Virtual notary adoption surges as businesses rush to close transactions remotely

Virtual notary adoption surges as businesses rush to close transactions remotely
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The virtual notary services industry has become increasingly popular amid the COVID-19 pandemic as businesses have adopted remote signatures to adhere to social distancing protocols while closing on mortgages and other loans.

Dealmaking in the virtual notary services space rose despite the pandemic. In July, DocuSign acquired  Austin-based startup Liveoak Technologies for $38 million in an all-stock transaction. Digital notary platform Notarize also closed on a $35 million Series C round of funding in March, raising a total of $82 million with investments from real-estate focused venture capital firm Camber Creek, Boston-based Polaris Partners, and other existing strategic investors.

Companies like Liveoak, which has financial institutions as customers, utilize web-based videoconferencing, identity verification and other tools to complete an auditable transaction remotely. These remote online notarizations (RONs) avoid the traditional in-person contact. Notaries are being hired by these companies, but their work is conducted solely online. 

Consumer loans such as mortgages and other financial documents require notarization. Remote online notarization allows the notary act to be performed remotely and contactlessly instead of in-person. Digital adoption has been hampered by state laws since a federal law that outlines practices for remote online notarizations does not exist. The laws related to virtual notary services are passed by individual state legislatures. 

Virginia became the first state to authorize remote notarization via live audio-video technology in 2011 with the passage of House Bill 2318/Senate Bill 827. There are 27 states that have enacted a form of a RON law, including Alaska, Arizona, Colorado, Florida, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington and Wisconsin, according to a report written by law firm DLA Piper.  

Remote online notarizations are digital experiences that mirror the traditional notarial act, said Pat Kinsel, CEO of Notarize, a Boston-based notary public platform. A signer such as a customer closing on a loan appears before a notary on a video call and they complete, sign and notarize the document, he said. Each video session is recorded and retained along with an audit trail of the transaction.

“Signers only connect with a notary after completing several additional security measures, including personal identity challenge questions and credential analysis of their government-issued identification,” Kinsel said. 

Electronic closings supported by remote online notarization (RON) offer advantages to notaries, borrowers and lenders. The notary’s traditional “stare and compare” of the ID is further supported by credential analysis and knowledge-based authentication (KBA), reducing the risk of fraud or errors, said Camelia Martin, managing director, digital mortgage advisory with Falcon Capital Advisors, a Washington, D.C. business advisory firm in real estate, mortgage finance, digital mortgage, banking and capital markets.

“Borrowers can complete the closing from the comfort and safety of their own homes,” she said. “If the transaction is ever challenged, the lender has the ability to access an audit trail and an audio-video recording of the online notarization session.” 

Since March, Notarize said its business rose exponentially – by over 500% – since the COVID-19 pandemic forced businesses and consumers to rely on remote, digital notarizations to complete critical transactions, including commercial agreements, retirement withdrawals, healthcare proxies, home closings and refinancings. 

“The pandemic has fast-tracked market acceptance and business operations for Notarize and RON as a category,” Kinsel said. 

Demand for Notarize’s platform rose the most for real estate transactions with over $7 billion ordered in June 2020 alone, as consumers sought to complete closings, refinance and take advantage of historically low interest rates. 

“At the current rate, Notarize is on pace to close $100 billion in volume on the platform,” he told FinLedger. 

Notarize opened its platform to independent notaries and title agents in 13 states since March and also hired thousands of notaries in Florida, Texas, Virginia and Nevada. The notaries worked from home and received payment the same day through Stripe Connect, a platform that accepts money and pays out to third parties. 

A growing number of industries are turning towards utilizing virtual notary services to go fully digital. Notarize said it is now working with the top 10 U.S. insurance companies, including home and auto providers. The company also accelerated the rollout of its Ellie Mae Encompass partnership and integration “so mortgage lenders may offer online closings with minimal setup.” The company expanded the market for mortgage lenders since Fannie Mae and Freddie Mac permanently eliminated the waiver requirements for lenders to perform RON mortgage closings.

Notarize also signed dozens of partnerships in various industries, including J. D. Power & Associates in auto to conduct fully-digital car sales. Trust & Will uses the company’s software to execute wills entirely online while homebuilder Lennar uses it for mortgage closings (a strategic investor in Notarize, participating in its $20M Series B round in 2018.) 

The software of companies such as Notarize is secure from cybersecurity criminals and other forms of tampering. 

Notarize said its application development team built bank-grade, highly secure software systems. The data is transmitted and stored using industry-best data security practices. 

“All user communications are encrypted and all data such as documents are protected using industry-specified encryption protocols such as AES-256,” Kinsel said. “All application accesses are also tracked using an audit trail. Notarize’s security policies and systems are audited and tested on a regular basis.”

The notary uses a special x.509 digital certificate. Once the notary’s digital certificate is applied to a document, it creates what’s called a digital “hash,” which is essentially a hidden record of all the bits and bytes comprising the document. If any component of the document is later changed, no matter how small, the document will show that it has been changed (or “tampered with”) after the digital signature was applied.

This enables all users to confirm that they are looking at the original document as originally signed and notarized, according to the company.

Notarize also stores a digital record of every notarization in a password-enabled “verification portal” where the customer and any legally authorized recipient can access a digital copy of the original notarized document along with key transactional information about the notarization itself. It also stores the video of the notarization session, showing both the notary and the signer as the document is notarized, in an effort to deter fraud and provide a secure record of the entire transaction.

More than convenience

Conducting transactions remotely and contactlessly is more than a convenience, said Brian Madocks, CEO of eOriginal, a Baltimore, Maryland-based digital loan processor. Vendors must conduct both data and asset protection. Data protection ensures confidentiality and privacy of data while asset protection ensures the “integrity of an asset, that it is tamper-proof,” he said.

