The Federal Housing Administration — whose volume is expected to rise to about 30% of industrywide originations this year — says it recognizes the need to automate and will publish electronic mortgage specifications this year.
"We know we need to work in a paperless environment," said Jo Ann Kuczma, the director of the home mortgage insurance division at FHA. "Our goal is to receive all mortgage documents electronically and update FHA systems with all required information so that manual input of information by lenders is not required."
To this end, FHA is planning to pilot-test fully electronic mortgages with an FHA-approved lender this year. The agency has circulated a seven-page draft of its electronic signature specifications.
"This says that we've passed the tipping point on adoption," said Kim Weaver, the vice president of product management for Fiserv Inc.'s electronic lending platform.
"Considering that Fannie and Freddie control most of the industry and FHA controls the rest," she said, the agency's "willingness to work on documents across the life cycle of the whole mortgage and not just the note is huge."
But the fact that FHA is looking to standardize all mortgage documents has some wondering whether the specifications will be too complicated to stimulate adoption.
"There seems to be a lack of clarity on what standards are applied to what document," said Ken Moyle, the chief legal officer at DocuSign Inc. and a member of the Electronic Signature and Records Association. "For example, they're clear they want the note to be a Smart Doc" — a securable, manageable, archivable, retrievable and transferable document — "but not the other documents."
Moyle said one of his trade group's goals is "keeping technology neutral. If the FHA were to adopt a position that is simply compliant" with the Electronic Signatures in Global and National Commerce Act of 2000, "and the lender can assure that it obeys those structures, that's great. But the more FHA defines standards instead of just having the lender certify to what's out there, the more complicated it will become to adopt. … I'm certain the Obama administration doesn't want to be a barrier to e-commerce, but they run the risk of doing that if the standards are too specific."
To the contrary, Weaver said, she does not believe anything FHA does will be too difficult for lenders to adopt.
"FHA is interested in coming up with standards that can be used," she said. "I think they'll encourage feedback from lenders and other industry participants. … Remember, they're keen on getting this adopted."
FHA's draft electronic signature guidelines embrace the standards set forth by the Mortgage Industry Standards Maintenance Organization, requiring that the note be a Category 1 Smart Doc, as Fannie Mae and Freddie Mac do, and they substantiate the validity of the Mers loan-registration system's Mortgage Identification Number. So there seems to be a willingness to work based on what has succeeded rather than to reinvent the wheel.
Weaver said she expects quick action from FHA.
"There's an emphasis on the use of technology in the new Obama administration," she said. "FHA knows that it will benefit from the standards that are already in place. Where they are treading on new water is standardizing the other mortgage documents outside of the note as Category 3 or 4 Smart Docs. What FHA is doing could be a blueprint for the entire mortgage industry to automate the process from start to finish."
