Would you buy a house in your pajamas?
It's actually a serious question for the mortgage industry as it grapples with automating one of the most complicated documents and expensive transactions most of us will ever deal with.
The idea that homebuyers could file mortgages and close on their homes while sitting at a PC is not just an intriguing concept, it's one that could deliver major cost savings to an industry -- including the government aspect of that industry -- that is still incredibly paper bound, despite technology's impact on documents, forms and workflow.
"There really are no hurdles to electronic recording," said Mark Monacelli, recorder for St. Louis County, Minn., and president of the Property Records Industry Association (PRIA), an educational organization for public- and private-sector property officials. He cited a significant price drop for software solutions as one reason e-recording was taking off in county government.
Now more than 40 counties electronically record documents in some form, according to Monacelli. Two years ago, just a handful were e-recording, and only Salt Lake County, Utah, accepted completely electronic forms.
Industry representatives say it will be years before people close on their new home while wearing bunny slippers.
While title companies and lenders are beginning to electronically submit the "easy stuff" -- primarily lien releases -- to recorders, the more complex mortgage forms and closing documents have yet to be introduced.
"Selling a home is much harder to do electronically," said Steve Rumsey, president of APTItude Solutions, an electronic recording software firm. "The outside recording of documents has been slow to take off."
Technologies, Standards and Laws
The rise in e-recording occurred as technology, standards and legislation converged to make the process more seamless than ever.
Counties can use various software solutions with different price breaks, depending on need and budget, ranging from traditional scanning technologies to hybrid systems that merge images with XML data to fully electronic solutions that minimize human intervention. E-recording also includes electronic signatures for security, workflow and integration tools.
The industry continues adopting standards developed by two key groups: PRIA and the Mortgage Industry Standards Maintenance Organization (MISMO).
PRIA works with the private sector to adopt uniform document formatting standards so public-sector e-recording processes mesh with electronic documents generated by banks, title companies and lenders. MISMO, which represents the mortgage industry, is pushing standards that will enable fully electronic mortgages. Right now, the focus is on an XML architecture and data dictionary for business definitions.
Legal barriers to transactions involving electronic documents have fallen in recent years. In 2000, Congress passed the electronic signature law known as E-SIGN, legalizing the use of digital signatures in court, property and other types of documents. Many states also have adopted and passed the Uniform Electronic Transaction Act, which provides a legal foundation for different types of electronic commerce.
All of this comes when doing more with less is particularly important for county recorders, who have seen a substantial increase in documents filed in recent years due to the surge in real estate activity, but must maintain staffing levels or even cut them.
The Registry of Deeds in Hampden County, Mass., filed a record number of documents in 2003 -- an increase of 28 percent over the previous year. Yet the number of employees in the registry dropped from 54 to 40, according to Hampden County Register Donald Ashe.
"There's no doubt technology has helped us keep pace," he said.
Salt Lake County cut its document-recording staff nearly in half a few years ago -- just when Utah's real-estate market took off. In 2001, the county became one of the nation's first to accept digitally signed lien releases. These documents, filed by mortgage service companies when a home mortgage is paid off, make up nearly 50 percent of the 1,400 or more documents that pass through the Recorder's Office every day.
Now Salt Lake and other counties that automated recording of lien release forms -- high-volume, easy-to-process documents -- are seeing a range of benefits, including:
ofewer data entry errors,
ofewer problems with document fraud, and
oless worker injury from carpal tunnel syndrome.
Salt Lake and a few other counties use level-three electronic recording, in which the lien release is generated electronically using a combination of XML data and HTML formatting. It is digitally signed, transmitted over the Internet and received by the recorder's computer system, where it is recorded automatically and stored as a TIFF file.
The problem is that process only works for simple documents, such as a lien release. Other documents recorded by counties contain hundreds of data fields, according to Jeff Carlson, CEO for US Recordings Inc., which has a level three product called InteleDoc Plus for counties that want to record lien release type forms.
"Our software has taken a 45-day process and reduced it to a two-minute wait," he said.
Carlson notes, however, that the lien release form is a straightforward document for computers to process, and dozens or more releases can be signed by an officer at one time. It's far different from mortgages, which require a unique signer for each document.
"That's why there has been renewed interest in using level-two recordings for mortgages," he said. "Level-three recordings require the industry to define hundreds of data fields for a single document, which have to be standardized."
Level two recordings are hybrids of document imaging and XML. Many county recorders installed imaging systems to scan, store and retrieve document images, costing far less than existing paper-based systems. By upgrading their systems to accept images of documents that were electronically signed and encrypted with XML data, they can use fully electronic recordings without replacing their existing technology.
Counties also are installing solutions that deal with internally processed documents. Broward County, Fla., uses software from APTItude Solutions to manage liens generated by the county's courts. The software allows court-generated liens to flow automatically to the county Records Division, where they are electronically recorded into the system.
"The solution makes sense for Broward because 20 to 25 percent of their recordings happen internally," said Rumsey. "Less than 2 percent of their recordings are recorded electronically from the outside."
Like others in the industry, Rumsey believes it will be years before the mortgage industry and county recorders are ready to deal electronically with documents more complex than lien releases. Slowing adoption is the complexity of mortgage documents and the requirement for a robust, decentralized identity management infrastructure to handle security, say industry observers.
But there are others who think e-recording will take off soon.
"It's no longer a cost issue," said St. Louis County's Monacelli. "We're going to see expansion in 2004 and 2005. The biggest holdback right now is lack of acceptance of e-recording among mortgage companies, not county recorders."