FHA & Lender Acceptance

June 2, 2009

Background:

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

What has changed?

Until recently, FHA's failure to keep up with the times did not have a major
impact on the real estate and mortgage ecosystem, as the FHA insured only
about 2% of originated single-family home loans. Due to recent changes of
the residential mortgage infrastructure, the market share of FHA-insured
mortgage loans has exploded, hitting nearly 30% in early 2009. The
increase in FHA's market presence and government scrutiny of lending
practices 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 resulted

from the surge in volume of electronic documents that were finding their
way into insurance case binders. In January 2009, the operational arm of
the Administration's single-family home loan group embarked on an effort to
update systems and procedures, including guidelines for processing
electronic loan packages, complete with electronic promissory notes (i.e. e-
mortgages). The effort is receiving "fast track" treatment and will be
released during the second half of 2009 at the earliest. DocuSign, both on its
own and through its participation in Electronic Signature and Records
Association (ESRA) has been at the forefront of this effort and moving it
forward.

FHA does accept DocuSign today

As the real estate industry's leading provider of electronic contract

execution, DocuSign has also sought to establish a clear distinction between
an electronic mortgage - with process requirements and controls that must
be in place at closing - and an electronically signed real estate contract,
seeking appropriate treatment of electronically signed real estate contracts
by lenders, the FHA, and other "downstream" recipients of these 100% valid
and enforceable agreements. Largely as a result of our early efforts, the
FHA in January 2009 affirmed its willingness to accept electronic
signatures and instructed its Home Ownership Centers not to reject
case binders containing electronically signed real estate contracts.

Challenges remain

This FHA policy has yet to be communicated to lenders in writing, as the FHA
prefers that the e-mortgage guidelines and electronic signature guidelines be
released concurrently to avoid further confusion. However, FHA's failure to
communicate a clear policy about accepting paper case binders that include
electronically signed documents, particularly paper copies of electronically
signed real estate contracts, has perpetuated confusion among realtors,
mortgage brokers and lenders. The compliance departments at major
lenders 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 mortgage
applications that included electronically signed documents. We expect these
policies to be reversed or relaxed very soon, but in the meantime much
confusion 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 documents
have been electronically signed by buyers and sellers using the DocuSign
electronic contract execution platform, and not one of these transactions has
failed for fraud or unenforceability arising from use of the electronic
signature.

DocuSign is used by real estate agents in all 50 states to allow parties to

real estate contracts to sign online, without paper. The DocuSign system has
been 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 recently
DocuSign has partnered with Reveal Systems to provide electronic signing of
real estate forms in 10 additional states. Approximately 750,000 real estate
agents and brokers have access to DocuSign for electronic execution of over
20,000 different kinds of forms used in real estate transactions.

DocuSign is also used by hundreds of mortgage brokers and correspondent

lenders 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 signed
documents, but not all documents in a mortgage application file are the
same. There is a difference between a mortgage closing document (such as
an electronic note) and a supporting document (such as a real estate
contract, addendum or disclosure). Supporting documents represent
contracts between consenting parties that have already been consummated
and are not part of the closing process. It is unusual for a lender to interfere
with a real estate transaction by asking for it to be re-executed. Ask the
broker or lender to clarify their position and to make sure they have all the
information they need to make that assertion.

If you are unable to get your lender to accept a DocuSigned contract as part
of a mortgage application, please immediately send the lender name and
contact info to legal@docusign.com.

Our broker/lender says FHA won’t take electronically signed

documents.

That is not correct. The FHA will accept DocuSigned real estate
contracts, addenda, appraisals and disclosures.

FHA has affirmed its willingness to accept electronic signatures and has
instructed its Home Ownership Centers not to reject case binders containing
electronically signed real estate contracts. If any cases are rejected (or
designated “NOR”) by a HOC, the FHA take it up directly with the HOC and
correct them.

If the lender receives a case binder back as NOR by a Home Ownership

Center because it contains an electronically signed real estate contract, they
should contact DocuSign’s legal department at legal@docusign.com or call
Ken Moyle at (206) 973-8187.

This is not an e-mortgage, so doesn’t that mean it can’t have

electronic signatures?

No. An e-mortgage is an electronically closed loan. The vast majority of

electronically signed real estate and mortgage documents are found in
traditionally closed mortgage loans. Electronically executed real estate
contracts are often emailed (or even printed and faxed) to lenders just as
their paper counterparts are, but with added convenience and security.
Similarly, electronic records are usually included with scanned paper images
in paper or electronic case files used by lenders for conventional closing and
servicing.

FHA has recently undertaken an initiative to prepare itself to accept

electronic mortgages, including e-Notes. However, there is no need to wait
until the e-mortgage guidelines are complete. Electronic documents and
signatures can be used today in FHA case binders.

Contact: Ken Moyle

Chief Legal Officer, DocuSign, Inc. (Seattle, WA)

Ken.moyle@docusign.com

(206) 973-8187

About DocuSign

DocuSign provides on-demand software services for electronic signature and online contract
execution, empowering individuals, small business and global enterprises to operate faster,
more efficiently and profitably with enhanced security and compliance. To date, more than
16 million signature events have been executed using DocuSign.

About ESRA

The Electronic Signature and Records Association (ESRA) is a national industry association
established to educate business, government and the public legal, regulatory and
operational issues related to the use of electronic signatures and records. ESRA’s web
address is: www.esignrecords.org.