Issues around electronic mortgages include incompatible systems, variable rules around electronic recording, and the integration of electronic closing documents into the back-room systems of lenders, Whitaker says. "The mortgage lender bang for the buck in the e-mortgage is what that allows you to do post closing, that's where the money and expense are," he says. "The up-front expense of integrating and automating the post-closing process is very significant. You find large financial institutions approaching that in small stages until they have the resources to automate all that post close."
At some banks, the mortgage loan origination and initial delivery of disclosures have been automated. But the back office will take several years.
"Large institutions' mortgage software is home grown, custom made and layered with years of adjustments, changes, and integrations with other systems in the institution," Whitaker says. "They have a million lines of spaghetti code and two guys who understand it."
What the Courts and Regulators Say
"Judges like the simplicity of e-signatures," says Whitaker, who can recall with great detail every U.S. involving electronic signatures over the past several years.
"We have not seen a court say, I'm not going to enforce this signature because it's electronic," Whitaker says. "I have not seen judicial hostility toward e-signatures. But there is an expectation that they will be fairly presented, protected after signing, that attribution and intent will be established. With that, we're seeing significant judicial support and even enthusiasm for e-signatures."
"With regulators it's more complicated, but they like a well-designed system," Whitaker says.
Regulators, mainly the FFIEC, have issued nine documents providing guidance on the use of e-signatures in banks, such as the FFIEC E-Banking Booklet.
One key regulatory requirement is for any needed disclosure or document provided, the consumer needs to consent to an electronic delivery mechanism such as email. Where email is used, the bank needs to deal with glitches such as bouncebacks.
Evidence has shown that with electronic documents, consumers are more likely to read the accompanying disclosures. "The banking industry has seen an uptick in the number of people who are reading materials online; they're getting more questions from people calling customer service saying, 'I didn't understand paragraph 23,'" Whitaker says. "There have been a few cases of gross overreaching in disclosures that have caused consumers to say maybe I should be looking at this stuff." Having the documents on their own tablet or phone helps. "They're watching Castle, it goes to commercial, they think, I might as well read this agreement. If they can sit in their jammies at 10:00 at night and read this, why not?"
Another key requirement: the consumer needs to be able to maintain the record in an accurate, printable format.
And companies need to be able to prove that they made a reasonable effort to prove that the person signing the document is who they say they are (in the online banking world, this is called authentication; in the electronic signature world, it's called attribution).
For instance, a former employer sued a company called Quicksilver for wrongful termination. In an electronic arbitration agreement, the employee's name had been typed into two blank fields, with no credentials required. The employee said she never signed it, and a California appellate court upheld her claim, saying Quicksilver had not established attribution.
The court cited these specifics: the employee did not have to use a password to access the document, there was no audit trail for the signature process, the record was not protected against undetected post-signature alteration and at least two other Quicksilver employees had accessed the signed record after it was saved and submitted by the employee.
As evidence, in many countries FAX messages are more regulatory acceptable then electronically signed messages. I've seen some fax forms that has traveled through "a workflow". One can't read them because of quality degradation... yet, they are OK because it's legally approved.