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Docutech’s Harry Gardner Elected Chair Of ESRA Board Of Directors

Harry Gardner, executive vice president of eStrategies for Docutech, was named chair of the board of directors for the Electronic Signatures and Records Association (ESRA) for 2018. Gardner has participated in ESRA’s activities since its inception and joined the organization’s board of directors in January of last year.

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ESRA was founded in 2006 with the mission to lead and advocate the use of electronic records across multiple industries. The organization strives to develop and promote progressive eSignature-related public policy as well as inform and educate its members, lawmakers and the general public on changing regulations. ESRA currently comprises approximately 40 member-companies and organizations of electronic signature and document technology providers and users across the globe.

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“I’m honored to have been elected to serve as chair of the board of directors for 2018 and pleased to help ESRA as we move forward in this very critical year,” said Gardner. “Of course, improvement is always the main goal. We’re constantly looking to build up ESRA’s membership and to further expand our legislative and educational impact to see the full realization of the value proposition of eSignature technology across industries.”

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Gardner joined Docutech in 2016, building on more than 18 years of mortgage technology experience and standards development leadership. A leading player in the development of and education around mortgage technology standards, Gardner has written articles for many publications, including a series inMortgage Banking Magazine as the “eMortgage Evangelist.” At Docutech, Gardner collaborates with the leadership team to define and execute the electronic document and eSignature product strategy.

Progress In Lending

The Place For Thought Leaders And Visionaries

ESRA Welcomes New Members

The Electronic Signature and Records Association (ESRA), the premier trade association representing electronic signature and records adopters and providers, welcomes Wolters Kluwer, Advanced Data and Nationwide Signing Services to its organization. ESRA’s membership growth reflects the overall acknowledgment of the critical role electronic processes continue to play in enabling fully-digital business transactions, efficiency and data management across most industries.

“Companies want the safest, most secure way of transacting business between their customers and business partners,” said John Levy, chairman of ESRA and executive vice president of IMM. “This is one of the primary reasons the interest in eSignatures and eRecords has grown. Being compliant with existing and new regulations and legislation is another catalyst for the increase.”

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“The electronic signature and records market is changing rapidly as it evolves to digital transactions, and ESRA provides us a forum to track and influence the legal, technology and business drivers in this market,” said eSignLive by VASCO Vice President of Product Strategy and longtime ESRA board member Michael Laurie. “It’s in part through this evolution that we’ve seen growing interest in eSignatures globally.”

ESRA membership is open to individual companies as well as trade associations and organizations across any business vertical, including financial services, mortgage, automotive, healthcare, government, insurance and more. Members receive the latest news on trends and regulatory updates regarding eSignatures and eRecords and the opportunity to become involved in various public policy initiatives. Additionally, members are invited to bi-annual, member-only meetings, which have featured speakers from the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), the Internal Revenue Service (IRS), Fannie Mae and Freddie Mac among many others.

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Participating in ESRA-hosted events throughout the year also enables members to understand the prevailing eSignature and digital process initiatives to better direct their organizations’ efforts accordingly.

“Our members are focused on ushering in a new age of eSignatures, eRecords and related data management that will allow businesses to operate more efficiently as they prepare, send, sign and manage documents electronically,” said Elizabeth S. McClure, ESRA secretary and general counsel at eOriginal. “Members find that collaborating on best practices as well as sharing knowledge and experience in eSignatures and eRecords provides the best opportunity to remain informed and participate effectively with those on the forefront of this rapidly evolving area of business transformation.”

About The Author

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Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Examining Practical Lending Methods

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TME-JKnottThis year, practical technology methods have finally reached the tipping point for mortgage professionals to move away from paper-based signatures, and into the digital present. In fact, we have already seen the overall industry conversation shifting away from the general acceptance and adoption of electronic records and signatures, since it is now the general societal expectation that this technology will be a part of any consumer engagement process. Instead, there is greater emphasis being placed upon the end-user experience and consolidation of disparate, consumer-facing interactions by business applications. Greater attention is now being paid to the benefits of e-signed records and digital assets resulting from these processes, which are able to ensure the integrity of information and provide proof of compliance needed to satisfy various regulatory guidelines throughout the mortgage lifecycle.

Lenders continue to encounter an evolving regulatory climate that includes oversight considerations from several agencies. At the same time, they seek ways to combat the challenges to completing transactions with the incorporation of informed, risk-based decisioning practices. What was once a choice for credit-granters when determining loan applicant eligibility is now a requirement involving prescriptive instructions on providing disclosures, managing delivery timelines and protecting records to ensure they can be used to demonstrate regulatory compliance. Not only is this an enormous, and growing, undertaking for lenders, but consumers are also frustrated with the amount of time the expanded process requires, the lack of transparency throughout and the piles of confusing paperwork that are required to be signed.

