RON use went up in 2020. Here's why more lenders won't adopt it

December 30, 2020 2:02 PM

While the mortgage industry has been notably slow to adapt to new technologies, use of remote online notarization software accelerated significantly in this year of social distancing. Yet, many in the industry still say widespread use of RON remains a ways off.

While temporary authorizations of RON use span the U.S., permanent RON laws now exist in 25 states as of Dec. 27, 2020 with four more — Alaska, Colorado, Hawaii and Louisiana — enacted and waiting to go into effect.

When or, more likely, if every state gets RON laws in place beyond temporary orders remains to be seen. A lack of political will and abbreviated legislative sessions may prevent more states from allowing its use permanently, while concerns around fraud, a commitment to in-person only transactions and a lack of bandwidth are all factors delaying wider use by lenders.

Below experts discuss how they used RON and detail what it will take for the industry at large to fully embrace it.

Closing a deal while stuck outside the country

Remote online notarization came in handy when COVID-related travel restrictions kept some buyers and sellers stranded overseas this year, Realogy CEO Don Casey said.

"We had a customer who was in the Philippines. They printed off the docs there and were able to sign through Notarize and close the transaction," Casey said. "We've had a lot of country issues that were resolved as a result of RON."

Remote online notarization use is big for military members, since it allows military borrowers to get documents notarized while they're deployed. RON has been a game-changer for anyone traveling when coronavirus lockdowns took effect, but the process remains only as smooth as one's internet connection speed.

"I had sellers that got stuck in Cuba during COVID and were not able to fly back for the closing of their house. So their title company hired us," a notary with NotaryCam, one of eight MISMO-approved RON providers, told NMN. "Long story short, we tried four different times to sign, all taking about an hour each. On the last try, they found a friend in Cuba with better connection and that worked but they were getting kicked out several times during the call."

Why these states won't adopt RON

A group of 21 states still do not have fixed RON laws in place. The legislation to get it through can be complex and some states prioritized it more than others. Notably, California, Illinois and much of the northeast are among the holdouts.

Usually leading the vanguard on the tech front, California might be one of the last states to pass something on RON. Multiple bills have been brought up and failed over the past few years due to all kinds of privacy and security concerns voiced within the legislature, according to Bill Anderson, vice president of government affairs at the National Notary Association.

The swath of Southern states are "totally committed to in-person, physical presence, electronic notarization. Because they have been all in on that, they really haven't considered RON there," he said.

Some of the other states require attorneys present for real estate transactions, which add a level of complication and would need to be written around. These "attorney states" include Connecticut, Delaware, Georgia, Massachusetts, North Carolina, Rhode Island, South Carolina and West Virginia. Additionally, the lawyers don't want to see their role in the process diminish either.

"[Legislatures in attorney states] lagged because they're trying to figure out how to address getting remote online notarization while still maintaining the state laws," said Jess Kennedy, co-founder, general counsel and chief compliance officer at Beeline. "Different RON companies are trying to figure out solutions too but some state laws are also just not currently written to allow that."

Local complexities also create industry confusion and put up roadblocks to any potential national uniformity. Large markets like New York, Chicago and California metros diverge from standard practices. This makes it difficult for their states to pass a bill, according to Nate Baker, founder and CEO of Qualia.

What needs to be overcome

Remote online notarization is a paradigm shift. Not only will it take time to get laws enacted, it's going to take time for lenders and title companies to trust the process.

Mitigating fraud stands as one of the biggest stumbling blocks to widespread RON use. Without in-person verification, RON can be perceived as inherently riskier, said John Heck, senior adviser of lending solutions at Capacity.

"One of the apparent weaknesses of remote online notary, in my opinion, is the lack of a really sophisticated borrower identification process," Heck said. "The ability to break down visually, somebody's facial graphics on a Zoom call … there's still a lot of potential fraud with who these people are. And there's a lot of potential fraud in parallel to the wires that happen around these closings."

Another wrinkle lies within the execution. If the documents being notarized remotely contain any mistakes, the lender must update and reload them into the system. By the time that's completed and sent back out, the convenience factor has been negated.

"The systems need to have more flexibility in them, or the settlement companies and lenders need to be more flexible around what are acceptable errors," said Brendon Weiss, principal at Acta Strategies.

To become mainstream, RON must be part of the standard operating procedure for mortgage companies, but that won't happen until loan activity subsides, Casey said.

"Lenders are the holdup, quite frankly, and I don't mean it in a negative way," he said. "They are so busy and constrained right now, to change your processes is like changing a tire when your car is going down the road at 60 miles an hour. I can almost guarantee you once volume slows down a little bit, they will take advantage of it just because of how much more productive they would be."

Looking to 2021

As social distancing orders continue into the new year, more states may create permanent RON laws, Anderson said.

"I suspect in 2021 we'll probably see at least two, three, maybe even four states enacted," he added. "New Jersey could be enacting their bill that's moving pretty quickly. I know the secretary of state in Illinois wants to do RON and they're working on it so that could possibly happen in 2021."

Anderson notes the big unknown for 2021 will be states' legislative sessions. He pointed out the California Assembly and Senate told their members to cut down their bill lists because they didn't have the bandwidth given the pandemic.

Similar to other issues, lobbying could be the most effective way to get bills passed. Rick Triola, the CEO of NotaryCam, is working with the California Mortgage Bankers Association and other vendors on an initiative for the secretary of state attorney general to educate them on the RON process and get them comfortable with it. Companies performing the services are actively lobbying in North Carolina as well, according to Capacity's Heck.

Uneasiness with RON still abounds but as more people get the hang of it, it'll just be a matter of time before they adapt to the change.

"It's still very much the first inning of how this experience is ultimately going to work," Baker said.