The Mortgage Bankers Association is urging the FHA to simplify the mortgage application process by allowing the use of electronic signatures on all documents used in originating FHA home loans.

Doing so would help streamline the mortgage origination process, according to the MBA, allowing loans to be closed more quickly while eliminating lost paperwork and possibly reducing costs for borrowers. It notes that many private lenders have already automated their own mortgage application processes that allow for electronic signatures and document submissions.

The MBA notes that much of the mortgage application process is commonly done by electronic means, including obtaining credit reports, ordering appraisals and verifying financial resources. It says that automating the process also makes it easier for borrowers to provide necessary information while eliminating delays in processing the mortgage application.

The use of electronic documentation also reduces costs for such things as printing and courier services, the MBA notes. It would also eliminate the need for borrowers to prepare duplicate paper documents if, during the application process, they decide to seek an FHA loan instead of a conventional one.

"The aforementioned benefits ultimately result in lower costs for the consumer, as lenders pass on savings to remain competitive," the MBA wrote in a letter petitioning Federal Housing Commissioner Robert Ryan. "Additionally, borrowers experience a more seamless and satisfying homebuying process."

Safeguards built into the e-signature process could also help reduce mortgage fraud, the MBA contends, noting that procedures for borrower authentication are typically more stringent than those required by a notary public for a paper document.

Electronic signatures are currently accepted on loan documents by Fannie Mae and Freddie Mac, as well as on federal income tax returns. They are also widely used in business transactions as well. The FHA currently allows them on some, but not all, mortgage origination documents.

Published on June 3, 2011