When I began my eMortgage presentation at the Mortgage Bankers Association technology convention last month in Hollywood, Fla., I told the audience that many of us who have been working in the eMortgage world have been predicting since 2001 that we expected mainstream adoption in three to five years. The kicker is that it still may be true after 10 years – mainstream adoption still seems to be several years away.
How can this be, when the federal government passed the Electronic Signatures in Global and National Commerce Act, better known as ESIGN, on June 30, 2000? (Last year, in recognition of the 10 year anniversary of ESIGN, and in response to an industry letter facilitated by my friends at the Electronic Signatures and Records Association, Congress passed a resolution recognizing June 30 as "National ESIGN Day.")
ESIGN provided a national legal infrastructure for eSignatures, by stating that a contract or signature "may not be denied legal effect, validity, or enforceability solely because it is in electronic form." It was enacted with great fanfare by the Clinton administration, with Al Gore standing in front of a forklift of paper government documents that would ostensibly be eliminated, or at least greatly reduced, by the government’s push to e-documents.
Yet here we are, 11 years later, still swimming in a sea of paper. The U.S. Government Printing Office is still hard at work printing forests worth of documents each year.
Where is the mortgage industry in all this? Why don’t we have mainstream adoption today, over six years after the Mortgage Electronic Registration Systems eRegistry went into operation, and Fannie Mae proclaimed they were "open for business" in accepting eNotes?
We’re not there yet. Fannie Mae is still the only investor that has a public-facing presence saying they are open for business for anyone who wants to deliver eNotes and who can meet their qualification requirements. Freddie Mac and the private investors are still doing one-off, individual relationship deals in various phases of testing and experimentation.
Other government agencies, like the Federal Housing Administration, Ginnie Mae, and the Internal Revenue Service, have looked at eSignature technology for years and received many educational briefings and presentations from the MBA and industry participants, but have yet to enact the broad policies to support electronic documents and contracts that were envisioned by ESIGN more than a decade ago.
We have a fractured landscape now. Lenders are ready, willing and able to enact eMortgages as part of their business model, but they need more options for delivery.
They need to be able to originate an eMortgage without having to worry that it can only be delivered to Fannie Mae, else it will have to be converted to a paper mortgage before closing. They need to be able to send an e-signed electronic 4506-T form to the IRS to request a borrower’s tax return records.
Government agencies need to get on board and support the federal government policies and laws supporting eSignatures from 11 years ago.
I participated in educational presentations to FHA and the Department of Housing and Urban Development attorneys a few years ago, and their first question was "How can you prove that the eSignature on the document was from the person who was supposedly signing the document?"
The answer is, the same way you prove that the ink signature on paper was from the person who was supposed to sign the document. It’s important to maintain a fair perspective, and not hold eMortgages to a higher standard of authenticity just because they use advanced technology.
There will always be processes and procedures in place to help avoid mortgage fraud – notaries to witness the signing event, for example. Whether paper and ink or electronic signing, the notary is there to check the identity of the signer and to verify that they are not signing under duress.
eMortgages can actually reduce mortgage fraud, more so than in the paper world. An eNote is instantly registered on the MERS eRegistry at the moment of signing, eliminating the possibility of multiple, duplicate paper notes on the same property being fraudulently signed and only discovered later.
Some eMortgage technology platforms include optional identity verification technology – "out of wallet" challenge questions that can verify the borrower’s identity more completely than a simple driver’s license check.
FHA released a mortgagee letter in April 2010 stating their acceptance of e-signed third-party documents – "those that are originated and signed outside of the mortgagee’s control, such as a sales contract."
This was a good step forward, and led to industry expectation that it would be followed by a statement of broader acceptance of e-signed documents for the entire case binder.
With its market share still substantially larger than it was six years ago, FHA has an opportunity to provide real leadership and spur the growth of eMortgages by accepting e-signatures for the entire case binder.