Managing Digital Assets for Loans, Leasing, and Mortgage with eSignatures and eVaulting
COVID-19 has dramatically accelerated the rate of digital adoption in the financial services industry. E-signatures have played a critical role in helping lenders digitize the loan application process – without the need for face-to-face interaction. This success has spurred greater interest in fully digitizing the closing process. Because closing is complex – involving strict rules for notarization, recording, and tracking of the loan – lenders have struggled to move to an all-digital process. In this blog, we’ll explore how e-signatures paired with e-vaulting are helping banks and lenders complete the ‘last mile’ of the lending process, in a world where ‘digital’ is becoming table stakes.
For those in the banking and financing sectors, one of the most important assets are the loans and leases made to customers. However, it takes a substantial amount of cash to fund loans and turn them into financial assets. For funding, closed loans and leases are purchased or financed by other lenders or investors. This supply-chain system has driven the growth of financing and the economy for the past 40 years and will continue to do so in the coming years. Financing in other sectors operate in the same manner including auto, student, commercial, and consumer lending.
Managing financial assets is a large undertaking. Each loan or mortgage requires a high level of scrutiny and documentation to support its funding. Key documents must be unique, original copies that are accurate and completed with trustworthy signatures. Loan and lease files are bundled by the thousands to be sold or securitized to buyers and investors who will require further scrutiny. In the background, custodians and servicers handle secure storage, collection, and distribution of payments as well as correcting problems with loans.
Lending documents are complex and have a high risk of errors, missing information, and misplacement. Changing laws and regulations also add to the risk for lenders and investors. Introducing electronic signatures makes it possible to reduce the risk of errors and improve efficiency tremendously with digital transactions.
What’s Different with Digital Assets?
Adoption of eSignatures has accelerated with customers increasingly relying on online and mobile channels to conduct business remotely. Today, consumers expect digital to be a normal part of doing business, including lending and financing. Since the onset of the pandemic, tech-powered digital lenders experienced a substantial increase of loan applications. One digital lender saw a 123% increase in loan applications compared to the same period last year. This increase indicates the shift of borrowers turning to easily accessible online digital lenders, compared to physical branches of traditional financial institutions.
In the paper world, promissory notes are widely used in mortgages and unsecured loans, while financing contracts are used for automobiles, equipment, or other goods. These essential documents must be unique, original copies to prove which lender or investor has the right to receive the proceeds of the loan or lease.
In the digital world, the unique, original e-signed notes and contracts are known as authoritative copies. Authoritative copies are legally recognized by the ESIGN and UETA laws as well as Article 9 of the Uniform Commercial Code (9-105). ESIGN and UETA apply to notes used in mortgages and other note-based loans, while 9-105 applies to financing of goods, including automobiles and equipment, with financing e-contracts sometimes referred to as e-contracts or e-chattel. The legal requirements for authoritative copies were created to ensure that e-notes and e-contracts can be stored and maintained as unique, original copies, and that they can be assigned, transferred and generally managed while maintaining legal control by the rightful owner of the loans.
eSignatures and eVaulting to Manage Digital Assets
For organizations looking to fully automate mortgage and lending workflows by leveraging eSignature and eVaulting capabilities, the benefits are significant:
- Great customer experience
- Improved productivity and efficiency
- Reduced errors
- Stronger compliance
- Direct access to all loan data throughout the lifecycle of the loan
The same benefits apply with document transfers and assignment, funding and securitization, and servicing and custody. Access to certified, original loan data is especially valuable to allow real-time verification and approval of the loans as they move between lenders, investors, and servicers. The loan documents go through many steps over a period of years.
OneSpan, through its partnership with eOriginal, offers an eClosing and eVaulting solution to help banks and lenders accelerate the lending process while preserving their chain of custody and legal control of the authoritative copy as required by law. The combined solution achieves this by implementing three key controls:
- The first control allows only the rightful owner of the e-signed loan/lease documents to access and initiate transfers of the authoritative copies to other parties.
- The second control provides an irrefutable chain of custody showing the sequence of events and authorizations of transfer for the life of the document
- Finally, the third control ensures that any attempt to change the authoritative copy of the document will be flagged as unauthorized.
eVaulting provides the tools for lenders, investors, custodians, and servicers to manage the authoritative copy throughout their lifecycle. Any aspect of transfers of assignment and location are easily handled, as are pay-offs, charge-offs, various types of loan modifications, and certified copies for legal proceedings. It also supports:
- Conversion of original, signed paper loan documents to the digital world
- Secure roles and delegation for custodians and servicers
- SmartDocs and the MERS e-Note Registry for the mortgage industry, as well as certification with major investors
- The TOLEC standard to transfer loan/lease documents to other vaults for auto, equipment, and consumer financing
For banks, lenders, investors, and organizations serving this market, the move from managing paper files to digital assets based on e-signed loan documents is a game-changer. Loans that took days or weeks to close and fund can now be done in minutes with far greater trust when using eSignatures and eVaulting throughout the loan’s lifecycle.
As a pioneer in the eSignature and eClosing markets for more than 20 years, OneSpan has vast knowledge of managing digital loan agreements. OneSpan’s partnership with eOriginal helps organizations meet regulatory requirements by archiving important signed documents in a secure electronic vault. Learn more about how we can help automate your lending and mortgage processes with eSignatures and eVaulting.