mortgage loans closed for the month, while purchase loans have risen to 55 percent. As the Federal Reserve continues to make adjustments and interest rates continue to rise, it's likely that re-finance transactions will continue to decline in numbers.
Another shift in residential mortgage trends is that the average FICO score on a closed purchase loan is down for all types of mortgages. More people are qualifying for conventional loans, FHA loans, and VA loans, and the average percentage of closed loans has climbed steadily over the past two years. If the trend continues as expected, purchase loans will continue to gain market share over re-finance loans for the foreseeable future.
The residential mortgage market is re-adjusting its focus toward purchase loans, and that means greater pressure on everyone in the mortgage loan process to perform more quickly. The 2015 TILA-RESPA Integrated Disclosure Act (TRID) set requirements for timely production and distribution of Loan Estimates (LE), which have to be delivered to applicants within three days of the application date, and Closing Disclosures (CD), which lenders have to get to applicants a minimum of three days before the scheduled closing of their loans. Unfortunately, complying with the new TRID requirements added significantly to the amount of time required to close a residential mortgage.
New time crunch
After TRID was implemented, the time-to-close on a purchase loan lurched upward to a peak of 51 days, on average, in January 2016. It has gone down to an average 47 days, as of September 2016, which is still above the pre-TRID average, and the longer closing time is causing significant woes for lenders. As the mortgage market becomes more heavily driven by purchase loan business, there is greater pressure to close those loans even faster. Before TRID, a typical closing took 30 days, and consumers would usually lock their rate as soon as it was available.
After TRID, consumers were faced with the need to get longer rate locks at greater cost, and there were greatly increased number of loans that failed to close before even the extended rate locks expired. This resulted in unhappy parties from real estate agents to consumer to lenders.
As more consumers are approved for mortgages, the expectations shift; borrowers aren't as willing to accept terms that are less-than-ideal for them when they have higher confidence that they will qualify through more lenders for their residential mortgage. In the current market, they're more likely to shop around if they're not entirely satisfied. As interest rates rise, consumers are counting the cost more precisely, and the additional interest they will pay for a longer rate lock is a point that more consumers are balking at. Buyers are turning up the volume on their demands for faster closings, so they can avoid the expense of a 60-day rate lock.
In order to make 45-day rate locks work for consumers, lenders need to achieve an average time-to-close in the range of 30 to 35 days. That's 12 days faster than the current average, shaving nearly 26 percent … at a minimum. Mortgage lenders are going to be demanding faster service from all their providers, in order to achieve this daunting goal, and providers who can't keep up are going to find themselves in decreasing demand.
Analysis of current systems and processes
The first step in making an effective plan to shorten process time is a detailed analysis of current workflow. A flowchart is a convenient way to organize the data in a format that's easy to absorb, and it helps to highlight any bottlenecks. A thorough analysis will include an overview of the workflow, broken down by milestones and sub-tasks for each milestone.
Critical information includes a listing of people responsible for each task, data on how long every step takes, how much time is spent waiting for communications and documentation, and how often a given task has to be re-done and why.
Cutting the fat
For many companies involved in the closing process for residential mortgages, a careful analysis will reveal a common set of time-devouring issues that can be tamed with the use of technology, reducing process time dramatically.
- Forms errors are often high on the list of delays, especially when the errors involve CDs, because of the additional 72-hour waiting period TRID requires for any change that requires re-disclosure. Using a software system that features a comprehensive forms library and a relational database for form-filling can cut initial production time significantly, and improve accuracy dramatically. Because the transaction data is only entered once, then shared among all needed forms, there are fewer chances for human error. A well-designed package will give alerts when there is a problem or a potential problem, so it can be reviewed before the final form is generated and sent. Any changes made in the data will update all forms that use that data, which heads off errors in consistency that often result from manually updating forms.
- Wait Times are another common bottleneck in closing. Waiting for information from lenders or other service providers, additional documentation or requests for information from borrowers, or returned phone calls and email adds up, and often it adds up to significantly more than anyone suspected. Using software that is supported on the BeesPath network can slash communication and transmission times among all involved parties, and it increases transaction security exponentially. Each transaction gets a virtual private meeting room on the network, and the network's security protocols ensure that only verified authorized users can log in and security protocols cannot be circumvented. Within this virtual room, parties can message each other instantly, transmit documents and other data, and arrange for secure transfer of funds. The system even has mobile security protocols, so users can access the transaction from their mobile phones, and everyone gets the information and documentation they need promptly.
- Accountability is a key factor in streamlining workflow. Using a software package that tracks accountability and scheduling at the task level ensures that everyone knows what needs to be done when, and who's doing it. It also makes any issues or omissions evident immediately, so problems can be solved while they're still small, and, more importantly, before those problems hold up a milestone or push the process beyond its deadline. Task-level scheduling and reminders also make it easier for team members to transfer work among themselves, in case of vacations or illnesses, or if someone leaves the company.
A total solution
Cutting the amount of time it takes to complete residential mortgage while maintaining compliance with TRID and GSE, and quality standards like ALTA Best Practices requires a well-defined process, well-trained employees, and a total-solution software package to automate repetitive, time-consuming tasks where human error frequently causes delays. The Easysoft suite of closing solutions keeps TRID reporting requirements and additional requirements for VA loans on track, and features a library of more than 200 standard forms. Users can also create custom forms for specialized uses, save them in the library, and share them among licensed workgroups members.
The relational database provides the convenience of one-time data entry for the buyer, seller, lender, property, pay-offs, title, and other required information. Once the data is in the database, selected forms will self-populate and offer an editable WYSIWYG preview to ensure flawless final documents and less time wasted on re-work.
Easysoft Real Estate Closing Solutions is fully compliant with BeesPath ClosingBridge security protocols, and includes convenient tools for maximum efficiency and security in closing mortgage transactions. Easysoft offers encrypted connection and a mobile portal to give verified users and devices round-the-clock access to documents, data, and communications. Working through the BeesPath ClosingBridge network keeps everything out of sight of the prying eyes of hackers and slamming the door on spoofers and phishers who often target real estate transactions to scam money.
Another helpful extra within Easysoft Real Estate Closing and Family Law Solutions is the integrated ComplianceAnalyzer module, which audits transactions for completeness, inconsistencies, and compliance. The suite is updated any time compliance requirements change, so users stay up to date easily and effortlessly.
Task-level tracking and accountability are built-in, and simple to use, so it's easy to ensure that nothing gets overlooked, everyone knows who is handling which aspects of the transaction. For conventional loans, FHA loans, or VA loans, Easysoft Real Estate Closing Solutions ensures that you have everything you need for a seamless, error free and timely transaction.