We hear continual discussion around the automation of mortgage lending processes, but widely understand that a fully online, or e-mortgage process, is still a ways off. Despite the complexities that continue to hinder the e-mortgage from becoming a reality, many industry organizations have made significant strides to move away from paper-based processes and wet signatures and enter the digital present. This effort is largely driven by the fact that electronic transactions are much more prevalent in our daily lives, whether this means signing a document or paying a grocery bill. The use of an electronic signature pad at a cash register has become common for most, and now with Apple’s iPay and other payment technologies, it has become ubiquitous. As consumers enlist more technology tools, devices and apps to make their lives easier, they will expect the same level of convenience when it comes to the lending process – making these efforts to adapt all the more important.
The complexities of the mortgage industry and today’s era of compliance have certainly added challenges to the adoption of electronic, paperless processes, and understandably so. Many organizations have taken on the mindset that a single document that requires a wet signature poses the risk to perpetuate the paper process. For example, the Social Security Administration still requires a wet signature on the SSA-89. However, the industry as a whole should be motivated by the acceptance of electronic signatures by key parties in the industry, such as investors, the Internal Revenue Service (IRS), the Federal Housing Administration (FHA), United States Department of Agriculture (USDA)/Rural Housing Service (RHS), and Department of Veterans Affairs (VA).
Many industry participants are beginning to see that electronic documents and signatures actually promote security and compliance rather than add risk. The Consumer Financial Protection Bureau’s deployment of its mortgage eClosing pilot earlier this year seeks to assess the true value of electronic processes within the closing process. The hope is that this pilot will further exemplify and support the value of automation for lenders needing to provide proof of consent and delivery to remain compliant. Additionally, when timeframes for delivery are required for certain documents in the origination process, the use of electronic signatures will make compliance a seamless process.
One of the primary security considerations mortgage companies are making when it comes to e-signature technology is third party authentication. It is critical to ensure that electronic documents are signed by the right people at the correct times (or in the correct order), including additional parties involved in the process outside of the borrower and the lender, such as notaries. To eliminate signature verification concerns, a system should be more than a basic signature field overlay; to reduce fraud, electronic signatures must be physically embedded (with a tamper-evident seal) into the document and capable of being systematically verified and validated. Lastly, all related data and an audit trail need to be embedded, following every document to provide evidence of who took which action on each form. In addition to the lenders, due to their own compliance concerns, investors are requiring this electronic proof as well to pass future audits.
These concerns are not going unnoticed, but technology providers and other industry organizations are making a significant effort to address them in various ways. Any technology enlisted should first and foremost ensure that all legal documents are tamper-evident sealed and e-signed within a secure SSAE-16 environment. Also, delivery of the documents simply via email is not enough; encrypted security should be wrapped around documents to authenticate both the sender and recipient and fully track the delivery. Finally, a true eClosing will require an eVault to ensure the security, sanctity and integrity of the data, documents, signatures and security wrappers.
The beauty of electronic signature is that from initial application all the way to delivery, there is a virtual date and time stamped audit trail marking every significant event in the mortgage process. It is extremely difficult to replicate a paper trial this detailed, where misplaced documents, missing pages and signatures are still commonplace and endemic.
As electronic signature and records become more prevalent, there is no doubt of their need in the business world, and in particular, the mortgage industry. The technology is in place. The need is evident. And the desire is there from both consumers and industry professionals. In 10 years I believe we will see more than 85 percent of mortgages being completed electronically for many reasons, including compliance, convenience and consumer preference. With the amount of time all mortgage companies have invested in updating their processes, policies and technology to accommodate the ever-changing landscape, the establishment of a true e-mortgage, used across the board, would certainly prove beneficial for everyone.
About The Author
Melanie Feliciano is a 2014 voluntary board member for the Electronic Signature and Records Association (ESRA), the premier trade association representing electronic signature adopters and providers, She is chief legal officer for Carson, Calif.-based DocMagic, Inc., a provider of solutions for the national mortgage industry’s most pressing document production needs. In her role as chief legal officer, she manages the Legal and Compliance Department, oversees, negotiates, and prepares various agreements involving DocMagic’s customers and strategic partners; manages DocMagic’s risk; and handles legal matters.