Settleware ‘No Brainer’ blog

“eSignatures will reduce the volume of lost paperwork, reduce signature fraud, reduce the time required to close a loan and may lead to lower borrower costs,” the letter said.

MBA has long advocated modernization of FHA as part of its policy agenda. The letter noted the past 15 years has seen a trend toward automation of the loan application and underwriting process. Most lenders now have automated processes that allow applicants to apply online and to supply information to the lender electronically. Additionally, much of the processing is performed by lenders using online processing and underwriting tools. Ordering appraisals, credit reports and verification of deposit balances is frequently performed by automated, online processes.

“This automation makes it easier for the consumer to provide needed data to the lender, reduces the application to closing timetable, minimizes the potential for lost documents and generally reduces the costs incurred by all parties,” the letter said. “Lenders have experienced increased productivity and a reduction in costs after implementing internal automated processes.”

MBA said eSignatures would reduce costs for activities such as printing and mail couriers for both borrowers and lenders. “These benefits eliminate many of the annoyances of a paper-based process, including lost or inconsistent documents,” the letter said. “In addition, consumers would have greater flexibility and convenience within the home buying process because they would not have to change documents and related signing processes if they changed from a conventional loan to an FHA loan. All of [these] benefits ultimately result in lower costs for the consumer, as lenders pass on savings to remain competitive. Additionally, borrowers experience a more seamless and satisfying homebuying process.”

MBA said FHA’s acceptance of eSignatures would align the agency with other government entities, including Fannie Mae and Freddie Mac, which have been accepting electronic signatures on loan documents for several years.

“Conforming to accepted industry standards on all documents would expedite the mortgage process, reduce lender costs because processes could be replicated and fulfill consumers’ growing preference for conducting electronic transactions,” the letter said. “Notably, the Real Estate Settlement Procedures Act and the Truth in Lending Act rules recognize the use of electronic records to meet disclosure requirements.”

The letter also noted most mortgage lenders that have automated the loan application process make use of electronic signatures for other forms and consumer/lender interaction, citing control mechanisms used conform to the Electronic Signatures in Global and National Commerce Act passed by Congress and signed into law in October 2000.

“Accordingly, controls utilized to protect consumer and confidential data include encryption, tamper evident seals of e-signed documents, two-factor identity verification and other controls required under the ESIGN Act and industry custom,” the letter said. “MBA’s members are currently using such controls, and would continue their use in any FHA eSignature process.”

To address concerns raised by FHA about mortgage fraud, MBA said it believed processes built in the “e” world could mitigate many issues currently in today’s paper process.

“Many electronic mortgage systems incorporate additional borrower authentication capabilities that well exceed the standard of the traditional notary asking to see a driver’s license for validation,” the letter said. “For example, some systems prompt the borrower to respond to authentication challenge questions to establish true identity. In addition, tape recording, on line session recording, and audit trails further safeguard the e-signature process in the event of litigation. These safeguards are not only beneficial to the lender and FHA, but also provide convenience and protection to the homebuyer. Many commercial businesses have long adopted these security standards so consumer awareness and education would be minimal.”