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FHA Embracing E-Signatures

Policy changed to allow digital signatures

Jan. 30, 2014

By Mortgage Daily staff

The Federal Housing Administration is taking steps to expand the use of digital signatures on loans it insures.

Up to this point, FHA has only allowed its mortgagees to utilize electronic signatures on third party documents.

Such documents include sales contracts and other documents that are outside the control of the mortgage lender.

But in Mortgagee Letter 2014-03, the Department of Housing and Urban Development said FHA will start accepting e-signatures on a majority of single-family documents.

Documents that can use e-signatures are those requiring signatures included in the case binder for mortgage insurance, servicing documents and loss mitigation documentation. In addition, FHA is allowing digital signatures on insurance claims, real-estate-owned sales contracts and related addenda.

Document must be presented to the signor prior to obtaining an e-signature, while the digital signature must be attached to, or logically associated with, the document.

Federal Housing Commissioner Carol Galante noted in a statement that the changes bring FHA more in line with common industry practices.

"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," Galante said.

Lenders that utilize e-signatures are required to adhere to the Electronic Signatures in Global and National Commerce Act. This includes requirements for disclosures, consent, signature, presentation, delivery and retention.

The ESIGN act requires that intent to sign the document must be established, and that each document is separately signed. But this requirement doesn't apply to documents signed by mortgagee employees or contractors.

Compliance with any applicable state laws is also required.

In addition, mortgagees will need to maintain specific technology and operational capabilities and controls, documented quality control processes, and the ability to adapt e-Signature to FHA's existing record retention processes.

Authentication is required and can be obtained through data maintained by an independent source such as national commercial credit bureaus, state motor vehicle agencies and government databases. At a minimum, mortgagees need to verify the name and date of birth and either the social security number or driver's license number.

The identity of the signor must be associated with the digital signature through attribution. Examples of attribution include the use of a personal identification number or authentication through a third party.

Mortgagees must be able to certify the authenticity of the e-signature.

A system must be maintained by mortgagees that ensures the security of all credentials, and mortgagees need to ensure signed documents can't be altered.

Quality control plans need to be updated to ensure all e-signing requirements are met.

HUD said electronically signed documents have the same record retention requirements as non-digital documents.

The update is expected to streamline the origination process and reduce documentation submission timeframes on foreclosure avoidance options.

The new policy is immediately effective for Title I and Title II traditional single-family loans as well as home-equity conversion mortgages.

Digital signatures, however, won't initially be acceptable for the mortgage note, though FHA expects this to change on forward mortgages by the end of this year.

FHA's existing policy on third-party documents is unphased by the changes.

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