Security issues in online mortgage and loan applications
According to the Mortgage Bankers Association, online mortgage originations are expected to grow to $250 billion by 2003 from $4 billion in 1999 (although more recent estimates put that number much lower due to the economic turmoil in the technology sectors).
A number of companies have developed solutions suitable for this space, validating the need for PKI as an infrastructure to support the growing demand for online real estate transactions. Companies such as eVincible, LLC have created XML-based solutions (using PKI) to provide a mechanism for online form creation and signing. The XML format allows for generic formats so that archiving and later validation becomes easy. Software solutions that store and sign forms in a specific format (like MS Word 6.0) will have trouble later validating and/or viewing the document if the original viewer (Word 6.0) is not available. Other companies have solutions tailored specifically to mortgages. For example, Ingeo, a Utah-based company, has solutions that allow for online mortgages to be prepared and recorded. It even has an offering that allows electronic interfacing with government recording offices-all based on using X.509 certificates.
Since the federal e-sign legislation passed in 2000, online signatures were considered to have the same legal authority as ink-based signatures. One of the best areas in the financial industry for using PKI-based signatures is the mortgage industry. Experts guess about 15 to 20 touch points occur in a typical mortgage transaction (buyer, seller, escrow agent, notary public, banks, and more). As a result, the ability to authenticate users and then have them sign a digital mortgage application provides several advantages. The first key advantage is that the signatures and the document they sign can immediately be verified for authenticity. Second, the transaction can be automatically recorded and time-stamped. Finally, the archival (and subsequent retrieval) of the signed document becomes orders of magnitude easier (and cheaper) with digital signatures than a paper process.
The specific areas in which PKI can have a significant impact in the mortgage and loan process include the following:
- Loan origination
- Document processing and transfers (appraisals, for example)
- Loan closing (and creation of mortgage note)
- Loan recording
One of the concrete rollouts in the mortgage industry is the implementation of the Real Estate Finance Trust Network, a service developed by industry participants. The REFTN is an architecture for PKI for the real estate industry, which, of course, includes mortgage applications. The premise of creating an infrastructure for the industry would bring several key advantages, including the following:
- Faster loan processing (down to hours instead of weeks)
- Reduction in forgeries or altered documents (and, thus, reduction in checking for forgeries)
- Increased privacy for participants (because documents can be encrypted and delivered only to authenticated individuals and because audit trails can be put around access of the documents)
- Reduced overall loan costs, thus increasing the amount consumers can borrow
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