Mortgage Daily Logo
mortgage news from industry experts

Ensuring Electronic Enforceability

Ensuring Electronic Enforceability

White paper discusses validity of digital loan documents

October 10, 2007


photo of Coco Salazar
Mortgage lenders who close mortgages electronically are required use special technology that validates the authenticity of loan documents. A new study details steps lenders can take to ensure digital documents hold up in court.

Electronic vaulting technology provides the lender with proof the electronic mortgage is valid, according to The Advanced Electronic Vaulting Solutions: Conquering the Final Frontier. Such solutions are critical in the paperless processes to create and process digitally signed contracts that ensure legal enforceability and negotiation of the contracts.

The white paper cited a 2005 case involving American Express and a cardholder where a judge held the proof of accuracy and authentication of e-documents in question to a decidedly higher standard than traditional paper documents. This, despite that the Electronic Signatures in Global and National Commerce Act of June 2000 established the federal validity of using e-signatures in financial transactions, with the intent of giving electronic signatures and records the same legal weight as their paper counterparts.

American Express had attempted to collect a debt outside of a cardholder’s bankruptcy filing, according to the report produced by eOriginal Inc. — which is in the business of providing electronic vaulting solutions. The credit card company had a set of electronic documents alleging a different amount for dispute than the documents the debtor held. A judge dismissed the case after American Express was unable to prove the unaltered status of its electronic documents because it could not properly demonstrate what happens to documents held in its electronic record keeping system.

“Had American Express presented proof of controlled access to their database, as well as an audit trail with a secure log of activity, the case might have had a different outcome,” eOriginal wrote. “This case stands as a stark reminder of the need for electronic contracts and other financial services documents to be managed and maintained effectively, no matter the industry segment.”

The use of electronic vaulting has been in place and working successfully for years in other industries with similar needs and requirements as the mortgage industry, mostly in automotive finance and equipment leasing, according to the author — which claims its platform is the advanced electronic vaulting standard for those two industries.

As e-mortgages become more prevalent, the requirement for lenders to have secure, electronically-closed loan packages that can be accessed by many parties throughout the life of the loan becomes more critical, especially considering the significantly larger dollar amounts at stake and document lifecycles, eOriginal noted.

“Strict controls must be in place every step of the way to track an original document and prove its unaltered authenticity and uniqueness,” the paper stated. “It is essential for lenders to manage discreet documents and their access rights, as well as to perform ongoing audits and establish legally recognized controls.”

Only use of electronic vaulting can bridge those requirements, according to the paper. However, using “advanced electronic vaulting solutions, on their own or as part of a third party registry system, provide the only proven and accepted manner” of establishing “iron-clad protection and maintenance” of e-documents and proper procedures to meet all legal requirements, eOriginal said.

Document and content management systems are not vaults, noted eOriginal, which said it has managed around 500,000 electronic contracts for more than $10 billion in originations, of which more than $1 billion has been pooled and securitized without a single error or legal challenge. It also emphasized that the Mortgage Electronic Registration System enables and maintains the industry registry of eNotes but that MERS itself requires the lender have the ability to store eNotes and transfer them to investors.

Advanced electronic vault technology not only provides irrefutable proof that the document in the lender’s possession is the original, unaltered document, it also enables the transfers of ownership and location without altering the original or invalidating its tamper seal, the report indicated. This technology also allows lenders to permanently destroy or remove the original, or Authoritative Copy, from the vault while creating an enforceable paper version; produce legally admissible packages, including print copies and audit trails of the electronic original documents; and pool and securitize eNotes for resale.

Thus, when considering a vault, a lender should look for a solution with vault-to-vault transfer capability; that supports the new Transfer of Location of Electronic Contracts ANSI X-9 standard; can easily interface and/or adapt to existing systems already in use; meets compliance and security needs in a cross section of industries, particularly integration with available e-signature vendors and their technologies; and incorporates MERS submission for loans that will be registered while being able to equally handle those that will not be registered. Lastly, “the electronic valuation solution vendor should be able to show documented credit rating agency acceptance of validity as well as similarly documented third-party legal opinions supporting secondary market sale,” the paper said.

“Standard & Poor’s and other ratings agencies have accepted eContracts as equivalent to paper so that a properly maintained and secured eContract is rated no differently when sold on the secondary market,” according to eOriginal .

next story

back to current headlines

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...


Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts