February 16, 2016
In our last blog post we reviewed the rules in HUD 4000.1 on borrower signatures on FHA mortgage documents. Ever since the publication of HUD 4000.1 late last year we have been examining key passages in the new rule book as there have been many changes, updates, and restatements of FHA mortgage loan policy borrowers and industry professionals alike should be aware of.
FHA loan rules for single-family mortgages permit the use of electronic signatures on certain FHA mortgage loan documents provided the signature and procedures used in collecting those signatures meets FHA standards. HUD 4000.1 addresses these requirements, starting with a basic definition of “electronic signature” to avoid confusion:
“An Electronic Signature refers to any electronic sound, symbol, or process attached to or logically associated with a contract or record and executed or adopted by a person with the intent to sign the record. FHA does not accept an electronic signature that is solely voice or audio. Digital signatures are a subset of electronic signatures.”
Is the use of an electronic signature legally binding for an FHA loan? HUD 4000.1 says that if it meets FHA criteria, yes.
“An electronic signature conducted in accordance with the Electronic Signature Performance Standards (Performance Standards) is accepted on FHA documents requiring signatures to be included in the case binder for mortgage insurance, unless otherwise prohibited by law. Electronic Signatures meeting the Performance Standards are treated as equivalent to handwritten signatures.”
Lenders are not required to use electronic signatures, but those who choose to do so must comply with standards. “A Mortgagees electronic signature technology must comply with all requirements of the E-Sign Act, including those relating to disclosures, consent, signature, presentation, delivery, retention and any state law applicable to the transaction.”
Assuming the e-signature meets FHA requirements, here is a list of the documents FHA loan rules currently permit to be signed electronically:
–Mortgage Insurance Endorsement Documents: Electronic signatures will be accepted on all documents requiring signatures included in the case binder for mortgage insurance except the Note. FHA will accept electronic signatures on the Note for forward Mortgages only. FHA will not accept electronic signatures on HECM Notes.
–Servicing and Loss Mitigation Documentation: Electronic signatures will be accepted on any documents associated with servicing or loss mitigation services for FHA-insured Mortgages.
–FHA Insurance Claim Documentation: Electronic signatures will be accepted on any documents associated with the filing of a claim for FHA insurance benefits, including form HUD-27011, Single Family Application for Insurance Benefits.
–HUD Real Estate Owned (REO) Documents: Electronic signatures will be accepted on the HUD REO Sales Contract and related addenda.
For information on how e-signatures would work with a particular lender, discuss the issue with a loan officer. Different financial institutions may have varying standards or requirements in this area. E-signatures and their use may also be governed by state law–FHA loan rules do not override local, state, or federal law. Your lender may have additional information about the technology required to make valid e-signatures in a specific transaction in a specific state.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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