The FHA should not allow electronic mortgage signaturesby Peter Miller
It was back in 2000 when the Electronic Signatures in Global and National Commerce Act was passed, allowing many contracts to be signed with electronic signatures.
Are “e-signatures” a good idea for FHA mortgages?
Given that we live in the Internet era, there’s little argument that e-signatures make a lot of sense when buying books or music online. The question is whether e-signatures are also a good idea for FHA mortgage paperwork.
The case for such signatures has been made by the Mortgage Bankers Association:
Importantly, FHA’s acceptance of e-signatures would align the agency with other government entities, most notably Fannie Mae and Freddie Mac, which have been accepting electronic signatures on loan documents for several years. Conforming to accepted industry standards on all documents would expedite the mortgage process, reduce lender costs because processes could be replicated, and fulfill consumers’ growing preference for conducting electronic transactions.
Well, if electronic signatures are good enough for Fannie Mae and Freddie Mac, then why not for FHA loans?
The case for e-signatures
E-signatures would reduce costs for activities such as, printing and mail couriers for both borrowers and lenders. These benefits eliminate many of the annoyances of a paper-based process, including lost or inconsistent documents. In addition, consumers would have greater flexibility and convenience within the home buying process because they would not have to change documents and related signing processes if they changed from a conventional loan to an FHA loan. All of the aforementioned benefits ultimately result in lower costs for the consumer, as lenders pass on savings to remain competitive. Additionally, borrowers experience a more seamless and satisfying homebuying process.
But are such arguments valid?
For instance, do you really think lenders will pass on savings to borrowers, say in the form of better mortgage quotes or smaller fees? Did airlines gleefully pass on savings when federal travel taxes lapsed?
The case against e-signatures
What about errors? Is there any shortage of news reports concerning homeowners who have been improperly foreclosed?
Lender efforts to electronically transfer the ownership of millions of mortgages have created the largest financial snafu in human history. Foreclosures worth hundreds of billions of dollars have been delayed and substantial title questions have now been raised.
As the Maine Supreme Court said in one recent case, the paperwork submitted to foreclose one homeowner was so “inherently untrustworthy” that the lender’s claim was thrown out–even though the borrower had not made loan payments.
Look how well speed and electronic transfers worked with robo-signing. Such factors did nothing to assure that documents are actually signed, that lenders had standing to foreclose, or that borrowers received proper notices and documents. To add electronic signatures to the mix at a time when the system plainly isn’t working seems unwise.
And the fact is that the electronic signatures law passed in 2000 does not say substitutes for pen and ink can be used in all forms of commerce. For instance, you actually have to sign wills, adoption papers and even the cancellation of utility services.
The FHA should continue to require actual human signatures
The FHA should continue to require actual human signatures on loan documents. E-signatures are fine for buying books and music, forms of commerce where disputes are not a big deal and the harm to consumers and vendors is minimal.
But for the serious business of mortgage borrowing and home ownership, the standards should be higher. There’s too much at stake to raise even more questions about the validity of mortgage records.