How lenders can use SMART Docs to improve the quality of their loans

“Going digital” means different things to different mortgage professionals. While some long-time, tech averse industry vets may consider making electronic copies of paper documents a massive leap into the future, others have already moved on to using SMART Docs.

SMART (securable, manageable, archivable, retrievable, and transferable) Docs have far more capabilities than the typical “digital document”. Defined by the Mortgage Industry Standards Maintenance Organization as “a single electronic document that binds together data and presentation along with other information needed to maximize its performance,” a SMART Doc also contains a secure signature and a tamper seal, ensuring that what borrowers see and sign will be the exact document stored by their lenders.

“For these reasons and others, SMART Docs are less prone to errors than digital documents,” says Paul Anselmo, CEO of Evolve Mortgage Services. “While digital documents save physical space, they are no more useful than a photo—a human or a machine still has to look at the document to get information from it.”

Reducing the human component in the mortgage process is key to improving efficiency. Anselmo says because SMART Docs can be accurately read by computers without the need for optical character recognition technology, lenders, servicers and investors using them can more easily extract relevant loan data without the drawn-out, error prone, and eye-melting “stare and compare” process.

“Lenders that don’t adopt SMART Docs are really placing their loan quality at risk,” Anselmo says, adding that verifying the information on PDFs and tagging them for signatures are two processes where mistakes are often made.

“Each creates the potential for missing or inaccurate information, which can lead to lost business, financial risk, or penalties and fines,” he says.

There are other risks associated with not using SMART Docs. Business has been brisk during the COVID-19 pandemic, but rates have nowhere to go but up. Anselmo says that even if economic conditions were to severely deteriorate, risk premiums “would only drive up the spread between Treasury yields and mortgage rates.” As rates rise, he says lenders will be faced with dramatically less volume from refinances and will eventually be forced to compete based on other factors, with the cost of loan production being one of them.

“SMART Docs facilitate a less costly mortgage process,” he says. “You really have to wonder why some lenders are still using human staff or machine tools to extract data manually from digital images when they could just be doing everything digitally with SMART Docs for the legal documentation, eliminating at least half the mortgage file.”

Anselmo says the added accuracy and security of SMART Docs also make it easier to close loans online. At a time when COVID-19 is still disrupting state and local economies, providing a safer, more convenient borrower experience remains a powerful differentiator.

“Once a lender enables all their documents to be reviewed and signed online, competitors without those capabilities with be at a huge disadvantage,” he says. “As volumes increase, after-production tagging methods just aren’t scalable or financially efficient.”

When mortgage forbearance finally becomes a thing of the past, Anselmo feels SMART Docs will also be useful for investors and third-party review firms who need to verify the accuracy and integrity of the information at their disposal before moving forward with important decisions regarding a client’s loan.

“SMART Docs make good business sense regardless of the current health crisis,” he says. “Eventually, originators who can’t offer a complete digital experience will lose business to those who can.”