(Originally published in the January 2018 issue of The National Notary magazine.)
North Carolina is the first state in the nation to establish a statewide eClosing program, and mortgage industry firms are slowly adopting the program. The NNA recently spoke with North Carolina Secretary of State Elaine Marshall to discuss the program and its future.
What do you hope to accomplish with the eClosing pilot program?
We wanted to demonstrate that North Carolina’s legal infrastructure fully supports a completely electronic mortgage closing. We also wanted to have several eClosings conducted in North Carolina using the standards developed by the North Carolina Secretary of State’s Office and industry thought leaders who partnered with the Department to develop those standards.
These accomplishments were realized when North State Bank funded the first ever fully electronic mortgage closing in North Carolina on May 5, 2017, in Hickory, North Carolina. That first eClosing was a refinancing. The next two conducted by North State were fully electronic purchase mortgages.
We believe electronic mortgage closings will be a win-win for lenders, borrowers and government. Home buyers will win by having the opportunity to review their loan closing documents much sooner than with the traditional paper process, having the closing performed at a location that is convenient to them, and getting the keys to their new homes faster.
The mortgage industry wins through reducing loan processing times, which frees up capital to generate more loans — which has the potential to transform the mortgage industry. Government will see a win through transactions that are completed quickly and securely, and by demonstrating its willingness to conduct its duties with the options that people expect to see.
What is the current status of the program?
There have been several electronic mortgage closings, including purchases, since the first refinance eClosing. The organizations that pioneered this process continue to transact mortgages electronically as a normal part of their business. In fact, other local and national mortgage lenders planned to offer electronic mortgages by the end of 2017.
With North Carolina’s history of embracing eCommerce and eNotarization practices, why did it take so long to launch a pilot program?
North Carolina’s legal infrastructure surrounding eCommerce and eNotarization is the most comprehensive of its kind in the country. We are proud that 90 percent of our state’s population lives in counties that accept electronically recorded documents. We hope to reach 100 percent soon. Without this foundation, we would not have this ambitious statewide initiative for electronic mortgage closing.
In the early 2000s we were moving fast toward practical eCommerce applications for mortgages, but then the “Great Recession” of 2008 hit — one of the worst recessions in the nation's history. This event caused economic decline in the mortgage industry. It also caused a decline in the number of eNotaries, as the real estate market contracted. The effort picked up steam again as the real estate market in North Carolina rebounded and the number of eNotaries started increasing.
We launched our pilot program shortly after the U.S. Consumer Financial Protection Bureau completed its electronic mortgage closing study, finding that it was a beneficial process for consumers.
Do you see this as a viable alternative to remote eClosings?
North Carolina’s electronic mortgage process is a superior alternative to remote eClosings in terms of security and assurance. We believe that in-person electronic notarization is at the heart of secure electronic mortgage closings.
We do not believe a remote process is a viable alternative to our form of electronic notarization, given the legitimate concerns about the potential for fraud. After all, a real estate purchase is often the most valuable asset a family may have.
What advantages does the North Carolina program have over remote closings?
In this day of heightened concerns about identity theft, and data breaches at companies like Equifax, it is irresponsible for vendors to supplant the time-tested process of verifying the signer’s identity in person.
Having the signer appear before a Notary Public to establish their identity, willingness, and competence is not something that should be taken for granted, and its importance should not be minimized by introducing an inferior process. It introduces unnecessary risk and uncertainty into the electronic mortgage closing process.
Some believe that capturing video in remote closings makes it a superior process. But the in-person process for establishing identity, volition and competence is the preferred method by the vast majority of law enforcement and business disciplines.
There is no reason to inject a process fraught with the potential for fraud in an otherwise secure transaction that delivers on the promise of speed, efficiency and trust that is going to transform the mortgage industry.
What are the challenges/obstacles to widespread adoption of North Carolina’s eClosing model?
The current challenge is increasing adoption. We are reaching out to warehouse lenders, electronic note servicers, regulatory entities, attorneys, realtors, mortgage lenders, Registers of Deeds, the North Carolina Administrative Office of the Courts and all relevant stakeholders to ensure that we have educated everyone on the opportunity, processes, laws, security mechanisms and everything they need to do to get engaged in this industry transforming process.
Is there a need for standards for eNotarization?
Yes, absolutely. The National Association of Secretaries of State identified this issue years ago. It developed and adopted standards for electronic notarization in 2006 and has expanded and reaffirmed them, most recently in the summer of 2016. The 23 states that have electronic notarization laws have adopted the majority of the standards included in the NASS National Electronic Notarization Standards.
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