Battle Royale: The Struggle Between SMART Docs and PDF Forms for Mass Acceptance

Do you remember Beta videotapes? How about 5.25-inch floppy disks? Eight-track tapes? Each of these technologies fell victim to a rival format – VHS, 3.5-inch floppies and cassette tapes – which in turn have all faded away as better technologies like DVD, CD-ROM and MP3 have become available.

The mortgage industry has a similar showdown looming. With lenders and investors rapidly adopting more electronic documents to better comply with TRID and save time and money, two eDocument formats have squared off.

In one corner is the dynamic data-driven Securable, Manageable, Archiveable, Retrievable and Transferable document (MISMO® SMART Doc®). In the other is the Adobe Portable Document Format (PDF).

Which format will prevail? While it’s too soon to know for sure, there are some key differences between the formats lenders should know.

SMART Doc or PDF? What’s the Difference?
While both types of eDocuments can achieve the same thing – a legally bound loan document – each format takes a different approach. An eSigned SMART Doc is a single electronic document with five sections: Header, Data, View, Audit and Signature. SMART Docs are XML-based and designed to be created, viewed and stored in a Web environment. PDF Documents are viewed either within a Web browser or through stand-alone utilities like Adobe® Reader® and many others.

Both eSigned SMART Docs and eSigned PDFs have features and benefits useful to the lender. One thing to remember before deciding which format to use is that the two types of eDocuments are not mutually exclusive -- a SMART Doc can include an encoded PDF file that has been electronically signed.

The SMART Doc Version 1.02 format has been implemented by most eClosing technology providers, and it is the only electronic note format accepted by Fannie Mae. SMART Docs are data-driven and independent of any proprietary software. The format makes it easy for lenders and investors to automatically extract loan data. The Audit Trail feature can track document creation, modification and transmittals, providing a secure record of all document changes.

However, SMART Doc eNotes have been challenging to implement, and require a bifurcated eSigning process because eSigned PDF is currently used for the remaining closing documents. Additionally, few organizations outside mortgage lending use XML for binding legal documents. The required XHTML View (for SMART Doc Category 1 eNotes) can also create inconsistent displays on different Web browsers, and print rendering can be inconsistent.

eSigned PDF documents, which have been in use longer than SMART Docs, are the most widely used format by mortgage lenders, even though most investors do not accept them. These documents are legally binding, and eSigned PDF files are accepted by many industries outside of mortgage lending, such as auto sales, tax filings and military transactions. PDF documents are easier to implement and present a consistent display across all Web applications. In addition, all eSign providers can electronically sign PDFs. PDF documents are also easy for the borrower, since free PDF reader software is readily available for home computers, allowing borrowers to easily receive, view, save and print the documents for their own records. However, it is more difficult to embed data into PDF Documents in a standardized format, something that SMART Docs were designed for from the start.

Will One Format Rise Above?

Like VHS’s acceptance over Beta, the format with the highest level of innovative technology does not always survive to become the standard. But for electronic mortgage documents, the race for mass acceptance doesn’t have to be a choice of convenience versus more advanced data access. The MISMO SMART Doc V3 structure (an inherent part of the 3.x Reference Model XML specification) includes both an XML Data section and a View section that allows any file format – PDF, Microsoft Word, image, etc. Thus it offers the industry the opportunity to use a consistent, standardized structure for all loan documents – disclosures, closing and title – with XML data and a PDF view, the best of both worlds. 

Fannie Mae and Freddie Mac are looking hard at ways to facilitate broader eMortgage adoption in 2016, per their FHFA Scorecard mandate. In a recent survey, they received significant feedback on the various options for eNote formats and expect to publish a summary soon. The MERS® eRegistry does allow for registration of PDF or SMART Doc V3 eNotes, through the Data Point registration method, so this aspect would not be an obstacle to embracing a different format.

While neither PDF nor SMART Doc 1.02 answer the industry’s need for a universal intelligent electronic document format, SMART Doc V3 with a PDF View provides a universal View format coupled with intelligent, standardized XML data. Widespread adoption could be spurred on by broad investor acceptance, which could be led by GSE acceptance and an associated timeline for required delivery. Today’s top document vendors can dynamically generate multiple output formats, and it is not difficult to add SMART Doc V3 to their systems.