The growing need for a fully digital closing amid the pandemic
This is the first in a series of timely posts from Blend intended to keep you up to date on key regulatory developments since the start of the deadly coronavirus pandemic, which has altered everyday life and business in nearly every way. In this edition, we take a look at the growing need for a fully digital closing amid the pandemic.
This series will focus on the changing landscape affecting banks, credit unions, and nonbank lenders who face a critical test: of their adaptiveness, their resiliency, and their ability to serve the needs of their communities.
This article is provided strictly for informational purposes only and should not be construed as legal advice. Please consult legal counsel to understand how these new developments affect your situation.
Lawmakers, industry groups push for Remote Online Notarization nationwide
Legislation has emerged supporting the nationwide use of Remote Online Notarization (RON) in real estate closings. It would establish clear rules of the road for a fully digital mortgage going forward.
With most Americans now under directives not to leave home except for essential services and to maintain a distance of at least six feet while out in public, the homebuying industry is facing unprecedented challenges, including during the mortgage application and closing process.
Officials in Washington have taken note.
“Americans shouldn’t have to risk their health or safety to execute important financial or legal documents, especially when they could do so from the safety of their own home,” said U.S. Sen. Kevin Cramer.
Cramer joined U.S. Sen. Mark Warner (D-Va.) in introducing bipartisan legislation permitting nationwide use of Remote Online Notarization. That would allow digital notarization when the notary and signer are in different physical locations.
“The SECURE Notarization Act brings the notary process into the 21st century, allowing people to securely complete documents while still following recommended health and social practices amid the coronavirus pandemic,” Cramer said.
The legislation has been endorsed by the Mortgage Bankers Association, the National Association of Realtors and the American Land Title Association. Check out more details of the bill and a FAQ section.
What the proposed legislation could mean
- The SECURE Notarization Act sets basic requirements for the security and integrity of RON transactions and would immediately enable RON nationwide
- States would still be able to establish their own rules and regulations
We believe this legislation represents an important step towards an end-to-end digital mortgage by setting the standard for the security and integrity of Remote Online Notarization. While many states have already issued emergency orders enabling RON, the standards applied are not consistent in requiring industrywide best practices for securing RON transactions nationwide. This legislation would create a permanent, long-term solution, enabling more digital closings.
Temporary measures are enacted to address some immediate needs
As lenders and policymakers continue to work towards full digital transformation, several temporary measures have been enacted, allowing borrowers to complete more of the process remotely even when paper documents and signatures are required.
The Government Sponsored Enterprises (GSEs) recently issued new guidance in several key areas, including Remote Online Notarization, Powers of Attorney (POA), age of documentation, verification of self-employment, verbal verification of employment, title insurance and settlement, and more. For more details see here and here, with FAQs here and here.
In addition, the GSEs have enacted some temporary measures to permit expanded use of a Limited Power of Attorney appointing the settlement agent to sign documents in certain no-cash-out refinance, purchase, and limited cash-out refinance transactions.
This would be of particular advantage in instances when lenders do not yet have the infrastructure in place to deliver mortgages with electronic notes.
One major caveat is that this process is not permissible in states that require a POA to be recorded with the transaction and do not allow RON documents to be recorded. In these cases, a POA executed via RON would not be helpful for a real estate closing.
Each title insurance underwriter will have their own underwriting guidelines for issuing policies under these temporary standards, so it’s important that lenders and their settlement agents confirm adherence to applicable underwriting requirements for each transaction they wish to close in this manner.
In a separate but related development, we are also tracking a concerning trend where many county recorder’s offices have shuttered operations, particularly in jurisdictions where eRecording is not yet available. This is causing significant delays of real estate transactions, preventing them from being consummated in the public record.
The American Land Title Association, which represents title and escrow professionals, has a helpful tracker showing the operational status of recording jurisdictions, based on crowdsourced data. If the county for your property is located in an affected jurisdiction, it’s important to get in touch with your title agent to ensure availability of gap coverage for matters arising between the loan closing and recording dates.
What these new temporary measures could mean
- Temporary policies allow for settlement agents to conduct remote closings where paper is required, subject to rules applied by lenders, the GSEs, underwriters, and state law
- These policies currently apply to loan application dates up to May 17, 2020, but may be extended if needed
During the current pandemic (and until all lenders have such closing capabilities), these stopgap emergency measures will allow borrowers to refinance their existing mortgage or buy a new home without endangering themselves or their lender by attending an in-person closing.
At Blend, we are committed to developing a seamless end-to-end digital experience for mortgages that delight lenders and consumers alike. Blend Close is the next step, and we are excited to get it into your hands.
We are closely monitoring these developments and more, and we will continue to provide updates in our next regulatory roadmap.
Meanwhile, we are continuing to work on behalf of our customers to deliver the technology solutions that will help them serve individuals, families, and businesses during this challenging time.
Austin Miller oversees Regulatory Engagement and Governance at Blend.