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Consumers, businesses and government agencies are all realizing the widespread benefits of adopting electronic record and e-signature technology. Although it may appear to some that electronic processes are just coming to fruition, this is not the case. In fact, they have been in place since 2000, when the federal Electronic Signatures in Global and National Commerce (ESIGN) Act was enacted into law. Then, state adoptions of the Uniform Electronic Transactions Act (UETA) began in 1999. E-signed records and electronic workflows have taken off and will soon become an industry standard, not just for the efficiency gains and cost savings they create, but because they can be further leveraged long-term to improve risk management, security and fraud prevention initiatives.

Networking Consumers

For mortgage companies, discussions with consumers are becoming less about the adoption of a process, and instead, becoming more about the consolidation and consistency of experience across various applications and access channels. They are not explaining how to use e-sign technology, consumers get it. They expect it. Tablets and smartphones certainly change how lenders can communicate with consumers and share documents; however, today they are forever changing how borrowers research information, seek funding sources, and obtain credit in today’s market. For 42 percent of home buyers, the first step in the home-buying process was looking online for properties and 14 percent of home buyers first looked online for information about the home buying process according to the National Association of Realtors 2013 Profile of Home Buyers and Sellers.

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New models for interpersonal and business interactions have evolved significantly over the past few years and are now beginning to affect financial services organizations. Key audiences have influenced, and will continue to shape, the digital consumer phenomena. Millennials, who comprise 31 percent— the largest share — of U.S. homebuyers, are digital natives. This generation conducts all aspects of their discovery, consideration and decision-making processes with the support of technology. More than half of buyers from this generational segment used a mobile device during their home search; among those who did, 26 percent found the home they ultimately purchased. To a millennial, the experience when using a mobile device or smartphone requires no more effort than opening a refrigerator door.

Impacting Lenders

How does this evolution impact the lender community? Lenders are used to the posture of setting the rules for business. Instead of consumers conducting business as defined by the lender, lenders have to redefine their business models to meet expectations of consumers and become more reactive. However, they should be careful not to allow time spent on reacting to consumer demands to diminish their ability to move forward in a proactive way. Instead of focusing solely on consumer adoption, financial institutions need to revisit and modernize their business processes. Digital business models enable new, more efficient ways to manage processes and workflows all while saving companies money. To accomplish this, organizations are continuing to incorporate electronic records and signatures as a way to improve customer experience, ensure that the appropriate fields on the application are entered, and increase the speed of the transaction.

One readily available resource that can assist lenders in complying with regulations is the Standards and Procedures for Electronic Records and Signatures (SPeRS). This manual contains a technology-neutral set of guidelines and strategies for industry use in designing and implementing systems for electronic transactions under both federal and state law. These defined procedures can effectively help mortgage companies and lenders navigate the current legal and regulatory landscape related to the use and acceptance of electronic signatures and records.

The mortgage industry should take note of the rapidly emerging, non-traditional financial lending model often referred to as peer-to-peer (P2P) funding or simply Internet finance. Lenders can gather modern-day consumer adoption insights and engagement preferences from this disruptively innovative business concept. The initial focus of P2P lending was to connect an individual borrower with pooled funds from a collective of individual investors for small dollar loans; however, now institutional investors and high-dollar loans are being funding using this method. The Internet finance industry leverages secure technology methods, engages networked consumers and maximizes the value of electronic commerce legal principles. Electronically signed records are at the core of this paradigm, offering an alternative to traditional lending options. It’s not too late—traditional lenders still have an opportunity to adapt their legacy approaches to better address borrower challenges and compete with these future potential marketplace competitors. Adapting or re-inventing legacy mortgage application rituals with the incorporation of advanced functionality will empower a streamlined consumer process, facilitate the detection and correction of errors in documents, improve process transparency, and enable affordable access to credit.

Rethinking Borrowers

Ultimately, it is time for mortgage professionals to re-think the role of borrowers as consumers in their relationship with their lender. Regardless, if acting as a borrower applying for a mortgage or as a consumer in the outside world, loan applicants embrace the same concerns regarding protecting sensitive data. As high as consumers’ demands are today for trusted digital customer service, your borrowers’ expectations are even greater when it comes to managing their own personal information or the finances of their family. The same technology used for consumers can also be leveraged when interacting with your borrowers – social media, mobile devices, ‘always-on’ self-service engagement. By viewing the lender-borrower relationship as one that involves information consumerism, financial institutions can better increase process transparency and transform the confidence for all involved parties of a trusted, mortgage experience.

About The Author

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Jeff Knott, winner of the 2014 Steve Fraser Visionary Award, is 2015 chairman for the Electronic Signature & Record Association (ESRA) and assistant vice president at Equifax. He is a recognized leader in driving business strategies, product innovation and industry adoption of e-signed records. Knott has vast experience guiding cross-functional teams and introducing creative business solutions as well as managing mergers and acquisition transitions. He is known throughout the industry for his contributions in reforming IRS policy to allow the acceptance of electronic signatures on Forms 4506-T. He is an “out-of-the-box” thinker who champions emerging technologies, promotes consumer engagement, advocates change and encourages the partnership between the private sector and government.

