Someday, in an electronically enhanced future, most commercial and residential real estate transactions will be conducted in cyberspace. Gone are the days of reams of paper laying out all the descriptions of the property stacked on an attorney's ornate wooden table. Documents will be signed on a computer screen and titles filed electronically at the county courthouse.
Someday — but not today, and probably not anytime soon, say professionals in the title insurance industry. The dream of the “paperless transaction” is largely still just that — a nice idea that happens occasionally but isn't quite ready for primetime.
Don't think that the title insurance industry is dragging its feet when it comes to the adoption of technology. The major companies already have invested large amounts of capital in new computer systems and software designed to automate the transaction process, improve efficiency, provide greater customer service and boost the bottom line. Advances are being made, but some aspects of the high-tech future will take a little more time.
Not yet paperless
There have been a few notable “paperless transactions” involving residential real estate. Last year, for example, Orlando, Fla.-based Attorney's Title Insurance Fund participated in two closings that met the strict definition of this highly automated process.
“These were live loans,” says John Sayers, manager of new business and technology strategy for The Fund. “These were originated by Mortgage.com. We had one of our title agents using a software product that we provide that produces all of the documents that we provide at closing.”
A software program created by Baltimore, Md.-based eOriginal captured the participants' signatures. All documents were electronic and the participants viewed and signed them online. The documents themselves were then electronically executed and recorded in the appropriate Florida county. Then the whole loan package was electronically sold to Fannie Mae.
“We had all the participants in the transaction agree how we're going to do it,” explains Sayers. “In one sense, although it was a pilot, it was a fairly closed kind of operation and Fannie Mae had agreed that they were going to buy these loans in this way.”
The first major step on the path to a paperless future came in 2000, when Congress passed legislation allowing consumers and businesses to sign contracts online and make them just as binding as those written in ink on paper. The passage of legislation, however, has not brought a stampede of customers eager to throw away their pens.
“When we were doing these pilots, we had a couple of transactions that would have been candidates to be closed electronically, but the consumers opted out,” recalls Sayers.
Typical homebuyers don't have enough experience with “e-signatures” to trust one of the biggest purchases of their life to a new technology. Until their comfort level rises, many are likely to pass on the computer and ask for the more traditional pen and paper.
In addition, since the infrastructure doesn't yet exist to support these kinds of transactions, even those early adopters who might like to try electronic signatures may have to wait as well.
“It's not a situation where the law has passed and 15 minutes later we're doing e-mortgages,” says John Hollenbeck, executive vice president of technology for First American Corp., based in a Santa Ana, Calif., whose subsidiaries include First American Title Insurance Co.
Industry professionals agree that while pilots have been completed, no one has come up with an arrangement that can be used easily for most transactions. For example, the various players haven't agreed on the standards for electronic documents — what they look like and what information they will contain.
“There are different documents used from lender to lender and state to state,” says Ernie Puglisi, vice president of technology and information for the national title services division of Houston-based Stewart Title. “The states have their own requirements as far as the content and language that are contained in real estate documents. The more you start seeing standards-based documents, the easier it's going to be to eliminate a lot of the differences in those documents.”
Achieving a paperless transaction is also not an end in itself. It must create both savings and greater convenience for those involved.
“To the extent that eliminating paper serves to reduce the cost of labor, we're all for it,” asserts Hollenbeck.
The title industry itself is not going to be able to bring about meaningful change, unless that change involves the other participants in the process and meets their needs, industry professionals say.
“Anybody who is spending a lot of time and money trying to invent a solution independent of other people's needs is wasting their time,” says Patrick Stone, COO of Irvine, Calif.-based Fidelity National Financial Inc.
The development of workable standards is likely to emerge from industry-sponsored groups, such as the Mortgage Industry Standards Maintenance Organization, or MISMO.
A creation of the Mortgage Bankers Association of America, this study group has brought together representatives from all segments of the real estate transaction process in order to develop a host of standards related to integrating technology.
“They have a number of different work groups that are charged with creating standards for electronic documents,” according to Sayers.
Along with developing rules for what documents should look like, they also will be publishing standards on doing business and applying e-signatures that the whole industry can follow.
“The key thing here is that MISMO was opened to all industry participants,” explains Sayers.
“Fannie Mae and Freddie Mac are in these work groups, along with a lot of title underwriters and national lenders. The hope is that out of that mix, once these standards are published, then various technology providers will implement these standards within their system.”
So far most of the progress in creating a paperless transaction has come on the residential side of the market. Here the transactions are numerous and relatively simple, allowing for the creation of automated processes.
“The way you make money in the title industry on the residential side is by doing a lot of volume,” says Cole A. Stremmel, vice president for-based LandAmerica Financial Group, Inc.
On the other hand, commercial transactions are far fewer but typically involve far larger numbers of properties. In addition, such large customers are still likely to demand personal attention from their title insurance company.
“They're still going to want to call up and get status on their order,” observes Puglisi. “They're going to want that personal point of contact.”
