fha and lender acceptance

8/14/2019 FHA and Lender Acceptance

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FHA & Lender Acceptance

June 2, 2009Background:

Nine years ago, the federal ESIGN Act passed through the legislative process

to become national law. However, some federal and state agencies havebeen slow to adopt rules and guidelines consistent with ESIGN's intent to

remove barriers to e-commerce. Among these is the U.S. Department ofHousing and Urban Development (HUD), resulting in a current HUD policy

yet to officially recognize electronically signed documents submitted to itsmortgage insurance arm, overseen by the Federal Housing Administration

(FHA). The most recent policy statement from FHA on e-signatures datesback to 2003, when the Administration announced that it would accept

electronically signed property appraisals.

What has changed?

Until recently, FHA's failure to keep up with the times did not have a major

impact on the real estate and mortgage ecosystem, as the FHA insured onlyabout 2% of originated single-family home loans. Due to recent changes of

the residential mortgage infrastructure, the market share of FHA-insuredmortgage loans has exploded, hitting nearly 30% in early 2009. The

increase in FHA's market presence and government scrutiny of lendingpractices has led to increased deference to FHA standards and policies.

Progress is being made

The FHA's response to the changing climate of mortgage insurance resulted

from the surge in volume of electronic documents that were finding theirway into insurance case binders. In January 2009, the operational arm of

the Administration's single-family home loan group embarked on an effort toupdate systems and procedures, including guidelines for processing

electronic loan packages, complete with electronic promissory notes (i.e. e-


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mortgages). The effort is receiving "fast track" treatment and will be

released during the second half of 2009 at the earliest. DocuSign, both on itsown and through its participation in Electronic Signature and Records

Association (ESRA) has been at the forefront of this effort and moving itforward.

FHA does accept DocuSign today

As the real estate industry's leading provider of electronic contractexecution, DocuSign has also sought to establish a clear distinction between

an electronic mortgage - with process requirements and controls that mustbe in place at closing - and an electronically signed real estate contract,

seeking appropriate treatment of electronically signed real estate contractsby lenders, the FHA, and other "downstream" recipients of these 100% valid

and enforceable agreements. Largely as a result of our early efforts, theFHA in January 2009 affirmed its willingness to accept electronic

signatures and instructed its Home Ownership Centers not to rejectcase binders containing electronically signed real estate contracts.

Challenges remain

This FHA policy has yet to be communicated to lenders in writing, as the FHA

prefers that the e-mortgage guidelines and electronic signature guidelines bereleased concurrently to avoid further confusion. However, FHA's failure to

communicate a clear policy about accepting paper case binders that includeelectronically signed documents, particularly paper copies of electronically

signed real estate contracts, has perpetuated confusion among realtors,mortgage brokers and lenders. The compliance departments at major

lenders such as Wells Fargo and Countrywide (now Bank of America) havetaken steps to better understand the FHAs position. These lenders have

recently adopted cautious, temporary policies that have flagged mortgageapplications that included electronically signed documents. We expect thesepolicies to be reversed or relaxed very soon, but in the meantime much

confusion remains.


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Frequently Asked Questions

My broker has never seen one of these signatures before. How do we

know it is real?

Over the past five years, hundreds of thousands of real estate documentshave been electronically signed by buyers and sellers using the DocuSign

electronic contract execution platform, and not one of these transactions hasfailed for fraud or unenforceability arising from use of the electronic

signature.

DocuSign is used by real estate agents in all 50 states to allow parties toreal estate contracts to sign online, without paper. The DocuSign system has

been identified as the electronic signature of choice by the CaliforniaAssociation of Realtors since 2005 and is branded as Zipform Esign for

users of the Zipform real estate form network in 34 states. More recentlyDocuSign has partnered with Reveal Systems to provide electronic signing of

real estate forms in 10 additional states. Approximately 750,000 real estateagents and brokers have access to DocuSign for electronic execution of over

20,000 different kinds of forms used in real estate transactions.

DocuSign is also used by hundreds of mortgage brokers and correspondentlenders to execute front-end RESPA disclosures online. These include TIL,

GFE, and all state-required disclosures.

My mortgage broker says the lender wont accept electronic

signatures

A few lenders have some policies in place that restrict electronically signeddocuments, but not all documents in a mortgage application file are the

same. There is a difference between a mortgage closing document (such asan electronic note) and a supporting document (such as a real estate

contract, addendum or disclosure). Supporting documents represent


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contracts between consenting parties that have already been consummated

and are not part of the closing process. It is unusual for a lender to interferewith a real estate transaction by asking for it to be re-executed. Ask the

broker or lender to clarify their position and to make sure they have all theinformation they need to make that assertion.

If you are unable to get your lender to accept a DocuSigned contract as partof a mortgage application, please immediately send the lender name and

contact info [email protected].

Our broker/lender says FHA wont take electronically signeddocuments.

That is not correct. The FHA will accept DocuSigned real estatecontracts, addenda, appraisals and disclosures.

FHA has affirmed its willingness to accept electronic signatures and hasinstructed its Home Ownership Centers not to reject case binders containing

electronically signed real estate contracts. If any cases are rejected (ordesignated NOR) by a HOC, the FHA take it up directly with the HOC and

correct them.

If the lender receives a case binder back as NOR by a Home OwnershipCenter because it contains an electronically signed real estate contract, they

should contact DocuSigns legal department [email protected] callKen Moyle at (206) 973-8187.

This is not an e-mortgage, so doesnt that mean it cant have

electronic signatures?

No. An e-mortgage is an electronically closed loan. The vast majority ofelectronically signed real estate and mortgage documents are found in
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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traditionally closed mortgage loans. Electronically executed real estate

contracts are often emailed (or even printed and faxed) to lenders just astheir paper counterparts are, but with added convenience and security.

Similarly, electronic records are usually included with scanned paper imagesin paper or electronic case files used by lenders for conventional closing and

servicing.

FHA has recently undertaken an initiative to prepare itself to accept

electronic mortgages, including e-Notes. However, there is no need to waituntil the e-mortgage guidelines are complete. Electronic documents and

signatures can be used today in FHA case binders.

Contact: Ken MoyleChief Legal Officer,DocuSign, Inc. (Seattle, WA)[email protected](206) 973-8187

About DocuSignDocuSign provides on-demand software services for electronic signature and online contractexecution, empowering individuals, small business and global enterprises to operate faster,more efficiently and profitably with enhanced security and compliance. To date, more than

16 million signature events have been executed using DocuSign.

About ESRAThe Electronic Signature and Records Association (ESRA) is a national industry association

established to educate business, government and the public legal, regulatory andoperational issues related to the use of electronic signatures and records. ESRAs webaddress is:www.esignrecords.org.
mailto:[email protected]:[email protected]://www.esignrecords.org/http://www.esignrecords.org/http://www.esignrecords.org/http://www.esignrecords.org/mailto:[email protected]

fha and lender acceptance

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