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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2015

Are We Finally Ready for E-Signatures?

After 15 years, electronic filing has yet to emerge from the mortgage processing jungle

Are We Finally Ready for E-Signatures?

It was the promised ideal for electronic mortgages: a completely paperless electronic process from application and disclosures through underwriting, closing and delivery to the investor. Today, however, 15 years after President Clinton signed the Electronic Signatures in Global and National Commerce Act (E-SIGN), e-signatures are still a small part of the industry’s volume.

Although many lenders have undertaken paperless initiatives and have successfully digitized portions of the loan lifecycle, the reality is that the mortgage industry has not fully realized the paperless benefits that e-signatures promise. The lengthy loan lifecycle, resistance to change and a lack of knowledge about e-signatures have kept paper in the mortgage industry despite a recent surge in green initiatives across the country. But now may be the perfect time for e-signatures to lead the way out of the paper-filled processing jungle.

The numerous stages of the loan lifecycle present barriers at every step to a completely paperless e-mortgage. First comes filling out and submitting application forms, delivering and accepting upfront disclosures, and collecting and reviewing trailing documents (appraisals, title reports, inspection reports, etc.). Then comes producing and presenting closing documents to be signed by the borrower, performing post-close reviews and quality control measures, and finally packaging and delivering loans to investors. Through all of these steps, this long and laborious process is flooded with paperwork and governed by signatures, all of which must be tracked.

Proprietary software that locks you into
one particular vendor is a thing of the past.

In addition, most of these stages involve collaborating with third-party service providers whose level of adoption of electronic processes varies considerably. The easiest entry point into the pursuit of a complete e-mortgage, then, is for brokers and third-party providers to begin with e-signatures.

Advantages

Eliminating the manual signature process and replacing it with an e-signature solution can improve operational efficiency and transform the customer experience. Furthermore, e-signatures are now more widely accepted by the Federal Housing Administration (FHA). In January 2014, the FHA announced its approval to accept e-signatures on servicing and loss-mitigation documents, as well as IRS Form 4506-T, FHA insurance claims, real estate owned sales contracts and related addenda.

If easier FHA approvals aren’t enough, however, here are seven more reasons why e-signature technology is superior to paper-based signatures:

  1. E-signatures are more trustworthy. Wet-ink signatures can be copied and reused easily. Signed paper documents can also be altered without detection and without invalidating the signature. E-signature solutions can detect whether a document has been changed post-signing and let you review the audit trail to see who has signed the document. Users can even view the document itself at various points of the signing process.
  2. E-signatures accelerate key business processes. Paper-based processes require an organization to manipulate and route documents at every stage — often including scanning a previous e-form back into the system after signing — which takes time E-signatures remove the need for manual interaction, accelerating the process.
  3. E-signature solutions increase productivity. Paper-based signature processes are cumbersome and error-prone. Vital documents can get lost, data can be entered incorrectly when re-keyed and faxes may sit for hours awaiting delivery, all of which increases processing time. E-signature technology streamlines the process by managing and monitoring the approval workflow, letting companies reduce the time spent per transaction so that they can close more loans faster.
  4. E-signatures eliminate paper-related costs. Replacing manual signature processes with an e-signature solution reduces expenses related to paper stock and storage, couriers, mailing, shipping and more.
  5. E-signatures accommodate mobile customers. Today’s customers expect the ability to carry out transactions whenever and wherever they are, regardless of where the process actually takes place. E-signatures allow people to complete the signing process in the broker’s office, online or while mobile.
  6. E-signatures improve the customer experience. An e-signature solution that supports all signature types, including click-to-sign, handwritten, and photograph, delivers a consistent customer experience, regardless of business channel.
  7. E-signatures give you a competitive advantage. E-signature technology increases integration among channels, improves productivity at every step in the process and transforms the customer experience, all while reducing operational costs.

Don’t e-sign the envelope

Add-on e-signature software used at the end of the loan origination process is widely available, but it can lead to a common trap: e-signing the envelope instead of the document inside. Asking if someone only signed the envelope may sound odd, but many on-demand electronic-signature software solutions do just that.

At a Glance

ISO 3200-1 Specifications

The standard specifications for PDFs include the ability to do the following:

  • Preserve document integrity independent of device, platform or software
  • Merge content from diverse sources while maintaining the integrity of source materials
  • Edit documents collaboratively from multiple locations and platforms
  • Certify the authenticity of digital signatures
  • Provide security and permissions that allow creators to retain control and associated rights
  • Maintain accessibility for readers with disabilities
  • Extract and reuse content in other file formats and applications
  • Gather data through forms that can be integrated with business systems

Source: Adobe

 

When you click-to-sign or even draw your signature on a PDF form, you simply demonstrate that you agree to the terms and conditions. You are not digitally signing the document. Even when you click “confirm,” the document may not be digitally signed until other parties have placed their e-signatures. Only after the last person completes the transaction will the software digitally seal the envelope to secure it.

The steps taken during the process create an audit trail that is integral to the digitally signed envelope and to meeting compliance guidelines. For example, the audit trail will itemize key actions such as when the file was created, when the signer received it, when it was signed and the IP address of the computer used when signing. The process and audit trail provide proof that a legally binding transaction took place, but major questions and issues can still arise.

First, can you verify and detect that the document wasn’t altered at various steps in the workflow? If the document and transaction history are digitally signed only after the process is completed, you cannot verify or detect changes that occurred during the transaction, such as text getting added to the document.

Second, can signers, who are not usually the owners of the process, independently verify the PDF at any point, or can they only view the document history? When validating e-signed PDFs, you are actually verifying each digital signature instead of just checking the digital signature applied to the envelope at the end of the process. This allows you to detect changes made in the document between e-signatures.

The audit trail will show when and where modifications occurred. Putting a seal on an envelope to secure its contents is a useful and important final step, but it’s only the equivalent of digitally applying a wax seal to the envelope, not signing the contents.

Demand standard-based support

Proprietary software that locks you into one particular vendor is a thing of the past. You should demand support for the ISO 32000-1 standards, adopted by the International Organization for Standardization in 2008, which specify a digital format for e-signatures, thus ensuring that your e-signed documents can be validated without locking you into a proprietary solution.

Validating the integrity of documents is critical. Optimally, your e-signing solution should make it obvious when documents have been tampered with. If you are using e-signatures but cannot guarantee the integrity of the document, you are missing one of the key advantages of using e-signing instead of wet-ink signing. Although most e-sign solutions guarantee the integrity of their signed documents, many don’t guarantee it in a standards-based manner.

The ISO 32000-1 standard solves e-sign validation issues. This format allows users to exchange and view electronic documents easily and reliably. The ISO standard also identifies the ways that a digital signature may be incorporated into a PDF document to validate the integrity of the document’s content. As a result, any document e-signed using handwritten, biometric or click-to-sign signatures can be validated with any standard-compliant PDF reader, giving lenders and customers the ability to validate their individual copies of the e-signed document.

•  •  •

Whether you’re embarking on an e-signature project or looking to upgrade to a more comprehensive solution, you have a long list of options. Some systems can automate document capture from any third-party source or device. Others can help you optimize business processes with robust data-integration software that requires no coding, or can provide analytics that deliver near real-time insight into each stage of a loan lifecycle.

Whatever you choose, make sure that you understand the standards and avoid solutions that only sign the envelope. E-signatures are a critical step in modernizing the entire mortgage origination process. Fifteen years after the E-SIGN Act was signed, the mortgage industry finally has the resources to make 100 percent e-mortgages a reality. We just need to take that critical first step. 


 


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