The transactions, such as a mortgage closing, need to be performed where it produces a valid, tamper-proof digital record. This transaction needs to be recorded to provide evidence that it occurred and all elements of the transaction need to be securely stored as proof that the transaction was properly executed, Madocks said. 

The use of virtual notary services has accelerated since the onset of the pandemic, he said. 

“Borrowers and loan officers want and need remote capability to maintain social distancing and continue to transact business,” Madocks said. 

While digital adoption accelerated prior to the pandemic, in the aftermath of March, adoption by SBA lenders grew to fulfill the demand for Paycheck Protection Program loans.  

The rise grew in other businesses such as the mortgage, auto and consumer loan industries.

“The requirements for remote and contactless solutions are no longer about convenience,” he said. “It’s about changing the way we will conduct business in the Covid and post-Covid new normal.”

Lenders and investors are still looking to strike the right balance between compliance and scalability with RON, Martin said. 

“The market still has a lot of work to do to reach the holy grail of a full, paperless remote eClosing,” she said. “We need much more than RON to get there.”

Lenders need the capability to generate an electronic promissory note (eNote) and an eVault to store and manage copies of eNotes. 

“Today lenders are shopping for services and implementing processes that the industry does not have a lot of experience with,” Martin said. “A large part of the work we do at Falcon is helping lenders evaluate and implement the right digital mortgage technology providers. At the same time, we also help lenders establish the compliance infrastructure needed to ensure that they have adequate oversight and controls over their eClosing processes.”

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Mortgage lending volume in 2020 likely to break records

Mortgage lending volume in 2020 likely to break records
Fannie Mae, the world’s largest mortgage financier, said mortgage lending this year probably will reach an all-time high of $3.9 trillion.

The dollar-volume record will be boosted by $2.4 trillion in refinancings, the highest level since 2003 and more than double the level seen in 2019, the mortgage giant said in a forecast on Tuesday.

“We continue to believe that a low-rate environment will support refinance demand over the forecast horizon,” Fannie Mae said in the forecast. “At the current interest rate of 2.86%, we estimate that nearly 69% of outstanding first-lien loan balances have at least a half-percentage point incentive to refinance.”

The low rates likely will boost the sales of new houses to 777,000 this year, a gain of 14% from 2019, the forecast said.

Sales of existing homes probably will total 5.3 million, down 0.4%, Fannie Mae said. That’s an improvement from the drop of 4.5% the mortgage company forecast last month.

The annual average U.S. rate for a 30-year fixed mortgage will be 3.1% in 2020 and 2.7% in 2021, the forecast said, matching Fannie Mae’s prior monthly projection. Both would be the lowest annual averages on record.

The housing market has boomed because of the low interest rates created by a Federal Reserve program to buy mortgage bonds. Seasonally adjusted existing-home sales surged 25% in July, the biggest monthly gain ever recorded, beating the prior record gain of 21% set in June, the National Association of Realtors said in an Aug. 21 report.

“Housing data over the past month continued to show a strong ‘V-shape’ rebound, helping drive the broader economy,” the Fannie Mae forecast said.
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RedfinNow expands to Palm Springs, California

RedfinNow expands to Palm Springs, California
For the first time since the pandemic began making an impact on the real estate industry, Redfin’s iBuying solution RedfinNow is now available in a brand new market – Palm Springs, California.

Palm Springs is a “natural place” for RedfinNow to expand given the business’ growth in other Southern California markets and the age and type of homes in the area, according to Orlando Jimenez-Ford, regional manager for RedfinNow in Southern California.

“Palm Springs is a popular second home and vacation rental destination,” Jimenez-Ford said in a release. “Owners of investment properties often dread the idea of coordinating a sale from afar and love that they can get an offer and sell to RedfinNow remotely, without having to come to town at all.”

“On the other side of the coin, we are seeing robust demand for real estate in Palm Springs both from people looking to move to the area permanently as well as vacation home buyers; so it’s an appealing market for us from a buying and selling standpoint,” Jimenez-Ford said.

Homeowners can get a cash offer directly from Redfin and pick their move-out date. For homes that qualify, owners have been able to get an offer in 48 hours or less and complete a sale in as soon as seven days after accepting their final offer, the company said.

Since the pandemic began, Redfin launched a program for homebuyers to tour homes on their own.

Direct Access allows potential homebuyers to use the Redfin app to unlock doors and tour available homes without an agent.

In addition to Palm Springs, RedfinNow is currently available in Denver, Austin, Texas, Dallas, San Antonio, Los Angeles, Inland Empire, California; Orange County and San Diego.
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Better together: The united impact of the Veterans United Foundation

Better together: The united impact of the Veterans United Foundation

In early March, as everyone started to prepare for a virus that they knew so little about, the Veterans United Foundation’s Erik Morse was working with other leaders in the community on what would eventually become the beginning strategy for how Central Missouri would battle the COVID-19 pandemic.

As board president for the Veterans United Foundation, the nonprofit charitable organization created and driven by the employees of Veterans United Home Loans, Morse found himself in conversations with other local leaders on what they could do to help early on in the pandemic. 

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Stewart launches brand campaign

Stewart launches brand campaign
Stewart has launched a new brand campaign designed to reframe the company in the marketplace, the company announced. Read on to learn what CEO Fred Eppinger had to say about the changes.

NexTitle appoints chief strategy officer

NexTitle appoints chief strategy officer
NexTitle has hired a former eXp World Holdings executive to serve as its chief strategy officer, the company announced. Read on to learn who NexTitle selected.