Among the most intriguing aspects of DocMagic's $1.2 million acquisition of eSignSystems is the relationships DocMagic now has with vendors that private label eSignSystems technology, many of whom compete with its own document preparation software.

In addition to being offered directly to end users like BNY Mellon Corporate Trust, eSignSystems' technology is widely used on a private-label basis by a variety of mortgage industry vendors. Because the transaction takes effect immediately, some of those eSignSystems private-label clients were concerned whether their existing contracts will remain in place.

"Our take at this stage in the game is we're going to have to see and understand what is going on here," said Scott Stucky, chief strategy officer at DocuTech, a doc prep vendor that's been an eSignSystems vendor-client for more than seven years. "It's minorly confusing to me because DocMagic has an e-sign platform they developed on their own. So I'm not sure if they will replace that or if there is a different strategy in place."

To assuage such concerns, DocMagic must convince eSignSystems' private-label clients that the e-sign technology they use is no more an area of competition among doc prep vendors than the brand of ballpoint pen that's used when their documents are signed in a paper-based transaction.

And according to DocMagic and eSignSystems representatives who spoke with National Mortgage News, vendors do not need to worry about their current deals with eSignSystems, as the purpose of the transaction is to provide current and future customers with more choices and better product options.

"When we acquired the eSignSystems assets, we agreed to take on the obligations and benefits of the contracts," said Silvia San Nicolas, strategic counsel for corporate strategy at DocMagic. "We have no plans to terminate anybody and we're very happy to have them as customers."

The e-signature and e-vault vendor was founded as SignOnline in 1999, a year before federal legislation made e-signatures legal in the U.S. Wave Systems acquired the SignOnline technology for $290,000 in October 2001. The transaction cleared the way to resolve SignOnline's then-ongoing Chapter 11 bankruptcy, according to regulatory disclosures that Wave Systems filed in 2001.

SignOnline was later renamed eSignSystems, and the vendor has provided lifecycle management of electronically signed, legally binding documents, legal contracts and digital transactions for the mortgage, banking, insurance and healthcare industries.

And while some functionality does overlap with its new owner, DocMagic's SaaS-based e-sign engine is not offered as a standalone, self-hosted platform like eSignSystem's SmartSAFE engine is, nor does DocMagic private-label its e-sign platform to third-party vendors.

Vendors that have white labeled eSignSystems' technology include loan origination system provider Ellie Mae, doc prep vendors Compliance Systems Inc. and SigniaDocs, as well as document management provider Xerox Mortgage Services.

Though eSignSystems has used its longevity to establish a commanding market share in the mortgage industry, the business became a non-strategic entity when new leadership recently took over Wave.

Even though DocMagic is also acquiring a patent for the eSignSystems technology, the small dollar amount of the acquisition relative to eSignSystems' market share reflects the size of the still-nascent e-mortgage segment of the mortgage industry.

Now, it will operate as a standalone division of DocMagic, and there are no plans to merge the two business units, Kelly Purcell, executive vice president of sales and marketing at eSignSystems, said in an interview.

Still, DocMagic does plan to integrate several of eSignSystems' products, including its flagship SmartSAFE platform, with its own product suite. Additional products that will now be part of DocMagic's offerings include SmartIDENTITY, which validates signers in real time; SmartFORMS, which generates proper and personalized forms; and SmartCLOSE, which simplifies MERS eRegistry integration for electronically-signed promissory notes.

There is no requirement that eSignSystems' lender and servicer customers use DocMagic products, Purcell said. Both companies are simply integrating their offerings so respective customers can "pick-and-choose" if they want to use additional products and services that are offered through the acquisition.

"What our current customers are going to experience is a new level of better support and improved service because we're going to have more resources," Purcell said.

Paul Anselmo, chief executive officer of SigniaDocs, which has been an eSignSystems user for approximately six years, was not surprised to hear about the transaction.

"This is a good move for DocMagic," Anselmo told National Mortgage News in an interview. "This deal helps DocMagic get a real e-sign platform that eSignSystems currently offers to its customers."

Jonathan Corr, president and chief operating officer at loan origination system vendor Ellie Mae — a vendor that's no stranger to partnering with companies that it also competes with — does not expect the acquisition to be a detriment to the industry.

"It didn't seem like eSignSystems was a good fit with Wave," Corr said. "But a combination of DocMagic and eSignSystems operating together could jumpstart the adoption for electronic processing for the mortgage industry."

The mortgage industry is starting to adopt electronic closings. Earlier this year, the Federal Housing Administration started accepting electronic signatures on all mortgage insurance endorsement and servicing documents, and agreed to take e-signatures on promissory notes beginning in 2015.

"I'm happy for the companies as both worked hard to get where they're at," said Roger Gudobba, chief strategy officer at Compliance Systems. "Competition keeps people on their toes. This is good for the industry."

Furthermore, the Consumer Financial Protection Bureau is coming out with new integrated mortgage disclosure regulations on Aug. 15, 2015 in which the closing process will significantly change as Loan Estimate will replace the current Good Faith Estimate, while a Closing Disclosure will replace the HUD-1 and final Truth in Lending disclosure.

"Regulation drives innovation and adoption," San Nicolas said. "With the advent of that coming to pass next summer, that will do a lot for adoption of electronic processes to facilitate mortgages by creating a good audit trail and helping lenders reproduce that they were compliant should they ever get asked."

— Austin Kilgore contributed to this report.