Mortgage.com's closing on Monday of what may be the first completely paperless mortgage for a new home purchase offered a glimpse into the kind of changes the Internet may bring to the industry.
Two quirks of the transaction are noteworthy.
First, Mortgage.com, which is based in Sunrise, Fla., did not have to draw on its warehouse line of credit to fund the loan because it was sold to Fannie Mae within hours.
Second, eOriginal, the Baltimore company that developed the electronic document technology used by the lender, took out an insurance policy on the digital documents.
In an interview Tuesday, Seth Werner, chairman of Mortgage.com, said the advent of digital signatures and fully electronic mortgages is "going to change the nature of electronic mortgages and securitizations."
"I foresee a time when the loan will be sold right from the closing table into a securitization," Mr. Werner said.
The origination of the loan began nine months ago, Mr. Werner said, because the borrower, Jose Ignacio Arroyo, was buying the house while it was being built in west Broward County, Fla. Mr. Arroyo filled out an application on Mortgage.com's Web site.
The closing took place Monday at closing agent Enterprise Title Inc.'s office in Weston, Fla. Mr. Arroyo signed the documents electronically, using a stylus and a graphic arts tablet hooked up to a computer.
Once the electronic documents were signed, they were sent to a trusted custodial utility, which is "effectively a cybervault," said Joseph P. Bryant, vice president and general manager for real estate at eOriginal.
The "vault" stamped the documents with the date and time of signing and "wrapped" them so they could not be altered, he said.
Then the loan was recorded electronically by the Broward County recorders office and an electronic title insurance policy was issued by Attorneys Title Insurance Fund Inc. Those documents were also "wrapped" by the trusted custodial utility.
Within three hours, the loan was closed, the servicing rights on the loan were sold to Irwin Mortgage of Indianapolis, and the loan itself was sold to Fannie - a process that normally would take 30 to 45 days.
Historically, independent mortgage companies have drawn on warehouse lines to fund loans. The lines are secured by mortgages held for sale in the secondary market.
If paperless lending catches on, such interim financing may still be necessary for some types of loans, but the period in which the loans sit in the warehouse would be drastically reduced, Mr. Werner said.
Mortgage banks will be able to move inventory in and out of their warehouse lines much more quickly, he said. That means the size of the commitments can be smaller, reducing the risk to the warehouse lenders and in turn the rates and fees they would charge.
eOriginal purchased an insurance policy covering monetary damages up to $1 million from Kemark Group of Pearl River, N.Y.
Claims are payable "if somehow the electronic records are destroyed, if the legal documents are not enforceable, or if the legal documents are ruled inadmissible," Mr. Bryant said.
"No matter how technologically advanced anyone is, there is a certain fear factor," Mr. Bryant explained.
Earlier this year, there was a refinance loan handled 100% electronically with technology developed by iLumin Corp. of Orem, Utah. But Monday's closing marked the first time a loan to purchase a home was done totally online, Mr. Werner said.
Mortgage.com and eOriginal will make the technology they used for this transaction available to other mortgage banks, Mr. Werner said.
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