If your organization is like many mortgage lenders, you’re taking advantage of digital technologies to support eClosing processes. But do you actually have a comprehensive eMortgage strategy? Just as important, does your eClosing solution power your eMortgage strategy end to end?
If you’re not sure about the answer to either of those questions, your organization might be missing out on one of the biggest business benefits of digitized mortgage processes: the ability to rapidly securitize eNotes for sale into the secondary market.
But to get the most from digital asset-backed securities (ABS), you need an eClosing platform with capabilities that support the entire life of the loan. In particular, your eClosing solution should enable instant creation and storage of a digital-original eNote in a secure eVault. It should also connect you with a robust ecosystem of secondary-market partners – including warehouse lenders, custodians, servicers, and investors.
eMortgages: Better experiences, better business
Many mortgage lenders have digitized at least some aspects of their closing process. Now, sophisticated banks and nonbank loan originators are seeking an eClosing platform that eliminates points of friction in the end-to-end mortgage process. An effective eClosing platform should offer complete functionality, including:
- eSignature execution – Support for eSignatures streamlines and accelerates closing processes and ensures you have a legally valid means of signature authentication.
- Remote online notarization (RON) connections – A built-in RON hub offers preconfigured, simple-to-use connections to the leading RON solutions.
- Doc-prep integration – Turnkey integration with document preparation – such as the Wolters Kluwer® Expere® doc-prep system – ensures instant access to compliant lender documents.
- Ellie Mae Encompass® integration – Fully automated integration with the Ellie Mae loan origination system (LOS) lets you build on origination with additional eClosing capabilities.
- Closing flexibility – Support for every closing scenario – from paper to hybrid to contactless and remote – enables you to provide both borrowers and settlement agents with excellent customer experiences.
Optimizing the digital loan lifecycle
But just because you can do eClosing doesn’t mean you have a robust, scalable eClosing solution – or a successful eMortgage strategy. After all, the life of every loan you originate extends well after it is executed. In fact, you can realize some of the biggest benefits of eMortgages later in the loan lifecycle. Achieving that goal involves several components:
eNote creation – An eNote is an authoritative digital promissory note. In many ways, it is the most crucial component of your eMortgage strategy. Like their paper equivalents, eNotes indicate mortgage asset ownership – a requirement for sale of digital mortgage-backed securities (MBS) into the secondary market.
Your eNote technology should provide an auditable and tamper-proof digital chain of custody. That digital asset certainty is what allows you to demonstrate that your digital mortgages meet all Safe Harbor requirements and assure legal enforceability under laws such as the Uniform Commercial Code (UCC) Section 9-105, Uniform Electronic Transactions Act (UETA), and Electronic Signatures in Global and National Commerce Act (ESIGN).
- eVault document storage – When you generate eNotes, your eClosing solution should automatically and immediately store them in an eVault. The purpose of the eVault is to reliably establish the person or entity to whom the single, authoritative copy of the eNote is assigned, issued, or transferred. The eVault provides a secure environment that ensures the eNote remains negotiable and transferable. An effective eVault allows privileged access to the document without compromising the integrity of the original.
MERS® eRegistry – MERS® eRegistry is the legal system of record for identifying the holder, custodian, and servicer of every eNote. In fact, registration in MERS is required by Fannie Mae and Freddie Mac for eNote transfers.
The number of eNotes registered in MERS soared 261% year over year in December 2020, with a total of more than 460,000 eNotes registered by the end of that year.1 About 95% of eNotes in MERS were generated by eOriginal eNote technology.
When you complete the closing process, your eClosing solution should enable you to register the eNote in MERS. It should also allow you to update the servicer and custodian or transfer control to an investor as needed. You should likewise be able to log life-of-loan events such as when the loan is modified, assumed, or paid off.
Fannie Mae, Freddie Mac, and Ginnie Mae – Key to the surging adoption of eNotes is their acceptance by government-sponsored entities (GSEs) such as Fannie Mae, Freddie Mac, and Ginnie Mae. GSEs make up the majority of secondary-market transactions.
Fannie Mae purchased its first eMortgage in 2003 and Freddie Mac in 2005. In 2020, Ginnie Mae launched a Digital Collateral Program to accept eNotes as valid collateral, allowing issuers and custodians of Ginnie Mae securities to accept and transfer eNotes. The effort was enabled by eOriginal, which Ginnie Mae selected to provide eVault software and services.
With an effective eClosing platform – one that generates eNotes with digital asset certainty and stores them in an eVault with an auditable and tamper-proof digital chain of custody – you’re equipped for digitized securitization.
Your eClosing solution should enforce workflows so that there are no missing signatures or misplaced documents when it comes time to pool your eAssets. You gain accuracy and transparency, reducing risk and increasing confidence.
You can also better manage compliance because you have easy access to all the data you need. You have a secure audit trail with detailed timestamps, so you can readily show evidence of compliance. There are no surprises because you’ve verified every detail during preclose.
Digital-original eNotes stored in a secure eVault also deliver operational efficiencies, as you can quickly package up your ABS for secondary-market sale. Many lenders have reduced the time between closing and secondary-market delivery from a typical 21 days to as little as two days.
You also gain better management of capital and warehouse lines of credit. You can potentially lower the cost of capital because you know what each transaction will cost to fund. You also reduce the risk of loans remaining on a line of credit for an extended period of time. Shorter dwell times mean you can fund primary-market activities more quickly.
Taking full advantage of the secondary market
Finally, the right eClosing solution will give you heft and scale in the secondary market. This capability is crucial because mortgages involve a complex ecosystem: borrowers, settlement agents, originators, warehouse lenders, custodians, servicers, and investors. In fact, this complexity is a key reason that, even though the first eNote was issued some two decades ago, many lenders only now are fully embracing end-to-end eClosing.
Look for an eClosing platform that’s widely accepted by secondary-market players such as warehouse lenders, custodians, and investors. The technology should support smooth integration with and access to these market participants. This secondary-market access will deliver scalability to your digital mortgage portfolio.
Ultimately, your eClosing solution should power eNote creation, eVaulting, and securitization with technology that’s:
- Trusted – Delivers digital asset certainty, meeting all Safe Harbor requirements and enabling legal enforceability under UCC 9-105, UETA, and ESIGN
- Scalable – Can handle high eNote volume and support your business growth
- Efficient – Increases capital efficiency and reduces dwell times with swift secondary-market delivery
- Open – Provides access to a broad ecosystem of secondary-market counterparties – including warehouse lenders, custodians, servicers, and investors
Both banks and nonbank lenders – along with their financial networks – are discovering that an end-to-end eMortgage strategy is now a competitive necessity. An effective strategy powers growth by providing better access to borrowers and accelerated delivery of data-rich trusted mortgage documents to the secondary market. Secondary-market success drives monetization and creates liquidity that delivers primary-market advantages. It’s no wonder eMortgages are fast becoming the norm in mortgage lending – and lenders with an end-to-end eMortgage strategy are achieving success.
Understanding the laws, technologies, and best practices around eClosings is crucial to your success. For a discussion on how our eClosing solution can benefit your business, schedule a meeting with one of our product experts here.1“MERS eNotes Increase 261% in December,” HousingWire[ES1] , January 2021