Paperless Mortgages Could Cut Lender Rep/Warrant Liabilities
With regulatory reform, the secondary mortgage market as well as the primary one will have heightened liability when it comes to loans, DocMagic’s Tim Anderson warns, which is why he believes players there might want to start paying a lot more attention to paperless origination efforts.
Sure, with underwriting still depicted as historically tight and signs of home price appreciation rife—at least for the time being—post-downturn mortgages look like a relatively sound bet from a performance standpoint these days.
But with regulators, as well as potential representations and warranties, putting lenders and ultimately investors on the hook for the conditions under which loans were originated down to pretty minute details, it would be good to have an easily accessible archive of origination data and forms.
This is compelling in some ways but a sticking point in others when it comes to adoption of electronic documents and signatures, according to Anderson, director, e-services, at DocMagic.
An electronic archive of loan information and documents that worked well would probably be a lot more accessible and searchable if a compliance or secondary market inquiry came up, but then again, some people like the tangibility of paper and do not like change.
Anderson feels the potential liability and regulation will make it happen in the long run and this is probably a good time for the secondary market, which certainly has been working on some of its own electronic initiatives when it comes to loan and securities data in progress as well, to examine where this is at on the lender level.
As you may remember from past reports in this publication, the Internal Revenue Service took a key step of allowing e-signed consumer authorizations of the 4506-T form that allows lenders to pull documents to check their tax records, a key move because it completed the set of initial origination disclosures that could be e-signed.
Lenders slowly but surely, Anderson feels, are also eventually going to finish with the follow-up on their end, where they can get certified to complete the business-to-business side of the 4506-T move electronically.
He expects pending regulation to eventually push the process further to the point where it will force electronic signatures to be used and the paperless process extended even to closing documents, a step long considered elusive.
Overall, Anderson considers there to be some significant progress when it comes to surmounting hurdles to such paperless processes, although there is still a ways to go. In addition to the Internal Revenue Service’s accommodation of e-signatures on the 4506-T, county recorders in larger areas, for example, have largely come on board, he noted.
One of the key remaining challenges is the Federal Housing Administration’s need for modernization that accommodates such moves.
This remains elusive, in part, because of personnel changes over time that interrupted efforts there.
Clearly the Federal Housing Administration faces financing constraints.
But with technology potentially a key means of achieving both risk management and efficiency, there is reason to think paperless processes may eventually make their way there.
The may be particularly true if the secondary mortgage market demands it. And right now Federal Housing Administration loans still represent a substantial part of that market.