As housing sales continue to plummet in 2008, pressure is increasing to get more profit out of mortgages. Existing home sales were down almost 600,000 units in 2006-2007, and while levels are moderating, the boom is clearly over. Wholesale and direct lenders, title insurance companies, plus thousands of real estate attorneys therefore must develop new business practices that streamline core processes and cut costs. One recent development is the deployment of remote check funding to gain a further advantage in the marketplace.
Larger banks face pressure to increase efficiency ratios by consolidating and improving operations. Simultaneously they must acquire new customers and grow deposits. Smaller institutions, including community banks, regional banks and credit unions, must also remain viable by developing new products and services.
This is where Internet technology can help distinguish service for their partners and customers. Web-based systems typically provide document-management and workflow tools that effectively reduce process time and purge postage and handling costs.
Mortgage businesses are taking lessons from the banking industry in which remote check deposit services eliminated a costly process. Remote deposit capture mitigated the need for banks to maintain local brick-and-mortar operations. Similarly, best-practice companies in mortgage lending have begun utilizing remote check funding as a complement to this service.
In the typical check issuance process for a real estate closing, the closing agent is the maestro conducting the action among seller, buyer and lender by preparing documentation, facilitating the loan, preparing payoff checks, and scheduling and conducting the closing. A typical closing will entail a dozen or more checks. These include business checks written on the agent’s operating or escrow accounts and, for some payees, certified checks drawn on the agent’s bank.
Rescheduled closings play havoc with this process. Because most payoff amounts change daily, rescheduling at the eleventh-hour forces the agent to reconstruct the process, including document preparation and voiding/reissuing checks–a very costly activity. In addition, rescheduling may transpire after loan funds reach the closing agent’s bank. This is a considerable problem for lenders because any delay at this point cuts into their float, thus reducing profits.
Remote check funding uses magnetic ink character recognition (MICR) laser printers using specially formulated MICR toner, which allows the agent to print checks on-demand using blank check stock instead of preprinted checks. These MICR printers can duplicate practically any feature of an offset-printed check, including custom information such as branch address, the MICR line, logos, bar codes and signatures. Using disbursement management software allows lenders, commercial banks, title insurance companies, closing agents and others to directly fund and print checks at the closing table immediately.
The overall business process remains essentially the same; the closing agent manages the process among seller, buyer and lender, and document preparation/loan facilitation steps are unchanged. However, there are two chief differences.
* There is no check preparation. The closing agent sets up check requests for the various payees in the disbursement management system. Checks are not printed until all parties are at the closing table and are ready to complete the transaction. Then the agent prints the checks from the disbursement-management system.
* Post-closing benefits of the check lifecycle. Logging all data about a check into the disbursement management system mitigates manual bookkeeping and reconciliation. In addition, historical information may be maintained indefinitely, allowing for easy reporting and auditing.
With the commercial bank deployment model, the financial institution manages the remote check-funding system as a managed software service, similar to other online tools. The system is server based and closing agents access it via a secure Web web browser.
* CUs and banks obtain a competitive benefit by gaining and retaining title companies and attorneys as commercial clients, thus using escrow funds to enhance commercial deposits.
* Closing Agents eliminate the use and cost of multiple preprinted checkbooks, a streamlined check-issuance process and reduced check-fraud risk.
* Lenders gain maximized float. Also, the agent may grant lenders’ view-only access to transaction status and check history information.
Title Insurance, although not involved directly in the transaction, can also benefit from view-only access to historical data and the ability to remotely research and audit checks.
The lender deployment model is similar to the commercial bank model, except the lender acts as the commercial bank, effectively supplanting the bank in the supply chain. As with the commercial bank model, the system is server-based and closing agents access it via a secure web browser.
Despite its benefits, remote check funding employs new technology that can bring new risks such as print stream eavesdropping where hi-tech thieves can potentially capture check information as the print stream travels through a network; or client and printer spoofing which involves unauthorized access from an unauthorized computer or location. To mitigate such risks, deployers need a solution that ensures data security from end-to-end. Nevertheless, the remote check-funding process offers tangible financial benefits to everyone in the closing process, often paying back the capital investment in about a year.
Deploying remote check funding systems helps to cut costs and gain a competitive advantage. However, as more companies deploy remote check funding, it will go from being a competitive advantage to an essential part of the mortgage closing process.
Snehal Vashi is VP-software development of Source Technologies, a provider of integrated solutions for managing financial transactions and other secure business processes. For info: www.sourcetech.com.
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