What are electronic signatures?

According to UETA Section 2(8); ESIGN Section 106(5), an electronic signature is an “electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”   For example, a signature can be typed text, an image, a holographic signature or even a digital (PKI based) signature.  SureDocs uses and electronic representation of a person's signature along with a unique per signature serial number.

Are electronic signatures legal?

Yes.  Through various legislation, including the state-based Uniform Electronic Transaction Act (“UETA”) and the federal Electronic Signatures in Global and National Commerce Act (“ESIGN”), both the states and federal government have put in place a framework to enable completely electronic transactions – including e-signatures.

ESIGN and UETA are both broad, general acts that cover both consumer and commercial transactions.  The acts are based on three core principles:

1. A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
2. If a law requires a record to be in writing, an electronic record satisfies the law; and
3. According to UETA Section 7; ESIGN Section 101 (a), if a law requires a signature, an electronic signature satisfies the law.

The Uniform Electronic Transactions Act (UETA) in a model act promulgated by the National Conference of Commissioners on Uniform State Laws in 1999.  UETA was created to prepare state laws for electronic commerce transactions.  Almost every state, including the District of Columbia, has enacted some version of UETA.  Under UETA, the term “Electronic signature” means “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”

In June of 2000, the United States Congress enacted the Electronic Signatures in Global and National Commerce Act (ESIGN) to facilitate the use of electronic records and signatures in interstate or foreign commerce.  ESIGN defines “electronic signature” to mean “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”

While the laws governing electronic signatures are broad enough to include voice signatures, current residential mortgage investor requirements prohibit voice signatures at this time.

What mortgage documents can be signed electronically? 

Under the law, all documents in the mortgage process can be signed electronically.  In fact, some lenders are already closing loans electronically. Most investors are in the process of making available their purchase policies as it relates to the closing documents such as the Note and Mortgage. 

However, a great place to start is the upfront disclosure and origination documents.  By automating the disclosure process, you can get these documents delivered faster to your consumers and receive signed documents back in minutes.  Seeing the benefits, many investors are already accepting the disclosures and origination documents electronically.  Through SureDocs, you can have your borrowers signing electronically today.

Are electronic signatures permissible for consumer loan disclosures?

Yes, provided that the borrower consents in an appropriate manner to the use of electronic records and signatures. This can be accomplished through the a la mode SureDocs process.  Both UETA and ESIGN set out the legal framework for the permissible use of electronic signatures.  UETA and ESIGN are designed so that a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form. 

Guidance has been provided by The Office of the Comptroller for the Currency published Advisory Letter 2004-11 entitled “Electronic Consumer Disclosures and Notices” in October of 2004.  In 2001, the Federal Reserve Board published Interim Final Rules addressing the provision of electronic disclosures under Regulation Z (Truth in Lending) and Regulation B (Equal Credit Opportunity Act).

What investors are currently accepting electronic loan documents?

Fannie Mae set out detailed standards for the purchase of electronic loan documents beginning in 2002.  The Guide to Delivering eMortgage Loans to Fannie Mae (V. 2.0)  is accessible at http://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/emtg/pdf/emtgguide.pdf.

Freddie Mac recently replaced Preliminary Specifications for Electronic Mortgage Loan Documentation published 2001 with the Freddie Mac eMortgage Handbook Version 1.0 accessible at http://www.freddiemac.com/singlefamily/elm/index.html.  For example, Freddie Mac defines “Electronic Signature” to mean “an electronic symbol or process attached to or logically associated with a Record and signed or adopted by a Person with the intent to sign the Record” in the Freddie Mac eMortgage Handbook.

With Fannie Mae and Freddie Mac buying the majority of residential loans originated today- and their eSignature interpretation similar, it is ensuring standardizations and acceptance of electronic mortgage documents.

This adoption of electronic loan transactions has been facilitated by the creation of the MERS® eRegistry.  The MERS® eRegistry is a system of record that identifies the owner (Controller) and custodian (Location) for registered eNotes, providing greater liquidity, transferability and security for lenders.  MERS® is further advancing electronic loan transactions by providing functionality for the transmitting of electronic documentation amongst MERS® eRegistry Members.  This new service is termed MERS® eDelivery.  In addition to Fannie Mae and Freddie Mac, other investors have purchased eNote transactions utilizing the MERS® eRegistry.