The Mortgage Industry’s Transformation

With the MBA’s National Technology in Mortgage Banking Conference & Expo here, now is a great time to examine the impact that eSignatures, digital records and verified data are having and on the industry. After all, there’s a very good reason that these two topics are the foundation for many of sessions and tracks at the show.

Very few technological advances have been leveraged to enhance processes and efficiencies like electronic signatures and records. Combined with trusted data sources, these powerful technologies facilitate better compliance in mortgage lending, while simultaneously revolutionizing the industry as a whole. For e-signed records, the focus has shifted from simply understanding the legal framework surrounding the application of eSignatures to the effective implementation and workflow design. This is wonderful progress, especially at a time when the consumer adoption of eSignature methods is so strong, driven by mobile technology. For instance, more than 20 percent of boarding passes of the largest domestic carriers in the U.S. are accessed with a mobile device. In addition, Forrester forecasts that 42 percent of the global population will own a smartphone by the end of this year. This trend reflects the mortgage industry’s critical transition from analog to digital.

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Lenders should keep in mind that not all eSignatures are the same. It’s important to form a basic understanding about e-signed records to ensure that program guidelines, regulatory requirements and form-specific instructions are followed. There are three basic tiers of eSignatures:

>> Simple, which is any signature method that does not employ technology to increase the security, authenticity or evidentiary value of a signature (scanned images of a handwritten signature, passwords or PINs);

>> Secure, which uses technology to link the eSignature to a specific individual or device (retina/thumbprint scan, signing pads); and

>> Digital, which uses a digital certificate process, with a private key to sign and encrypt the document (a trusted third-party that issues a digital certificate after verifying of the signer’s identity).

Still, eSignatures provide a much greater level of expediency throughout the loan life cycle and have become a societal expectation for consumer engagement, so the adoption and education by lenders must be timely in order to reap the benefits as soon as possible. Adobe research found that lenders can cut document costs by 86 percent while at the same time gain an 83 percent improvement in the manner and speed in which paperwork is completed. Not to mention an increased level of integrity as well as a more secure and consistent management of records within key systems.

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Data verification is the thunder to eSignature’s lightening. The scope of trusted information available to lenders today far exceeds the traditional capabilities of credit scores and reports. Conceptually risk-based lending decisions are similar to other types of decisioning where there is a heavy cost associated with making a poor choice. For example, before the industry’s economic crisis, many loans were issued based on the “stated income” simply listed on applications. Unfortunately a large amount of this type of self-reported information fueled the market collapse and neglected to protect consumers — many borrowers were allowed to enter scenarios without the realistic ability to repay. Today as mortgage professionals abide by more responsible-lending practices, they are likely to look at a number of third-party verified data sources such as IRS tax transcripts, employment records, identity reports, insurance declarations, and financial statements, just to name a few to evaluate the validity of what the borrower has stated on their application. The more verified data, the greater the confidence the decision-maker has that the loan will be a quality one. Coming out of the recession, many people have dinged-up credit scores, but Equifax research shows that trusted, verified employment and income data can be successfully “swapped in” and result in a loan that performs very similarly to a loan extended to an applicant with a prime credit score. This data provides a strong indicator of repayment and low likelihood of default.

The regulatory agencies recognize how powerful verified data contained within an e-signed record can be in the fight to end reckless lending and iron out the kinks in the borrowers’ perception of an archaic and inconvenient mortgage process. Timeframes are shorter and information must be extremely accurate, which is why lenders are quickly adopting eSignatures and leveraging technology to connect directly to trusted data sources needed to grow business and maintain compliance. What about you?

About The Author

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Jeff Knott, winner of the 2014 Steve Fraser Visionary Award, is 2015 chairman for the Electronic Signature & Record Association (ESRA) and assistant vice president at Equifax. He is a recognized leader in driving business strategies, product innovation and industry adoption of e-signed records. Knott has vast experience guiding cross-functional teams and introducing creative business solutions as well as managing mergers and acquisition transitions. He is known throughout the industry for his contributions in reforming IRS policy to allow the acceptance of electronic signatures on Forms 4506-T. He is an “out-of-the-box” thinker who champions emerging technologies, promotes consumer engagement, advocates change and encourages the partnership between the private sector and government.

A More Convenient Mortgage Process

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).

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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.

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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

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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.

The CFPB eClosing Pilot

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Tim-AndersonMelanie-FelicianoAny mortgage professional can attest to the overwhelming amount of paperwork associated with the closing process. For consumers, this final step to homeownership has become notorious for causing confusion and even surprises in the form of unexpected costs. In an effort to assess how the industry can reduce the complexity of this arduous process, the Consumer Financial Protection Bureau (CFPB) introduced its mortgage eClosing pilot, with seven financial institutions and four technology vendors participating in this program. While the closing is just one portion of the mortgage, this pilot could be key to proving the value electronic records, e-signatures, electronic workflows and even electronic notarizations can have, bringing to light trends that are critical to the mortgage lending world as a whole.

