eDisclosures - Sorting Out the Mess

You can speed up your business and ensure compliance by using an electronic disclosure system

By Fredric J. Gooch, compliance expert, DocuTech Corp.

Many mortgage professionals find the rules regarding early or initial disclosures to be complex, time-consuming and unreliable. For brokers in search of an easier way to disclose loan features and cost estimates to their clients, the answer may be going electronic. Delivering disclosures electronically offers many benefits over the traditional fax and mail systems. Not only does it often ensure compliance with regulations, but it also saves time; borrowers can receive electronic communications immediately. Additionally, electronic disclosure systems allow monitoring and reporting on the status of all disclosures. These reports provide proof of disclosure distribution and status updates, enabling brokers to check if the borrower has accessed the disclosures. On a slightly smaller scale, brokers can benefit from a reduction in office-supply costs from eliminating paper disclosures. Mortgage originators who are not afraid to leverage technology and provide borrowers with the most-advanced solutions also could attract more borrowers. After all, clients often would much rather see an electronic disclosure than yesterday’s old mail.

What Partners Should Have

When shopping for a service-provider, here are the key areas to consider:

1. Compliance - In today’s volatile lending climate, compliance must be the first concern for mortgage brokers. If a disclosure system does not  comply with  all  the federal,  state,  agency and  investor  requirements,  then  it’s not worth much. Brokers should make sure that the right disclosures will be delivered in the correct format in the proper time frame, just as they would with paper disclosures. Compliance is not a place to take shortcuts. A compliance failure can have debilitating effects on your business, including lawsuits, trouble with regulators and loss of time and money. The good news is that once you have ensured that your providers are compliant, you can turn these responsibilities over to them.
2. Reporting - A  good  service will  have  a reporting  feature  that  lets brokers  track  every stage of the disclosure process to make sure that everything is completed on time. The reporting function could also be tied to a mailing service. This could send paper copies of the disclosures to borrowers automatically if they don’t access them within the time limit set by state and federal law.
3. Privacy and security - A service-provider should verify and prove that it is taking the proper steps to protect your borrowers’ private information. Te last thing you need is a security breach during the disclosure stage.
4. Storage - Choose a service-provider that can store the documents or proof of documentation for the time required by all pertinent regulators. The provider should already know these timeframes.
5. Technology - Seek technology that speeds up the electronic disclosure process from days to minutes. The technology solution should also meet your individual business preferences and needs, such as providing remote access to geographically diverse offices.

Knowing Legal Requirements

When using electronic disclosures, be aware of specific legal requirements. The enforceability of electronic transactions primarily falls under the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA). ESIGN is a federal law, and UETA is a model act that 46 states and the District of Columbia have adopted. These requirements, as involved as they may look on paper, are simply the electronic extension of disclosure regulations in paper-based systems. A good disclosure-service provider will have systems built in to ensure that brokers meet all applicable regulations.

To receive electronic disclosures, brokers and their clients must agree to communicate electronically. Clients can quickly and easily consent to this during the first meeting. Prior to consenting, however, clients receive a clear and conspicuous statement that informs them of the following.

• Any right or option to have the record provided or made available in a non-electronic form
• The right to withdraw the consent to electronic disclosure and any conditions or fees associated with the withdrawal
• Whether the consent applies only to a particular transaction or to all records provided during the course of the relationship
• The procedures the consumers must use to withdraw their consent and to update the information needed to receive the electronic disclosure

Before giving consent, borrowers also must receive a statement of the hardware and software requirements for accessing and retaining the electronic disclosures; this hardware and software is standard on most home computers. Borrowers must reasonably demonstrate their ability to access the information in the electronic form that will be used to provide the information.

Another important part of the law outlines that if the originator changes its hardware or software requirements for accessing or storing the disclosures, the borrower must receive a new disclosure.

Regulation Z, the implementing regulation of the Truth-in-Lending Act, also outlines some requirements for electronic disclosures. The regulation authorizes the provision of electronic disclosures in accordance with its rules and the rules provided in ESIGN. It requires that brokers send the disclosure to clients in an e-mail or make the disclosure available at another location, such as a Web site. Brokers also must alert clients of a disclosure’s availability by sending a notice to their e-mail or postal addresses.

Brokers are required to keep the disclosure available for 90 days from the date the disclosure first is available or from the date of the disclosure notice, whichever comes later. If an e-mailed disclosure is returned to brokers undelivered, they are required to take reasonable steps to attempt redelivery using the information in their files.

By implementing electronic disclosure systems, brokers can run more efficient businesses — allowing them to focus more resources on generating loans. In addition to increasing the bottom line, electronic disclosure systems can be the first step to a paperless mortgage.