FHA & Lender Acceptance

June 2, 2009

Background:

Nine years ago, the federal ESIGN Act passed through the legislative processto become national law. However, some federal and state agencies havebeen slow to adopt rules and guidelines consistent with ESIGN's intent toremove barriers to e-commerce. Among these is the U.S. Department of Housing and Urban Development (HUD), resulting in a current HUD policyyet to officially recognize electronically signed documents submitted to itsmortgage insurance arm, overseen by the Federal Housing Administration(FHA). The most recent policy statement from FHA on e-signatures datesback to 2003, when the Administration announced that it would acceptelectronically signed property appraisals.

What has changed?

Until recently, FHA's failure to keep up with the times did not have a majorimpact on the real estate and mortgage ecosystem, as the FHA insured onlyabout 2% of originated single-family home loans. Due to recent changes of the residential mortgage infrastructure, the market share of FHA-insuredmortgage loans has exploded, hitting nearly 30% in early 2009. Theincrease in FHA's market presence and government scrutiny of lendingpractices has led to increased deference to FHA standards and policies.

Progress is being made

The FHA's response to the changing climate of mortgage insurance resultedfrom the surge in volume of electronic documents that were finding theirway into insurance case binders. In January 2009, the operational arm of the Administration's single-family home loan group embarked on an effort toupdate systems and procedures, including guidelines for processingelectronic loan packages, complete with electronic promissory notes (i.e. e-

mortgages). The effort is receiving "fast track" treatment and will bereleased during the second half of 2009 at the earliest. DocuSign, both on itsown and through its participation in Electronic Signature and RecordsAssociation (ESRA) has been at the forefront of this effort and moving itforward.

FHA

does

accept DocuSign today

As the real estate industry's leading provider of electronic contractexecution, DocuSign has also sought to establish a clear distinction betweenan electronic mortgage - with process requirements and controls that mustbe in place at closing - and an electronically signed real estate contract,seeking appropriate treatment of electronically signed real estate contractsby lenders, the FHA, and other "downstream" recipients of these 100% validand enforceable agreements. Largely as a result of our early efforts,

theFHA in January 2009 affirmed its willingness to accept electronicsignatures and instructed its Home Ownership Centers not to rejectcase binders containing electronically signed real estate contracts

Challenges remain

This FHA policy has yet to be communicated to lenders in writing, as the FHAprefers that the e-mortgage guidelines and electronic signature guidelines bereleased concurrently to avoid further confusion. However, FHA's failure tocommunicate a clear policy about accepting paper case binders that includeelectronically signed documents, particularly paper copies of electronicallysigned real estate contracts, has perpetuated confusion among realtors,mortgage brokers and lenders. The compliance departments at majorlenders such as Wells Fargo and Countrywide (now Bank of America) have

taken steps to better understand the FHA’s position. These lenders have

recently adopted cautious, temporary policies that have flagged mortgageapplications that included electronically signed documents. We expect thesepolicies to be reversed or relaxed very soon, but in the meantime muchconfusion remains.

Frequently Asked Questions

My broker has never seen one of these signatures before. How do we

know it is “real”?

Over the past five years, hundreds of thousands of real estate documentshave been electronically signed by buyers and sellers using the DocuSignelectronic contract execution platform, and not one of these transactions hasfailed for fraud or unenforceability arising from use of the electronicsignature.DocuSign is used by real estate agents in all 50 states to allow parties toreal estate contracts to sign online, without paper. The DocuSign system hasbeen identified as the electronic signature of choice by the California

Association of Realtors since 2005 and is branded as “Zipform Esign” for

users of the Zipform real estate form network in 34 states. More recentlyDocuSign has partnered with Reveal Systems to provide electronic signing of real estate forms in 10 additional states. Approximately 750,000 real estateagents and brokers have access to DocuSign for electronic execution of over20,000 different kinds of forms used in real estate transactions.DocuSign is also used by hundreds of mortgage brokers and correspondentlenders to execute front-end RESPA disclosures online. These include TIL,GFE, and all state-required disclosures.

My mortgage broker says the lender won’t accept electronic

signatures

A few lenders have some policies in place that restrict electronically signeddocuments, but not all documents in a mortgage application file are thesame. There is a difference between a mortgage closing document (such asan electronic note) and a supporting document (such as a real estatecontract, addendum or disclosure). Supporting documents represent