The eClosing pilot went live at the beginning of the year, and is exploring how the use of technology during the closing process can reduce frustration for consumers, improve their understanding and, at the same time, help lenders uphold compliance. Stemming from the CFPB’s Know Before You Owe initiative, it is largely expected among industry professionals for this pilot to, in fact, demonstrate that electronic processes accomplishes these goals.

In addition to the value of modern technology, the eClosing pilot is demonstrating the importance of accurate data. To this point, the primary focus for lenders has been on completing and delivering disclosure forms three days prior to the closing; however, if the data is not accurate, costly and frustrating delays remain inevitable. In the worst cases, legal repercussions may occur as a result of inaccurate data on closing forms, which is often simply the result of human error. Electronic processes and the use of automated documents significantly reduce these types of errors – not to mention, enable lenders to complete forms more quickly. Accuracy of data is intended to mitigate risk for lenders and to eliminate any surprises at the closing.

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Electronic documents are much more than PDFs emailed back and forth, but rather intelligent documents that further protect lenders by facilitating clear timestamps to show who did what, and when they did it. What makes these documents “intelligent” is that the source XML data that is used to generate the document can be embedded within the document. This is important as it can be used later to be re-verified for compliance or electronically boarded to other systems eliminating the need to scan them, and have Optical Character Recognition (OCR) to extract data or re-key information. Having this type of automation enables lenders to reconcile that data between initial disclosure and final closing disclosure, making sure that the Good Faith Estimate (GFE), Truth in Lending (TIL) and APR are within the tolerance thresholds. Electronically performing this process is imperative for lenders; without accurate data, the chance that the closing cost will match the initial GFE is much less, causing delays in closing, incur fees and experience many other penalties.

Many documents require signatures from multiple parties, which means they are passed through a number of hands, making it easy for a mistake to occur. Automation and electronic workflows prevent common human errors like losing pages or missing a signature, and also provide lenders more visibility – they can simply log into a system to see status updates of all activities for every transaction, bringing more accountability to their businesses. Automated documents mean an automated paper trail, which is critical to lenders to prove they followed compliance.

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A primary objective for the CFPB with the eClosing pilot is to evaluate ways to promote better consumer understanding of the mortgage process and the countless documents involved. Even for the savviest borrower – receiving a stack of paper documents with the expectation to review and comprehend its contents is a tall order. In addition to electronic processes in general, the pilot is experimenting with new methods to help borrowers gain a stronger understanding before they reach the final closing. For instance, can interactive links throughout the electronic forms offer guidance and education? Would borrowers be receptive to summaries, term definitions and process explanations within electronic documents? How about correlating videos?

Evaluating these tech-focused options is how the CFPB is aiming to protect consumers and create a smoother process for the consumer and lender alike. In addition to contributing to enhancing borrower comprehension, electronic documents make it possible for consumers to receive documents from the lender faster, and therefore, have more time to review them earlier than they otherwise could if being mailed the paperwork. This could mean that by the time the closing rolls around, consumers could have already read and even signed up to 85 percent of the documents – and better understand what they are signing, rather than feeling rushed to sign documents they do not fully comprehend at the closing table.

It is widely acknowledged that fraud is a growing problem for the entire financial services industry. The mortgage lending process is particularly at risk, as documents carry copious amounts of consumers’ sensitive financial data. An electronic closing process will help to make transactions more efficient, while simultaneously making them more secure and mitigating a number of risks, from repudiation risk to other types of fraud. Paper documents can easily be misplaced and wet signatures are much easier than electronic signatures to forge. Automated technology hinders fraudsters’ ability to tamper with documents, as well as requires levels of authentication for users that simply are not possible to enforce with paper.

As financial institutions continue to deal with lawsuits – some up to a billion dollars – from the robosigning that occurred, the need for more standardized and automated processes is underlined. Compliance requirements combined with the adoption of electronic processes – complete with time and date stamps and audit trails – will prevent unauthorized individuals from illegally executing or notarizing closing forms. Furthermore, a full, electronic process that captures proper authentication of the borrower executing the closing forms will help to document compliance with mortgage lending laws while mitigating risk during the mortgage origination process.

Although the closing is just one part of the mortgage process, the results from this pilot program will potentially demonstrate how electronic processes can benefit the entire mortgage transaction. There are hopes that the outcomes of this pilot could propel us toward fully electronic mortgage processes in the near future. The technology is there. The need is there. As is the desire from both sides – industry professionals and consumers. With the amount of time all mortgage companies have invested in updating their processes, policies and technology to accommodate the changing landscape, the establishment of a true e-mortgage, used across the board, would certainly prove a win-win for everyone.

