We often receive questions about how the use of electronic signature technology impacts your ability to pledge loan collateral to support your advances and other credit obligations at FHLBank. Below, please find a few common questions we’ve heard from members about our collateral policies in this area.
Can I pledge my loans as collateral when using an electronic signature (e-signature) platform to originate and close the loans?
Yes, as long as you keep paper originals of key documents. We understand the efficiencies and improved customer experience associated with new technology that provides electronic records (transferred to electronic form, as by scanning) or with e-signatures, but there are still some unknowns as to how these practices will impact the ability to sell or liquidate an asset, more specifically the concerns regarding the ability to enforce a security interest and how the assets will be treated in the marketplace if they need to be sold. As a result, a hybrid process is usually available that allows certain key documents, such as the note, to be printed on paper and signed using a pen, creating a “wet” signature, while other documents can be signed electronically or maintained in electronic form.
This hybrid approach has several advantages to you and does not impact the eligibility of your loan collateral with the FHLBank.
Which loan documents need to be originals as opposed to electronically signed or imaged documents?
We only require that you retain a “wet” signature on the original note that is pledged to the FHLBank and any trailing documents that would change the original note (i.e., modifications, extensions, assumption, endorsements and/or renewals). All other loan documentation can be electronically signed or maintained in electronic form.
What about how a security instrument (i.e., mortgage or deed of trust) is recorded? Is electronic recording acceptable?
As long as the security instrument is recorded in an acceptable manner for your county, we have no issues with how its recorded – electronic or a paper file.
Why do we require original notes?
As a cooperative, it is important for FHLBank to meet legal and regulatory standards in order to mitigate the risks that might impact our ability to take possession and/or liquidate pledged collateral should that become necessary. Because of the legal uncertainties today with enforcing a security interest with an electronically signed or electronic copy (no “wet signature”) and the unknowns regarding how the assets will be treated in the marketplace if liquidated, we have determined that we must continue to require the wet signatures and original key documents.
Looking Ahead
We remain committed to continually reviewing our collateral policies to help our members easily access liquidity. We are in favor of new technology, but until mitigating factors are identified to resolve the risks, we encourage you to use the hybrid approach described above.
If you have any questions on these requirements, please contact
Sonia Betsworth, SVP, Chief Credit Officer,
Tom Bliss, VP, Director of Member Credit Analysis or
Kylie Mergen, AVP, Collateral Review Manager, at 800.905.2733.