ALTA® Letter to Freddie Mac Electronic Mortgage Task Force
December 4, 2000
Attn: Electronic Mortgage Task Force
8200 Jones Branch Drive
McLean, Va. 22102
Thank you for the opportunity to comment on the preliminary specifications. We are grateful that you have sought the title insurance and settlement services industry?s input. We believe that the title insurance industry will maintain an important role in this process in continuing to issue insurance in the electronic mortgage arena and, as you know, has been an integral part of the pilot electronic closings conducted to date.
These are our initial comments. As requested, the comments are formatted according to section number. We are also currently soliciting comments from our line operations, and hope to forward you more detailed comments shortly.
Section 1. Definitions
1.9 Mortgage File
We are pleased to see that the definition of mortgage file includes a title insurance policy.
Section 2. Consent
2.3.1 Consumer/Property Owner Consent:
The specifications do not recognize the current separation of the loan and closing process. Namely, because the consumer has the option of selecting the settlement service agent, the loan originator is not able to identify closing fees. Consequently, it might be advisable to identify a range of fees, rather than the specific fees suggested in the lender disclosure. Alternatively, it might be feasible to suggest inclusion in an originator?s statement that a separate closing fee may be charged and separate disclosures may subsequently be provided for an electronic closing.
On page 17, near the bottom, a disclosure is provided for fees for obtaining paper copies of all documents. In addition, near the top of page 18, there is a commitment to provide paper copies of all documents upon request without any charge. This is inconsistent, placing the onus on the settlement agent, but no one else, to provide paper copies without the ability to recoup costs. This is also in contravention to the Electronic Signatures in Global and National Commerce Act.
Still in 2.3.1, on page 19, a "conspicuous disclosure" should not require the viewing party to scroll through text or graphics in order to view the conspicuous information. This is a specific proposal that reflects a general concern. Is this specificity needed given the early stage of electronic transactions?
2.5 Timing of Consent
The section currently reads: "Each party?s consent must be obtained prior to the commencement of their first receipt or delivery of electronic records which would otherwise be required to be in writing." We would like to see a specification that if the consumer has given consent to an originator for an electronic origination and closing, that it would be sufficient for the settlement agent, who would not have to reobtain consent to close an electronic mortgage electronically. On the other hand, we may want authorization to confirm sometime later in the transaction that consumers have consented to the electronic transaction.
While the specifications are fairly clear as to the requirements for consumers, to ensure national conformity, it would be helpful to have a sample consumer disclosure form provided in the specifications. If you choose to pursue that option, we would be happy to work with you on a specific disclosure.
Section 3. Execution
Section 3.2.2 "requires" the notary to determine the self-awareness and absence of duress of the party signing. One of our members pointed out that this determination is not standard, and that this may create substantive law where none exists.
Section 4. Document Format and Delivery
4.1 Compliance with existing formatting rules
This section notes that "any legal requirements concerning the content, display, or format of information if it were in writing must be observed both with respect to electronic display of the electronic record and printing of the electronic record."
We hope that Freddie Mac, as a participant in the Joint Property Records Task Force of the County Recorders, would, at a minimum, encourage all participants in the real estate industry to comply with these voluntary standards. While these are paper standards for recording mortgage transactions, the ability to have documents printed in recordable form will help move forward the speed of transactions. Our industry strongly believes this addition will help enormously in the recordation process, the only process where paper is currently required. We encourage Freddie Mac to explore making compliance with these standards mandatory.
4.2 Specifications for file formats
We commend you for choosing an open architecture system, rather than requiring that all participants use the Goldmark system, and for allowing use of nontrademarked systems. However, we also suggest that you may want to specifically indicate that XMHTML 1.0 is an acceptable alternative.
Section 5. Document Integrity
5.4 Replacing Electronic Records
It is standard practice in the creation of systems where information must be highly available that certain technology is deployed whereby duplicate copies of records are stored online in redundant hardware. This redundancy assures that in the event one device fails the other makes its copy of the information instantly available. Such redundancy is necessary to support 24X7 operations. Such redundancy may also be warranted when a single device may be incapable of economically servicing the day-to-day load resulting from numerous parties accessing the information simultaneously. That is, to support a single authoritative copy may require a system so advanced as to be economically infeasible (a supercomputer with massive expensive disk storage).
Today, we routinely deploy equipment that balances the workload across multiple devices where data is replicated automatically between multiple storage devices. This, by definition, results in multiple copies. If taken literally, paragraph 5.4 would seem to preclude such techniques.
Furthermore, if required to maintain a single authoritative copy without the benefit of redundant online copies, a hardware failure may result in the destruction of data that would have to be subsequently restored from tape backup. Such restoration may require the verified authorization of the note holder. It is not clear that an agreement signed in advance would allow for automatic restoration without affirmative authorization after a hardware failure. Aside from the fact that getting authorization from all parties affected by a hardware failure could take weeks if not months, tape restoration processes are lengthy and thus are in direct conflict with the requirement to support 24X7 operations.
Section 7. Document Access:
7.4 Time frame for Access
This provision places the burden on the seller of the mortgage, and then the servicer to continue to provide access for the borrower and the noteholder.
Ann vom Eigen,