WE’RE HEARING that the mortgage industry has some catching up to do when it comes to implementing electronic signatures.
Real estate agents were among the first to take advantage of the time savings and efficiencies provided by e-signatures. But once a homebuyer gets passed on to the mortgage finance side of the transaction, they’d better have a pen in their shirt pocket. That may be starting to change, according to e-signature pioneer Tom Gonser, founder and chief strategy officer at DocuSign.
He said the mortgage industry today is “a perfect market” for an enforceable, contractual agreement backed by electronic or digital signatures.
So why did real estate agents beat loan originators to the punch with e-signature capabilities? Part of it has to do with the demand for speed among real estate agents.
“Overnight is way too slow in a real estate transaction,” Gonser said.
Gonser worked in the mortgage point-of-sale technology space in a previous position. He said the mortgage industry seemed ready to embrace e-signature technology in the late 1990s and early 2000s.
“Back then, both Fannie Mae and Freddie Mac were pretty active in promoting an electronic mortgage process,” he said. “When the mortgage meltdown happened, a lot of momentum that had been built up kind of slowed.”
The shift from a loan origination environment dominated by point-of-sale mortgage brokers to one dominated by retail lenders may have also played a role in slowing down e-commerce initiatives.
Where e-signatures are being used by many mortgage lenders, it’s on the very front end of the transaction, to sign forms like the HUD 1003. E-signature adoption slows as you get further along the origination process, where more players using different technology are involved in completing the loan file. As many as 40 different people touch the loan file, Gonser said, and all of them are at different levels of technology adoption.
“Due to the complexity of the back end of the mortgage process, it’s not a challenge that has been solved on any kind of scale.”
Another challenge is the requirement for notarization of some signatures. Gonser said North Carolina is one state working on a
Gonser believes combining a compliant e-signature platform with process management capabilities will enhance compliance in the mortgage industry. The use of an e-signature platform can dramatically reduce or even eliminate “NIGO” rates, meaning those loan files that are deemed to be “not in good order.”
“Really, every business has a paper problem somewhere.”
However, he acknowledged that compliance remains a concern, especially in heavily regulated businesses like the mortgage space. He said some of this fear is well founded.
“The average business and the average consumer for that matter doesn’t know what an enforceable electronic signature is.”
To be enforceable and compliant, simply transferring a JPEG of a signature onto an electronic record is not enough, since those “signed” documents could be changed or altered after the signature is affixed. Also, the “signature” could easily be transferred onto other documents. To be secure and enforceable, the e-signature must be affixed in such a way that the document cannot be modified thereafter. The cloud-based, encrypted lock down used by DocuSign ensures that an electronic or digital signature is linked to the signer’s identity, he said. People are invited in to the “cloud room” to sign documents, so the document is not moving around to other parties where it could be changed or the signature stolen.
He believes many low-cost or free e-signature services fail to meet enforceability standards that would stand up in court.
“It’s a time bomb waiting to go off,” he said.
Across all of its business segments, DocuSign has 35 million users, and the company was recently
In the report, authored by Forrester analyst Craig Le Clair predicts that ten years from today, “the dominant form of signature will be digital.” Forrester also says that adoption will be driven by consumer technology demand and the growing use of tablets.
The Forrester study included an analysis of regional loan originators in the Midwest. The report noted that one company had been using digital signatures for three years without facing any court challenges to them. That lender also claimed to have reduced its loan origination turnaround from 40 days to eight days as a result of the e-signature initiative. (Forrester did not name the lender).
Forrester also predicts that the process of verifying an e-signers identity will become less cumbersome as the technology evolves.
“Today, the e-signing ceremony’ often involves loading or manipulating a document, entering PINs, or dealing with more advanced techniques for authentication. Over time, the ceremony will get easier.”
Ted Cornwell has covered the mortgage markets since 1990. He is a former editor of both Mortgage Servicing News and Mortgage Technology.
