E-signs of the times: How e-signatures, e-notarization confound mortgage lending
You use electronic signatures these days just about everywhere: when you scrawl with your fingernail on a coffee shop tablet, click to accept an online contract, even when you type your PIN at the ATM. So different forms of e-signing are commonly accepted everywhere, right?
Not so fast. In the banking world, e-signatures occupy a dark, mysterious thicket of state and local regulations. Rules on acceptances vary from bank to bank and transaction to transaction. A welter of different methods exist: Click to sign? Type in your name? Or is a full “wet” signature required with a raised notary seal? Which is right when and where? How can I know?
For all the finality signing on the dotted line represents, e-signatures raise a flurry of questions that lack universal answers. And as with so many things involving digital speed, it’s largely an issue of technology outpacing reality.
Electronic signatures came quickly with the rise of the web, but a patchwork of state regulations and company practices led to conflicts and inconsistencies. The Clinton administration regularized the mess, to a certain degree, with two e-signature laws: The federal Electronic Signatures in Global and National Commerce Act (ESIGN) and Uniform Electronic Transactions Act (UETA) both date to 2000.
Yet the nature of the United States—which is, after all, a confederation of 50 different entities—has made uniformity something of a challenge. While UETA is supposed to yield legal harmony, Illinois, New York and Washington did not adopt it, and California did so with multiple exceptions.
Further complicating matters: While e-signatures are widely accepted on contracts, on that drugstore keypad and elsewhere, the acceptance becomes tricky in the mortgage process, for example.
“The key question to e-signatures being universally accepted is whether they’re thought of as being as secure as wet signatures,” says Ori Zohar, a co-founder of Sindeo, an online mortgage company. “There are three sequential hurdles for this: national government agencies and regulators, state agencies and regulators, and the individual lenders and investors.”
The first group, Zohar says, largely accepts e-signatures today, and the second has largely followed suit on a state-by-state basis. However, the individual lenders and investors—the people that end up purchasing the loans—“are still all over the board. And even if a lender accepted e-signatures, they may not do it on all their loans. So the lowest common denominator is still wet signatures.”
Yes, but: Wet has become all but passé in a mobile, touchscreen, wired world.
Forrester Research’s report on e-signatures for the fourth quarter of 2014 shows a 53 percent average annual growth since 2011, with the number of transactions settled via e-signatures topping 210 million in 2014, “and likely to exceed 700 million in 2017.”
Among the biggest players are Docusign, Adobe and eSignLive, Forrester says. DocuSign now has more than 40 percent of the e-signature market, followed by Adobe with 15 percent. More than 100 providers share the rest.
The piecemeal nature of e-signature acceptance is particularly acute in the mortgage process, where some parts of the transaction are fully electronic. The up-front and middle-of-the-process transactions can be e-signed—but the closing, particularly the recording of a deed, can demand different procedures. The sticking point often is e-notarization, said Michael Laurie, vice president of product strategy at eSignLive.
Blame it on different levels of readiness in certain parts of the mortgage ecosystem. “The largest issues up until now have pertained to the availability of e-closing platforms from the traditional players, such as the title companies, to be able to complete the closings, as they are relatively new platforms,” Laurie says. “There has also been a delay in the readiness of investors to buy the mortgages, as well as a lack of adoption of e-notary and e-recording functionality for both mortgages and other closings.”
Notaries have historically witnessed signing ceremonies and attested to a signed document with a stamp, often with a raised seal. But in the era of the e-signature, this aspect of the mortgage closing process started to change—but on a state-by-state basis. Thus, some states allow remote e-notarization with all the formalities of notarization, except that the signer and the notary are linked by real-time audio-video communications. And some states do not.
Good luck figuring out a map that one industry expert dubbed the “50 States of Grey.” Iowa requires a physical appearance before a notary, while Virginia allows full-on remote notarization—and has done so for 5 years. In fact, the notary could witness the signing from anywhere in the world: even Iowa.
The 21 states that have enacted some form of e-notarization also differ greatly in how they regulate it. Because of this uncertainty, “investors are skittish about buying remotely notarized loans,” writes Harry Gardner in the October issue of Mortgage Banking magazine.
Now, let’s get even more granular. A county recorder may seem like a mere pawn in this game. But she can take on a queen’s power by declining to record a loan e-notarized in another state. (And it’s not as though no one has ever run into a crabby county recorder.)
Often, the e-signing issue presupposes that the in-person act is more secure, says Marc Aronson, president of the Pennsylvania Association of Notaries since 1983 and a national expert on e-notarization. But that’s not necessarily true; in many cases, he points out, remote verification is more secure than in person. He’s also known in the industry for phoning annually (and sometimes more frequently) to state offices where e-notarization is not accepted in part or in full, to understand the particulars.
Bankers trying to figure out whether an e-signature is valid, and has been e-notarized, have multiple resources they can utilize. These include:
- Fannie Mae’s fact sheet on the status of e-mortgages.
- Freddie Mac’s fact sheet on the status of e-mortgages
- An eSignLive white paper
What does the future hold? Some hope it means uniformity for all. Gardner calls for the state attorneys general to recognize that the ESIGN and UETA make e-signatures legal and viable, as long as they’re done correctly. And at eSignLive, Laurie sees progress in the industry: “We are now seeing these barriers starting to come down,” he says.
And sometimes, looking back helps in looking ahead. A historian of notary practice, Aronson is full of lore on when and why the raised stamp disappeared and how much strife that caused. There’s a parallel here, he said.
Once mandatory, “They disappeared because county recorders did not like them,” he says. “You had to blacken out the seal to make a copy, unless you used carbon paper, or the side of the pencil, or a crayon or an impression inker.”
Though the embossing seals became obsolete, “It took 10 years for people to get used to not seeing them,” he notes. As for the in-person visit for a wet signature, Aronson thinks it’s headed in the same direction—though, to borrow from notary parlance, it’s not yet official.
Jeanne Pinder is the founder of ClearHealthCosts.com, an award-winning startup bringing transparency to the health care marketplace. She was an editor, reporter and human resources executive at The New York Times for close to 25 years, and has also worked at the Des Moines Register, Associated Press and Grinnell Herald-Register.