American Banker, the print publication, recently published an article about the Federal Housing Administration (FHA) and its efforts towards automation. According to the article, the FHA expects to see a 30% increase in industrywide originations in 2009. This increase leads to a greater need to automate and the FHA plans to publish electronic mortgage specifications.  

The director of the home mortgage insurance division at FHA, Jo Ann Kuczma, acknowledged the need to work in a paperless environment:   

“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.”   

This year, the FHA plans to pilot-test fully electronic mortgages with an FHA-approved lender and has circulated a seven-page draft of its electronic signature specifications.   

Kim Weaver, the vice president of product management for Fiserv Inc.’s electronic lending platform, noted the significance of the FHA’s willingness to work on documents across the life cycle of the whole mortgage as “huge.”   

DocuSign’s Chief Legal Officer and Electronic Signature and Records Association’s (ESRA) Public Policy Chair, Ken Moyle, noted that the FHA wants the note to be a Smart Doc, a securable, manageable, archivable, retrievable and transferable document. However, that same clarity is lacking regarding the other documents – what standards are applied to which documents?  

Moyle said one of ESRA’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.”   

Weaver does not believe that anything the 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.”   

The FHA’s draft electronic signature guidelines align with the standards set forth by the Mortgage Industry Standards Maintenance Organization and confirms the validity of the MERS loan-registration system’s Mortgage Identification Number. This indicates a willingness to work from what has succeeded rather than to reinvent the wheel.   

Weaver stated: “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.”

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