In extolling the existing automated features of underwriting software, as well as the efficiency gains, cost savings and existing technology available to support e-signatures, Stephen O’Connor, the MBA’s senior vice president of public policy and industry relations, wrote that e-signatures provide a convenient and effective method for reducing identity-related mortgage fraud.
“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 to Robert Ryan, HUD’s acting assistant secretary for housing and FHA commissioner, 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.”
“Many commercial businesses have long adopted these security standards so consumer awareness and education would be minimal,” the letter adds.
With the publication of an April 2010 mortgagee letter, FHA began accepting e-signatures on third party documents that are originated and signed outside of the mortgagee’s control, such as a sales contract, which are included in the case binder for mortgage insurance endorsement. But lenders are still required to include hard paper copies of the document in the case binder.
But e-signatures on applications, initial borrower disclosures, underwriting and closing docs are not allowed. Fannie Mae is the largest purchaser of all-electronic e-mortgages and Freddie Mac—where Ryan spent nearly 30 years of his career—also purchases e-notes. O’Connor said an FHA e-mortgage policy would bring the agency in lockstep with the government-sponsored enterprises. Currently the GSEs and FHA are the largest purchasers of mortgages in the secondary market and control virtually all of the industry volume.
Ryan is FHA’s former chief risk officer, assuming the role of acting FHA commissioner after its former head, David Stevens, left to become president of the MBA.
“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,” he wrote.
It’s unclear what capabilities FHA has to accept e-signed documents and what importance it has placed on developing an e-mortgage strategy. O’Connor’s letter requests a meeting between the FHA and MBA to discuss the proposed policy change.