Recently our company surveyed a cross section of lenders to get a sense of their level of digital lending adoption as well as their views on the effectiveness of their current business processes. As part of that survey, respondents were asked to estimate the percentage of their closing packages that currently have errors or mistakes due to manual processes.
The responses were relatively eye-opening.
Nearly 95% of the respondents believed that some portion of their closing packages contained errors or defects due to manual or paper processes. Some responders even said somewhere between three quarters and all of their closing packages had these types of errors. These findings correlate with overall quality control trends. For example, ACES Quality Management produces a quarterly report on loan quality and defects. A recent report on Q2 2022 found a significant increase in loan documentation issues, driven primarily by a spike in closing document defects.
“Behind Income/Employment, the next highest category of defects was Loan Documentation, which experienced a 126% increase over Q1 2022,” the report said. “[T]he central area of concern in this quarter… was Closing Documentation, which comprised 59.38% of defects within this category.”
ACES suspects that rapidly changing market conditions may be responsible for the increase in defects. “The rising rate environment meant lenders could not afford to miss closing deadlines and extend rate locks, so loans may have gotten to closing that did not have all the necessary documentation,” the report continued. “Staffing volatility also opens the door to errors, as staff may have taken over loans midstream from departing colleagues or documents being sent to employees that were subsequently laid off. As volatile as this category and this quarter have been, we would hope to see improvement in the next quarter, but in the meantime, this is an area in which lenders should place their focus.”
All of which brings us back to Einstein. What could we as an industry be doing differently to produce a better outcome? Digital closings would certainly be a major step in the right direction.
While this wouldn’t address all the process issues that could result in closing defects, it would prevent many of the most common closing-table errors, like missed signatures that inevitability creep into the process.
With most types of digital closings—hybrid, RON and IPEN—borrowers have an opportunity to review and eSign documents ahead of time, significantly reducing the sheer volume of documents that need to be read and signed at closing. Missing documents are also identified earlier in the process so they can be addressed by the settlement services agent and the lender.
In addition, most eClosing platforms, like Wolters Kluwer’s ClosingCenter, drive better communication and coordination among all the parties to the closing, including settlement agents, notaries, and the borrowers. They also organize and present the required documents in the order they need to be signed, identify missing documents, and assure that eSignatures have been executed. This is a significant improvement to the age-old “stare and compare” process.
The result is a better experience for all parties, including significantly reducing errors that need to be corrected post-closing and that can delay secondary market execution and create reputational issues for lenders.
In the case of ClosingCenter, it is an open hub platform that can be used with any document provider or closing platform. It is also integrated with Wolters Kluwer’s idsDoc, reducing errors that could be introduced by duplicate data entry.
It doesn’t take a genius, or an Einstein for that matter, to see that when it comes to closings, proven digital processes and technology can produce different and better results for our industry.
