The Rise of the Digital Mortgage

 The shift to completely digital mortgages seems to be taking place rather gradually, but the pace of digital adoption is gaining steam. It won’t be long before the reams of paper required to print a mortgage document become a thing of the past.

Two key factors are driving this shift: the prevalence of reliable technology, and the demands of borrowers.

Both out of necessity and a desire for efficiency, mortgage brokers and banks have already embraced a number of digital tools to streamline their businesses. Online mortgage calculators, spreadsheets, customer relationship management software, and digital marketing methods have become the order of the day in Canada and the US. Secure cloud storage and a myriad of mobile apps make it possible for independent lenders and brokers to offer service levels at or above that of their big bank rivals.

Now, purpose-built mortgage fintech apps are emerging and the completely digital mortgage is becoming a reality. This represents an opportunity for the broker channel especially, as they are able to adapt more quickly, and offer a level of (completely mobile) service that the banks cannot— on demand and from anywhere. Brokers and Lenders can verify income and down payments with digital bank statements, and a fully electronic mortgage can happen. The technology exists, and the last domino left to fall is governmental regulation. But even that seems poised for sea change.

The common maxim in the financial has been that there is security in “paper.” Handwritten signatures rule the day presently, but they lack the security, metadata and, most of all, the convenience of e-signatures. Recent court decisions in the US helped to cement the reputation of paperless mortgages, as two lenders one in NY and one in FL, were able to use digital-only mortgages as proof of default, and the courts ruled they could foreclose. While it’s a rather dark way to determine the validity of paperless mortgages, it leaves little question as to the shift toward a paperless future.

 Let’s face it— technology can makes things a lot easier. Think back to the time before the rise of the personal computer, when all records were kept on paper, and had to be carefully filed for future reference. Imagine the painstaking processing of reviewing those documents, and keeping accurate records of the changes to them over time. By today’s standards of digital file storage, “find and replace” contract-editing convenience, and the ever-dropping cost of online file storage, it seems like the dark ages— but it was only a few decades ago. Now, consider the emerging future. One of digital date stamps, tracked changes, “change all” features that allow multiple documents to updated at once, and transparency between borrowers, mortgage brokers and lenders.

Given what is already possible, it’s surprising that paper continues to enjoy its status as the keeper of covenants in the financial world.

While the OSFI’s rules changes and banks’ retail channels certainly are a factor in determining the anatomy of mortgages in Canada, the reason for this profound trend in the direction of digital is being driven (and will continue to be) by borrowers.

Borrowers, many of whom are part of a generation of “digital natives,” have become more savvy, both in their access to information and their use of technology. They now insist on greater transparency,more flexibility and more choice when it comes to borrowing. Again, brokers have an advantage here over banks; demonstrating the options available to borrowers, and the flexibility of the borrowing process, gives brokers an edge when it comes to selling against banks’ prescriptive options and limited product availability. We’re not saying that everyone will want to complete a mortgage application from their smartphone, but we are saying that we need to meet our clients where they want to be served.

 Want your broker to meet you at your favourite food cart and go over a few options with you on a tablet while you enjoy a taco? Want to be able to compile your application and financials without ever having to print a page? While the new mortgage rules have made it harder for borrowers to qualify for lending products, borrowers with buying power have more choice and control than ever, and will continue to drive change in the industry.

That fateful trip to the Notary’s office will soon look a lot different— as stacks of paper with highlighted tabs become digital files requiring time-stamped e-signatures on a device.

At the moment, filing cabinets still have a decent resale value, but that too is soon to pass. Bet on it.