About The Author

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Tim Anderson is Director of eServices, DocMagic. He brings over 30 years of industry experience having worked on both the lender and vendor side of the business. He has held executive management positions with LPS, Stewart, Fidelity, FreddieMac and HomeSide Lending where he ran the eCommerce Division and worked at technology companies like Dexma, Microsoft and Tuttle Information Services.
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.

A New Burden In The Digital Era

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MargoTankKate Aishton 5 x 7Financial institutions have a double burden when facing the digital era: keeping up with changing technology and keeping up with regulators’ attempts to respond to and encourage those changes. In response to consumer demands, financial institutions are developing mobile apps and mobile-responsive websites of their own. Their consumers want access to the goods and services they once got from brick-and-mortar stores (or their PCs) on their mobile devices. To provide the convenience they have come to expect, financial institutions need to utilize methods for creating the most attractive, responsive and effective mobile products possible. At the same time, regulators have focused significant attention on how banks and other entities they oversee can use Internet-based tools to impact consumers.

A/B Testing

A/B Testing is one standard protocol for developing and improving web products. It calls for presenting two versions of a product to different groups of users and measuring their reactions against a metric of success. Despite being “industry standard,” this approach is receiving increased criticism from consumers and may be risky for financial institutions.

A/B testing recently dominated conversations regarding Facebook’s treatment of its users after it presented upbeat or depressing stories to different groups of users and then collected and shared the resulting data about the users’ behavior. This move caught tremendous flack in the media, including claims that Facebook may have manipulated consumers. Facebook and its defenders noted that this sort of testing is routine at technology companies. Presenting different versions of a product to different sets of users and comparing the result is an effective, common tool for evaluating potential development strategies. Such testing allows developers to treat qualitative factors quantitatively, providing clear evidence of what seemingly personal preference will actually have the greatest usability impact.

As mobile products reach into ever more sensitive corners of consumers’ lives, this approach is gaining increased scrutiny.

The Risks

A/B testing may be a foundation of good development for the larger world of mobile, but financial institutions entering the mobile market should consider some potential liabilities:

>> TILA/RESPA: Regulators are beginning to recognize that disclosures cannot be created for mobile devices under the same restrictive font and other requirements that apply to paper disclosures. However, even those disclosures have been loosened and remain ambiguous, without concrete agency action or comment to describe what is and is not, acceptable in terms of delivery and appearance. The A/B testing context presents a particularly risky situation, as regulators may see two versions of a set of disclosures as favoring one set of consumers over another.

>> Abusive Acts and Practices: While all companies must avoid unfair and deceptive acts and practices under Federal Trade Commission (FTC) jurisdiction, financial institutions have to consider the more ambiguous authority of the Consumer Financial Protection Bureau (CFPB) over abusive acts and practices. Even if a financial institution’s privacy policy explicitly includes the right to use consumer data for product testing and research, the CFPB still may find certain uses (for instance, experiments to discover approaches that encourage users to take higher-interest loans) to be abusive if they “materially interfere” with a consumer’s ability to understand a term or condition of a product or service, or “take unreasonable advantage of a consumer’s lack of understanding” of any associated terms, costs or conditions. For financial institutions, disclosure alone may not solve concerns about testing.

>> Gramm-Leach-Bliley Act (GLBA): Using an outside app or web development vendor may streamline product creation, particularly for smaller companies, but the introduction of a third party creates GLBA complications for financial institutions. It may be unclear which party is actually doing the A/B testing or collecting the related data, increasing chances of accidentally ignoring a data-sharing opt-out request required under the Privacy Rule. Involving third parties also creates additional burdens on the information security programs required by the Safeguards Rule.

>> Future Regulation: The CFPB has zeroed in on mobile financial services, requesting information from the public, hosting a field hearing on the topic and promising to release new rules for mobile by the end of the year. CFPB Director Richard Cordray specifically noted that the agency is investigating the information banks are collecting from their consumers and whether they are “using their data to target [low-income consumers] for high-cost products.” An A/B test designed to evaluate different pitches for a new loan product could be perceived as demonstrating this behavior if presented to the wrong users. Bad press on testing gone awry would draw negative attention at a crucial moment and may lead to enforcement action or stricter rules.

>> Consumer Trust/Reputational Damage: Facebook’s recent matter demonstrates that regardless of the legal implications, getting on the wrong side of public sentiment regarding consumer manipulation is at best a distraction and waste of company time and resources. For financial institutions, organizations with which consumers trust with their most sensitive information, this is even truer. Imagine the backlash from users misinformed about their access to credit or account due dates, or who find out that data about how they handle their money was shared with researchers.

The Solution

Avoiding mobile is not an option for financial services companies that want to remain competitive, satisfy customers and ensure they are engaged with their products and services. Mobile financial services are here to stay, and providers must focus on creating the best mobile experience while reducing the risks associated with app and website development. Financial companies must think beyond the standard A/B testing box: focus groups, opt-in programs and surveys – all of which may require additional planning and incentives, but will help avoid many of the legal and reputational obstacles that quietly testing a user base raises. With thoughtful planning and a little creativity, A/B testing will produce desired results without collateral damage or undue risk of negatively impacting their customers.

