Takeaways:
- An increasing number of lenders and brokers are turning to e-signature technology as a secure and compliant means to e-deliver disclosures while also making it easier to demonstrate compliance and improve customer experience.
- The reason e-signing is the best approach is that the TRID rule now requires that the consumer must have received the Loan Estimate form and must indicate their intent to proceed with a transaction before the lender can charge any fee to process the application.
- Although the intent can be communicated verbally, through email or by a signature, it must be documented by the lender.
The e-delivery of mortgage disclosures is taking center stage as the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rule is about to take effect. An increasing number of lenders and brokers are turning to e-signature technology as a secure and compliant means to e-deliver disclosures while also making it easier to demonstrate compliance and improve customer experience. (Disclaimer: I co-founded e-SignLive by Silanis.)
In fact, there are several key benefits that e-signatures provide relative to TRID. They enable the lender to:
- Capture a record of the customer’s intent to proceed prior to collecting the processing fee.
- Keep the disclosure process off paper and capture proof of digital delivery.
- Shorten the closing timeline.
- Use audit trails to more easily demonstrate compliance during audits.
Capturing the customer’s intent to proceed
Electronic signatures and e-mortgage are hardly new to the industry. Originators and lenders, big and small, have successfully automated every part of the mortgage process.
But just the other day, I was asked why e-signing is the best approach for e-delivery of the application disclosures. The reason is that the TRID rule now requires that the consumer must have received the Loan Estimate form and must indicate their intent to proceed with a transaction before the lender can charge any fee to process the application.
This is important because the consumer will likely continue to shop around for a better rate until they are committed by paying the processing fee.
Although the intent can be communicated verbally, through email or by a signature, it must be documented by the lender. By having the consumer e-sign the Loan Estimate, the lender meets the documentation requirement and can confirm the consumer’s intent to proceed by obtaining the application processing fee.
Proof of disclosure delivery
In addition, an electronic signature provides proof of delivery of the disclosures, which is required under the TRID rule. Although the CFPB does not specify how to prove delivery, when using a digital process to deliver e-disclosures, capturing an e-signature is the best approach because of the audit trails that capture all the “digital fingerprints” customers and employees leave as they go through a signing process.
An e-signature solution should offer two types of audit trails to help strengthen your compliance position: a document audit trail (what the signer signed) and a process audit trail (how the signer signed it).
The ability to capture these dual audit trails becomes even more important considering the increasing pressure to fully document all mortgage-related processes and decisions.
If your company has not systematically tracked and recorded all actions and maintained reliable records, you risk not being able to demonstrate compliance.
In addition to the automation benefits of going digital and the ability to consistently execute transactions, an e-signature solution should provide a dual layer of audit trail protection — and make it easy to pull any transaction from among thousands and even millions of records, in minutes.
Shortening the closing timeframe
Beginning Oct. 3, 2015, there will be only two ways to shorten the closing timeline: hand-deliver the Closing Disclosure or do it electronically. With the upcoming TRID rule, lenders must place the Closing Disclosure in the mail seven days before closing in order to ensure the customer has received it three business days prior to closing.
There is no question this timeline will be challenging when last-minute changes arise in a transaction. Last-minute changes might mean that the lender can’t meet the timing requirement for the Closing Disclosure, putting the closing date at risk and, by extension, the rate lock.
And if a last-minute rate change isn’t bad enough, imagine the inconvenience to your customer who has the moving truck scheduled to arrive on closing day — only to learn that closing has been delayed by almost a week because of paperwork.
Although there are some who still see paper as the best way to deliver disclosures to customers, soon it will be nearly impossible to prove compliance and serve customers in a timely manner using manual, paper-based processes.
In addition, there will be many situations where customers want to avoid closing delays, and the most practical way to shorten the countdown to closing is to send the Closing Disclosure electronically and obtain an acknowledgement of receipt via e-signature.
John Hancock or Herbie Hancock?
The Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA) do not say much when it comes to security techniques and technology, but the legal definition of an electronic signature always includes language around signer identity.
This means that lenders need to identify users prior to e-signing, and they need to tie that authentication to the e-signature and e-signed record. Techniques to do so might include: email address, shared secrets, SMS PIN code, online ID service or Knowledge-based Authentication (KBA) provided by a third party such as Equifax, and more.
In fact, there are many ways to tie the customer to the transaction and prove that they are the person who participated in the signing process.
Educational resources
To learn more about e-signatures and e-delivery of the new integrated mortgage disclosures:
- Watch an on-demand webcast with myself and David Whitaker, counsel at BuckleySandler LLP, and one of the most experienced legal authorities on the topic of electronic mortgage disclosures.
- Download an educational white paper titled “Electronic Mortgage Disclosures: Using E-Signatures to Ease the TRID Compliance Burden.”
Michael Laurie co-founded e-SignLive by Silanis more than 20 years ago. Today, he is responsible for planning and growth strategies for product marketing and product management. Find out more on e-SignLive at www.silanis.com