Industry experts agree that while progress is being made, the day of true total automation and paperless transactions is still a ways off. Until then it's likely to be business as usual.
“We kill so many trees each week, it's sad,” admits Bruce Stern, vice president for business development at Lakewood, N.J.-based Madison Title Agency. “You can scan all you want, but at the end of the day the title business is a lot of photocopies.”
Moving toward automation
While truly paperless transactions may be an idea whose time has not quite come, the title insurance industry is continuing to make progress in many other areas of technology.
Stone and others say their companies are investing in greatly automatedcollection that will in turn allow them to provide useful services to real estate professionals. Their goal is to bid farewell to the days when collecting data meant using an army of employees to collect information from local courthouses and then re-key it into a useful form.
“In terms of data strategy, part of what a title company does is collect raw information and raw data and then adds analytical value,” says Hollenbeck. “On the data side, our job is to essentially extend our geographic reach as far as possible to get as much data as we can get, and then commit it to a common platform that is accessible anywhere in our organization.”
To accomplish that goal, companies are creating computerized data banks drawn from information provided to them by county record offices on microfilm, CDs and even direct electronic transfer. These information databanks, along with repositories of the electronic images of the original documents, form the basis for the title business.
This process allows for vast amounts of information to be kept together where it can be easily accessed.
As the lending industry itself continues to consolidate, these larger companies will increasingly ask for products that can be purchased from a single source and used anywhere in the country. Their size will allow them to dictate that the industry offer title insurance and other products in a more standardized format and at a predictable price. In order to meet those demands, title insurance firms must be able to make better use of technology.
“We will continue to have local offices where closings are performed, but in the future much of the work we do will be centralized,” says Hollenbeck. “By doing so, we get economies of scale and better leverage over facilities and technology.”
Today, the ability to put data into an electronic form that can be transmitted over the Internet by e-mail or a direct connection to a client's computer desktop marks a major technological step forward.
“We are e-mailing all of our title commitments online instead of faxing or sending them by courier,” says Rita Kennedy, vice president of Omaha-based Nebraska Title Insurance Co.
Documents and other files can be kept on the company's Web page where customers can not only access the information, but also check the status of their accounts.
“People log onto our Web site and on a password-protected basis they can access all of their client files,” says Stern. “That client or their attorney can access the documents they're interested in seeing. They access that folder and can see there are maybe 17 files within it. Then they can enter as many e-mail destinations as they want and forward those documents to the people who they want to receive them,” adds Stern.
Another technological advance is in the form of so-called “smart documents,” in which the data contained in the form is available electronically in a text format. Software programs can quickly incorporate raw data into the necessary fields of a particular document.
“For example, some rules-based underwriting programs are starting to be available across the country in certain geographic areas,” says Stremmel.
Companies also are moving to leverage the power of e-commerce by offering an expanded range of services through their Web sites.
First American's “FAST Web” service allows customers to order products directly. Other firms are following suit. “They can get our title products, our credit products, our flood zone determinations and our appraisal products all in one marketplace,” Hollenbeck says.
Profit is the key
Everyone agrees that the motivating force behind this move toward automation is return on investment, although very few industry professionals can put a dollar figure on how much they've profited so far. “I'm not interested in spending money on automation unless you can visibly turn that investment into a return,” declares Stone. “I get paid to make money, not to theorize.”
To ensure profits, companies must find what Stone calls the “touchpoints,” where business operations can be automated and new services can be offered to customers.
For example, through software systems, real property data can be downloaded to a real estate professional's computer desktop in a form that he can use. Data can be drawn from Multiple Listing Services and include comparative market analysis. Ultimately this information can be integrated through management tools with loan origination systems and passed along to the lender.
Some of the greatest gains are likely to be found in an increasingly automated quality-control process. Every loan package has to be carefully reviewed, and mistakes ferreted out and corrected at every step along the way.
“Most of us in the closing industry spend up to 20% of our time on quality control work,” says Stone. “Frequently, there's additional interaction with the lender — especially in busy times. The error ratios can be very high.”
Local courthouse a problem
A continuing impediment to the full automation of the real estate transaction process can also be found at the local courthouse. While some larger counties have adopted very sophisticated methods of recording and storing documents, many are still in the era of the dusty logbook.
Adopting an electronic system would require both great expenditures of capital along with a change in doing business. Many are unwilling to make such a leap.
“They do not want to go to electronic systems because they believe it would be such a headache,” says Kennedy. “They need to do a lot of work on their part before we can do anything there.”
Other industry experts say that it is unlikely that there will ever be any form of standardization at the county recorder level. At many locales, funding simply isn't available, and neither is the desire to adopt high-tech methods of doing things.
Title industry professionals don't necessarily view this situation as entirely a bad thing. After all, it tends to create more business — along with more work — for them.
“The failure for them (county courthouses) to grow in terms of technology hasn't been an impediment to us,” says Hollenbeck. “We essentially re-index all that information in our own computer system. If anything, it's a plus because it causes people to continue coming to the title industry.”
Randy Southerland is an Atlanta-based writer.