About The Author

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Margo Tank is Partner with BuckleySandler LLP and also serves as counsel for the Electronic Signature and Records Association (ESRA). Ms. Tank advises financial services institutions and technology companies on structuring online and mobile financial services product offerings in compliance with the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA), and other state and federal laws governing electronic financial services transactions, electronic chattel paper, mobile payments and mobile wallets, prepaid access and virtual payment methods, and laws related to privacy and data security, money transmission, and unfair or deceptive acts and practices.
Kate Aishton, formerly an associate attorney in the Washington DC office of BuckleySandler, focused on mobile payments, e-commerce, privacy and other regulatory and transactional matters. Kate earned her J.D. from Georgetown University and an M.A. in Communication Management from the University of Southern California.

Clarifying Mortgage Letter 2014-03

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KenMoyleMembers of The Electronic Signature and Records Association (ESRA) were very pleased when the Department of Housing and Urban Development (HUD) announced its support of broader adoption and acceptance of electronic signatures and records in January 2014. When the Mortgagee Letter 2014-03 shared HUD’s’ updated policies with the mortgage industry, it represented a big step forward for an industry eager to take 100 percent of its business digital with full assurance of legal force.

Since the Federal Housing Administration’s (FHA) policy change in 2010 to extend the acceptance of e-signatures on third-party loan documents that weren’t created by lenders (purchase and sale agreements), ESRA was encouraged by the intent behind the words of FHA commissioner Carol Galante earlier this year, who stated, “This extension will not only make it easier for lenders to work with FHA, it also allows for greater efficiency in the home-buying and loss-mitigation process.” With the support from the federal department with a strong influence in mortgage lending, we expect every lender to start commonly integrating electronic signature into their processes to accelerate transactions, reduce complexity and eliminate regulatory compliance risks.

While creating new opportunities for efficiency, Mortgage Letter 2014-03 had the unintended side effect of creating new questions about the role of electronic signatures in the mortgage process. There are five areas ESRA hopes will be addressed as a future statement from HUD as well as encourage everyone in the mortgage industry to move with confidence to a paperless future.

Attesting to Accuracy

The Mortgage Letter 2014-03 states that a lender must be able to prove that the signer “certified that the document is true, accurate, and correct at the time signed.” This creates an inconsistency between the responsibilities of people who are electronically or hand-signing mortgage documents. Within a mortgage package, there are many types of documents that require signature for various reasons, such as acknowledgment, agreement, receipt, etc. Certification of the contents is more often not the reason signatures are obtained, and even if it were, we would hope that this additional burden would not be borne on borrowers based solely on the method they used to execute their signature.

Intent to Sign

Wording in Mortgage Letter 2014-03 can be read as requiring every instance of an electronic signature to be accompanied by a notation that states the purpose for signing. Electronic signatures are currently only valid under the ESIGN Act if they are “executed or adopted by a person with the intent to sign the record.” Any lender is aware that many documents are signed electronically by multiple parties in a transaction, and that their purpose for signing varies widely by both the document and the role the party plays in the transaction. Even on a single document, signers may add their signatures for completely different purposes. Surely adding a notation of intent next to every last e-signature could not have been FHA’s motive here.

Authentication and Attribution

Two sections of Mortgage Letter 2014-03 reflect conflicting indications of whether the lists in each section are meant to show examples of, or limits to, measures that can be taken by mortgagees to comply with these sections. For example, knowledge-based authentication is listed as a method of attribution, but can also be used as a method of authentication. It is unclear whether one instance of this method can be used to meet both criteria. In addition, the Letter does not mention whether these lists are meant to be illustrative examples or the complete set of attribution methods for annotating facts and circumstances surrounding the transaction.

Integrity of Records

The concept of Authoritative Copy under ESIGN, UETA and the Uniform Commercial Code (UCC) is unique to specific documents, such as electronic chattel paper and electronic equivalents to negotiable promissory notes. The term “Authoritative Copy” has no legal definition or significance outside of that context. The term is used with “electronic originals” solely because they require special treatment to establish ownership by transfer or assignment—including extensive watermarking of all viewable or printable copies.

The use of an “Authoritative Copy” in the ordinary course of signing other documents is contrary to the provisions of ESIGN and UETA (which provide that except where an “Authoritative Copy” is required, any accurate copy of an electronic record is an “original” for all legal purposes) – the requirement is also unnecessary, unusual and burdensome.

Given that the Letter specifically excludes promissory notes for the moment, it would be helpful to gain clarification on the origin or purpose of the reference to “Authoritative Copy.” Do mortgagee systems need to “be designed so that the signed document is designated as the Authoritative Copy” or does the requirement refer solely to electronic promissory notes or other records subject to an “authoritative copy” requirement under the law?

