Fannie Sees Slow E-Signature Acceptance

Fannie Mae, the nation’s biggest source of secondary-market home financing, is preparing for the day that wholly electronic mortgage originations are commonplace, but its executives admit this day is probably a long way off.

A look at the first homebuyer to participate in a July test Fannie did of all-electronic loan origination suggests that the procedure may take a while to become mainstream. The first participant was a technologist who signed the closing document for his mortgage using a stylus and a large graphics tablet. His signature then appeared on a computer screen, and the closing attorney and lender involved in the transaction signed digital certificates that encrypted the transaction.

The test worked nearly the same as the way that Fannie, which owns 10% of the mortgages in the secondary market, already gets loan documents. The only difference was that the borrower signed on the dotted line electronically rather than on paper.

But the technologist involved in the test was hardly an average consumer.

“I think we will be seeing more electronic mortgages in the future, but I think it’s a number of years before everybody agrees to do it this way,” said Carmen Bramante, Fannie’s director of e-mortgages.

Charlotte Haberaecker, a managing director in Fannie Mae’s e-commerce division, added that she believes widespread consumer adoption will be achieved only if there is demonstrated value for homebuyers. “I think the value to the consumer needs to be a simpler process — a faster, better experience and lower cost,” she said.

Fannie’s digital signature pilot test, held in Broward County, Fla., was done in anticipation of the Electronic Signatures in Global and National Commerce Act, which gives electronic signatures the same legal weight as those on paper. Fannie Mae initiated the test by buying two mortgages from Mortgage.com, an online mortgage lender based in Sunrise, Fla.

There has been much speculation about people’s willingness to make one of life’s biggest financial commitments on a computer screen, without the personal contact or ceremony involved in a paper-based transaction. Craig Focardi, senior analyst in the global mortgage lending practice at TowerGroup, a consulting firm in Needham, Mass., said that he thinks typical consumers will be more likely to participate in electronic financial transactions involving lesser values than mortgages do.

“Given the frequency and the emotional significance of a home purchase, people want to do certain parts of the transaction in person,” he said. “While it might be a hassle for two people to get to the closing table, for you to go there and sign that document, it’s quite an exciting time.”

To address compatibility issues, Fannie issued industry guidelines in October for the electronic delivery of mortgages. Freddie Mac, which tested its first all-electronic mortgage origination in early October, issued its own specifications the next month, and additional guidelines are expected from both companies this year.

Using “common data and technical standards in these areas, you can get there quicker and better,” said Fannie Mae’s Ms. Haberaecker. “That’s our hope — that we get to that point.”