In an effort to modernize its processes and further streamline the mortgage lending process, FHA announced the authorization of lenders to accept electronic signatures on FHA backed mortgage loan documents for Single Family Housing. With FHA's publication of the Mortgagee Letter 2014-03 now, the organization will allow e-signatures on origination, servicing, and loss mitigation documents, as well as FHA insurance claims, REO sales contracts and related addenda.
Documents now authorized by the FHA include all thos
e required in the case binder for mortgage insurance except for the mortgage note, which will only be accepted on forward mortgages starting December 31st, 2014.
Importance to Lenders & Brokers: E-signatures save lenders both time and money while increasing the efficiency of the loan process. For years, the mortgage lending market has been well established with the use of e-signatures and e-delivery in both the mortgage application disclosure and closing processes. The new FHA e-signatures align with what Fannie and Freddie already have in place, now allowing all of the big 3, FHA, FANNIE, and FREDDIE a consistent, streamlined loan origination work flow.
Many lenders and industry legal analysts, are concerned with the particular language FHA used regarding e-signatures and have asked for additional language clarification.
FHA Electronic Signature Performance Standards: In the Mortgagee Letter 2014-03, FHA details the following performance standards for the use of e-signatures on documents that will be accepted for FHA loan insurance:
- Complying with all requirements of the ESIGN Act
- Associating ab electronic signature with a document
- Demonstrating intent to sign
- Requiring the single use of a signature
- Authenticating an individual's identity
- Attributing the individual's signature to their identity
- Managing issuance, use and loss of credentials
- Maintaining integrity of records and audit ability of the electronic process
In addition, FHA requires that Quality Control Plans reflect the new electronic signature processes and their record retention requirements continued to be followed.
The Future: Because e-signatures are optional, the pursuit to quickly implement these may take a bit of a back seat while lenders and brokers focus more on required industry regulations.
However, with the new disclosure rules that emphasize the timing of when a borrower receives documentation, e-signatures will play a vital role in compliance as it provides time and date stamps to prove the authenticated signatures were compliant.
FHA continues to advocate for the advancement of the e-mortgage, as well as bring requirements into alignment with many current common industry practices.