| NEW YORK, Sept 9
NEW YORK, Sept 9 As Chuck DeBonis was wrapping
up his stint as a civilian paramedic at a military base in
Kuwait earlier this year, he found a home he wanted to buy in
the Virginia town of Bristow for his return.
The problem? His mortgage lender wanted him to sign
paperwork, in person, in front of a notary public. So the
30-year-old flew 6,500 miles to sign on the dotted line.
"It was ridiculous and unnecessary," DeBonis said in
recounting his 14-hour trip.
His problem may be unusual in its scope, but it is one that
millions of U.S. homeowners and buyers face every day - and one
some U.S. lenders and state lawmakers are now trying to solve.
As it stands, nothing is official in mortgage documents
until there's a face-to-face meeting with a notary public, a
person who verifies borrowers' identities.
Lenders have long recognized notarization as a critical
anti-fraud measure. But the practice - which dates back at least
to Ancient Rome - is becoming passé in an era of FaceTime, Skype
and live-streamed social media.
The financial industry is pressing for change in the form of
"remote notarization." The service, available through companies
like Notarize Inc and NotaryCam Inc, uses secure webcams to link
borrowers and notary publics. Before their virtual meeting,
borrowers must answer random questions from their credit
histories to prove who they are.
But adoption has been limited because a patchwork of laws in
most states does not allow for the practice, and city and county
governments are slow to change. Investors who buy the loans
also impose restrictions, such as requiring original signatures
to avoid fraud.
Some big players in the mortgage industry want to bring
notarization into the 21st Century.
Quicken Loans Inc, the nation's third-largest mortgage
lender, is one of the biggest advocates for digital notarization
because face-to-face meetings clash with its online business
model. For USAA, which lends to U.S. military, remote
notarization could help customers who move frequently, the
Government-backed mortgage companies Fannie Mae and Freddie
Mac are also supporting remote notarization because they say it
has better safeguards against fraud, among other things.
Broadly speaking, webcam notarizations could cut expenses
for lenders, notaries and borrowers. Even without webcam
notaries, signing the documents electronically can save the
industry on average up to $1,100 per mortgage, according to
But as it stands, more than half of the 3,600 local clerk
offices across the U.S. only accept paper copies, according to
the Property Records Industry Association. Many counties go a
step further in requiring original ink signatures.
Although the vast majority of state laws allow for some form
of electronic real-estate documentation, only two states -
Virginia and Montana - expressly approve remote notarization.
Some counties, especially smaller ones, do not have the
budget to install software capable of processing electronic real
estate documents. For others, it's more of a "cultural shift
that's required," said Timothy Reiniger, who heads the digital
services group for Richmond, Virginia-based FutureLaw, LLC, a
law firm and consultancy.
The National Association of Secretaries of State held a
conference in July that featured panels about remote
notarization, and many state notary administrators were in
attendance. While some were receptive to the idea, others
challenged speakers on everything from fraud to whether video
recording of a notary signing could be hacked.
Some administrators, sitting around tables arranged in a
horseshoe, debated with a Quicken Loans speaker about if
notaries would know whether a webcam signer was being held at
Reininger, who researched the issue while helping to draft
Virginia's legislation, could not find a case in U.S. history in
which a notarized document was voided because the signer was
held at gunpoint.
"It's a red herring argument," he said in an interview.
Another challenge for webcam notarization is storing
documents and videos made of each signing, exposing them to
possible cyber theft. Advocates contend that cloud-based storage
is plentiful and point to the security of everyday electronic
banking transactions to bolster their case.
Virginia's webcam notaries are valid in the U.S., even if
the person signing is anywhere in the world, but Montana's law
is more restrictive. In real estate, it applies only to
transactions that involve Montana property, and the notary or a
"credible witness" must know the signer who typically must be a
Montana resident. States including Maryland and Texas are also
considering the technology.
Even without a nationwide legal infrastructure, some pockets
of the financial industry are charging ahead.
Quicken Loans is hoping to launch a webcam notarization
pilot with Fannie Mae and Freddie Mac. Several webcam notary
companies told Reuters they are testing their services with
lenders, but declined to name them.
In September, the Mortgage Bankers Association will host a
meeting in Washington for some of its members to discuss the
technology, a spokesman for the industry group said.
Fannie and Freddie gave the concept a big boost by voicing
support in a June letter to the National Association of
Secretaries of State. The two companies stand behind roughly 90
percent of new mortgages issued in the United States. They buy
webcam notarized loans, but in very limited instances.
Some mortgage closings are already partly electronic because
documents are signed on an iPad, but with a notary present.
Webcam notary companies say their technology could slice $60
to $100 in expenses from each transaction, mainly related to
printing expenses and travel.
Even so, most banks have not warmed up to the idea because
of a jumble of requirements for recording and selling loans to
investors, said Bob Davis, executive vice president for the
American Bankers Association. Until more states adopt laws that
explicitly allow for digital notarization, the process is stuck
in something of a time warp.
DeBonis, the paramedic, ultimately made two trips between
Kuwait and Virginia to close on the home he now owns because of
his lender's intransigence - even in a state where web
notarization is formally authorized. His only other choice was
trekking to a notary at the U.S. embassy in Kuwait, whose wait
list stretched out for at least a week, he said.
"It bothers me," said DeBonis, "how a lot of businesses
can't keep up with technology."
(Editing by Lauren Tara LaCapra, Carmel Crimmins and Edward