E-Mortgage Expert Clarifies ‘Inaccuracies’ in Fitch Report

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A recent report from Fitch Ratings suggesting that industry-wide adoption of e-mortgage technology has been slow to catch-on contains numerous “inaccuracies,” according to an expert in the space.

Tim Anderson, senior vice president of business development for Pavaso, who has been involved with the evolution of e-mortgages since Fannie Mae introduced its SMARTDoc e-note back in 2002, says after reading an article about the report on MortgageOrb, there is a need to “address some of the inaccurate information that Fitch described as obstacles to adoption.”

The report states that while government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac “have developed a full framework for accepting this technology … full e-mortgages have remained elusive in the non-agency space.”

“Despite the industry’s enthusiasm for automation, widespread e-mortgage adoption remains several years away, slowed by several obstacles,” the report states. “Originators and servicers will need to address concerns regarding enforceability, required technology, system security and showing borrower consent.”

With regard to the issue of borrower consent, Anderson says, “This has been thoroughly vetted, addressed and documented thru the combined efforts of ALTA, MERS and MBA primarily via MISMO.”

“Borrower consent has been around ever since the enactment of UETA in 1999 at the state level and ESIGN in 2000 at the federal level,” Anderson says. “There is no push back from consumers as they currently are conducting most of their business online today and waiting for the mortgage industry to catch up to them.”

With regard to the issue of state and county adoption of e-mortgage technology – including e-notarization – Anderson says its not as bad as the report makes it sound, as all states have the needed laws already in place.

“All states support a version of UETA or ESIGN or both which makes electronically e-signing of electronic documents as legal as wet signing paper, so there is some debate whether the states actually need additional separate laws to cover e-notary,” he says. “There is also a difference between personal presence (IPEN) e-notary – which is pretty much accepted as normal practice in most states – and remote online notary, which 22 states have adopted (and currently another dozen or so are considering).

Anderson says it is yet to be seen whether “all 50 states adopt separate laws regarding e-notary and remote notary but adoption will happen.”

Anderson further points out that the counties that have adopted e-mortgage infrastructure so far are among the most populous.

“Currently 2,042 counties accept e-recording representing over 87 percent of the total U.S. population,” he says.

With regard to enforcement of an e-mortgage in foreclosure proceedings, Anderson points to precedent cases where it was established “that just because the transaction was done electronically with an e-note … it was treated the same as a paper note in foreclosure and bankruptcy proceedings.”

“No difference whatsoever with the exception that with MERS and e-vaults you actually could find and verify the original legal, authoritative copy – versus the numerous court cases of paper notes being lost and filing of thousands of lost note affidavits, which did prolong the proceedings in the paper world,” he says.

As for the cost of e-mortgage technology being a primary deterrent, Anderson says, “There are limited number of vendors that charge an excessive initial set-up and minimum monthly and annual software licensing fee, but that really is the exception.”

“If lenders do their homework they will find others that charge a nominal flat per transaction fee on a closed loan basis making it cheaper than the costly, time consuming and inefficient paper process,” he adds.

With regard to security of e-notes, the Fitch report asserts that they “could theoretically be changed without the borrower or a court ever knowing or having proof of the original document’s contents.”

“This is just completely false and misleading,” Anderson says. “In the paper world you virtually have no way to know if a document has been altered after the fact. This is where much of the fraud is involved. In the electronic world all documents are wrapped with a tamper evident seal so if someone were to attempt to alter it, there would be evidence that the seal was broken.

“If this was not enough, there is also a complete electronic audit trail that is created on all parties that touch, see and e-sign, as well as those with authority rights to change the document,” he adds. “This date and time stamp audit trail travels with the document to provide additional electronic evidence of compliance.”

Anderson adds that these are protections that do not exist “in the paper world.”

“Right now, we still need more investors to get on board with buying e-notes,” Anderson says. “But with the recent announcement by Quicken Loans, the largest retail originator in the country, and Wells Fargo, one of the largest purchasers of mortgages, and finally with Ginnie Mae moving forward with supporting e-notes, the rest are soon to follow.”

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