Records Retention and Inspections Requirements

ESRA members agree that audit log, controls and documentation should be readily available for inspection for the same periods as records signed in ink. It is critical that systems have the ability to “reproduce electronic records as accurately as if they were paper records when printed or viewed.”

Many readers of Mortgage Letter 2014-03 were surprised to find that these requirements were extended to include inspection of computer systems (including hardware and software) and preserving the hardware and software with which contracts are executed. Under current guidelines, systems may not be required to produce reliable records that would otherwise meet record retention and inspection requirements, and given the pace of technological change and the record retention periods already imposed by other regulations, preserving the physical software and hardware used to create the original record will be quite burdensome. We think ultimately this new requirement will only apply if there is no other way of producing reliable and accurate electronic records.

This also intervenes with how electronic signatures are executed—which is from cloud providers whose businesses are based around keeping system hardware and software maintenance out of the purview of their users. Most modern, current security practices and predicate rules at governing lending institutions do not readily accommodate physical inspection of lender hardware and software. If this provision is taken literally, no mortgagee could comply without violating its own security policies, which typically limit physical access to their servers housing sensitive customer data and debt obligations. Based on these factors, we don’t believe it was the intent of the Department to require lenders to allow physical inspections of lender hardware and software, and expect this will be changed in a future Letter.

Overall, ESRA members are thrilled with FHA and HUD’s new active support of electronic signature technology and standards. We think lenders will have a heightened interest in adoption as well; electronic documents not only streamline and ease mortgage processes, but provide significantly limit regulatory compliance risk. We are hopeful that the questions posed here are addressed quickly and represent just small a bump in the road on the way to full industry adoption of electronic signature technology.

About The Author

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Ken Moyle is a 2014 board member and chairman of the public policy committee for the Electronic Signature and Records Association (ESRA). He is also chief legal officer and vice president of legal and corporate affairs and corporate secretary for DocuSign, a cloud-based e-signature technology provider. With more than 20 years of industry experience, Moyle is responsible for ensuring DocuSign and its products remain ahead of government and regulatory trends.

It’s About Time

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JohnLevyA 1975 BusinessWeek article predicted a forthcoming paperless office, forecasting that in the year or two following, paper would become obsolete in business environments. It is clear that the thoughts behind this article were wise, perhaps a bit ahead of their time. But in reality, the amount of paper office workers created and utilized actually increased significantly after 1975, more than doubling year over year until 1999.

Based on the advent of new technology and greater environmental awareness, paper usage peaked in 1999 at 143 percent per U.S. worker and then began declining in 2006 to 127 percent, per U.S. worker, which reflects the downward trend of a traditional bell curve. The amount of paper businesses use continues to trend downward, and it appears we are finally seizing the opportunity to create the paperless office once described in that original insightful article.

The technology that was actually needed for a paperless office was nowhere in sight 40 years ago; however, we now have access to the technology to support that vision. Although many mortgage companies have yet to fully embrace paperless operations, most have adopted electronic processes in some capacity. Recent advances by the IRS, FHA and other industry organizations suggest that the reality of the eMortgage is right at hand. Therefore, it is important for industry leaders to understand the primary factors that have come together over the past 10 years to create a perfect technology storm, allowing the paperless office to finally come to fruition:

Hardware – If you follow Moore’s Law, which was established in the 1970s, it states that processing power for computers will double every 18 months. Based upon this hypothesis, we should now have more than 33 million times more computing power in 2014 than was available in 1975. This dramatic rise, as well as huge increases in processing horsepower and memory are among other factors which give us the computing foundation for the paperless vision of long ago.

Software – The software of today’s era is capable of performing functions that simply could not have been imagined a few decades ago. Current software capabilities that have paved the way for paperless offices include the development of a multitude of industry standard file formats including PDF, electronic business documents, eSignature and workflow technology. For mortgage processes that involve countless documents, a number of signing parties and many operational steps, these software technologies have been revolutionary in helping to complete previously paper-based transactions much faster and with far less personnel or resource requirements. The evolution of software now enables a paperless process to remain electronic from onset through final transaction completion.

Additionally, the cloud processing environment with which we have all become accustomed to, regardless of industry, represents a major advancement that could not have even been imagined in 1975.

The cloud now provides us with a multi-tenant processing environment, hosting the software applications that can automate transactions and processes in an even more secure environment than paper-based transactions.

Bandwidth & Infrastructure – Internet speeds continually improve, as does the way in which network infrastructures within business offices interconnect. High-speed bandwidth has significantly impacted consumers’ lives, giving them Internet access from their homes (and everywhere they go with smartphones and tablets) to read, shop and bank. Today, consumers can shop for rates, view documents and even initiate the mortgage process online, from any location. Increased bandwidth now allows financial institutions to securely collaborate, share and exchange information instantly and totally electronic. The secure infrastructure that is now in place provides audit trails for attribution, secure PDFs, encryption methodology for document integrity and is critical for mortgage companies to handle consumers’ non-public, personal information using paper-free methods.

