The Federal Housing Administration (FHA) is making the transition to e-documents that will pave the way for the ‘e-mortgage’ to finally become a reality.
As a big step toward that goal, the agency recently notified lenders that it is now accepting electronic signatures (e-signatures) on documents associated with mortgage loans. The new policy allows e-signatures on origination, servicing and loss mitigation documents, as well as FHA insurance claims, real estate-owned sales contracts and related addenda.
Current FHA policy allows for electronic signatures only on third-party documents such as sales contracts and other documents not controlled by the lender.
‘By extending our acceptance of electronic signatures on the majority of single-family documents, we are bringing our requirements into alignment with common industry practices,’ says Carol Galante, commissioner of the FHA, in a release. ‘This extension will not only make it easier for lenders to work with FHA, it also allows for greater efficiency in the home-buying and loss mitigation process.’
Lenders choosing to employ e-signatures may begin using them immediately for single-family forward mortgages and FHA's reverse mortgage products. Lenders are required to adhere to the Electronic Signatures in Global and National Commerce Act (ESIGN), have specific technology and operational capabilities and controls, documented quality control processes, and the ability to adapt e-signatures to FHA's existing record retention processes.
The FHA's acceptance of e-signatures is a major step toward its adoption of e-mortgage technology, which largely automates the mortgage process through the use of e-documents, saving lenders, servicers, insurers, investors and government agencies time and money in managing the mortgage process.
The FHA says its adoption of e-signatures will help streamline the origination process and help reduce document submission time frames for borrowers seeking options to avoid foreclosure.
The agency notes that, initially, e-signatures will not be accepted on the mortgage note itself. FHA plans to begin accepting e-signatures on forward mortgage notes at the end of the year.
‘With the FHA finally releasing their acceptance of eSign, this effectively removes the last 'perceived' barrier to adopting a full e-mortgage process,’ says Tim Anderson, director of e-services for DocMagic and a member of the Mortgage Industry Standards Maintenance Organization's (MISMO) Residential Governance Committee. ‘There virtually are no more excuses not to implement eClosing to provide a better borrower experience, as well as retaining 'electronic evidence' to record the event in case you have to prove compliance in the future.’
‘DocMagic has supported eSign of the initial disclosure documents for some time, and now that the FHA has accepted eSign on closing documents, the enhanced ability to electronically reconcile the initial GFE/TIL/APR against the final will provide greater efficiency, accuracy and compliance of the disclosure process overall,’ Anderson adds.