Regulations & Legislation – The ESIGN Act, signed into law in 2000, and the Uniform Electronic Transactions Act (UETA), passed one year prior, set the stage for the paperless office to become reality in the commercial business space. These laws provided the basis for existing paper-centric processes to become electronically accepted. Both acts state that if a law requires a record or a signature to be in writing, an electronic record and/or signature satisfies the law, and a record or signature may not be denied legal affect or enforceability solely because it is in electronic form.

While ESIGN and UETA are not considered new regulations anymore, their impact and effectiveness are still being felt. Varying interpretations continue to evolve, especially with the formation of the Consumer Financial Protection Bureau (CFPB) and its assessment of how electronic records and signatures may be utilized to allow consumers simplicity, convenience and ease-of-use while adding new levels of compliance requirements. These acts have also become critical to driving other industries, including government agencies, toward paperless practices. For instance, they set the stage for the Internal Revenue Service’s (IRS) acceptance of electronic signatures on forms 4506-T in 2013, and later forms 8878 and 8897.

Of significance to the mortgage industry this year was the Federal Housing Administration’s (FHA) policy change allowing e-signatures on the vast majority of mortgage documents. Announced January 2014, this policy change signifies a milestone and will likely propel the mortgage industry further toward completely paperless processes. In some cases, eMortgages – or fully electronic mortgage transactions – have even been realized, and will likely be much more common after December of this year with additional regulatory changes.

Security – Over the years, many have questioned whether the paperless office can be a secure one. In addition to software becoming more secure in recent years, overall, we now have the means to truly protect the integrity of signed electronic records. There are encrypted documents and tamper evident seals on electronic records, complete audit trails, in addition to various levels of authentication safeguards on both desktops and mobile devices. Without the ability to securely execute documents – regardless of the transaction type – they would simply not be practical for consumers or the financial institution. Who would sign or review an important loan disclosure document that could not be protected? What lender would collateralize or accept a sale, such as a mortgage or even a portfolio of mortgages, which could one day be considered invalid?

ESIGN also dictates requirements for using an authoritative copy documents, which bring additional value to financial institutions that want to securitize or collateralize their electronically completed loans. eVaulting creates a secure original record of the chain of custody for transfer of electronic documents to a secondary market buyer or investor. This has become crucial requirement in the financial industry, enabling institutions to establish ownership and/or control of these transferable e-signed documents.

We have certainly come a long way since 1975. The ideas presented in that original BusinessWeek article are finally beginning to ring true, and it is all benefiting the mortgage industry. It is providing consumers with ease-of-use and convenience throughout a mortgage transaction while allowing institutions to deliver mortgage services in a less resource-intensive manner. It really doesn’t matter what industry you’re in – being fully electronic is easier, less expensive, more expedient, and processes are more secure when they are paper-free. They really had the right vision back in 1975; now 39 years later we can finally seize the opportunity to increase productivity, reduce operating costs, allow for consumer channel choice by adopting the paperless office.

About The Author

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John A. Levy is a 2014 board member for the Electronic Signature and Records Association (ESRA), where he serves as head of the membership committee and is also active on the organization’s communications committee. Levy is executive vice president of IMM, a provider of innovative eSignature, workflow and document solutions for financial institutions. His core responsibilities at IMM encompass overseeing the day-to-day operations of the sales, support, development, quality assurance and design teams.

A Meeting Of The E-Signing Minds

In November of this year, ESRA’s annual conference, eSignRecords2014, will unite technology providers, businesses and legal professionals to discuss the latest technology, regulatory considerations and business applications for e-signatures and records. Attendees across several industries will gain a stronger understanding of how to legally and cost effectively incorporate e-signature technology into their business models to streamline operations while better serving their customers. Here’s what to expect:

Conference sessions highlights will include:

>> Social Media Influences and Digital Consumer Trends;

>> Digital Trust and Cyber-Security;

>> Effective Practices for Electronic Delivery & Display;

>> Transferability, Enforceability and Admissibility for E-Signed Records;

>> Identity Authentication, Compliance & Fraud Loss Mitigation;

>> Consumer Psychology, and the Final Path to Mass Adoption of e-Signatures;

>> Industry spotlight sessions specifically geared toward e-signature use in the banking, automotive, mortgage, insurance, online lending and accounting/tax preparation industries;

>> A case study demonstrating how a bank that serves more than 18 million clients improved productivity with mobile e-signatures; and

>> Overview from the Consumer Financial Protection Bureau (CFPB) on the agency’s mortgage eClosing pilot and how it will impact lenders and consumers.

The event will take place November 12-13, 2014 at Convene – Financial District, 32 Old Slip, New York, NY 10005. To register for this event or review the conference brochure and agenda, visit www.ESRAconference.com.

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