The Future is Bright for E-mortgages: An Overview of Relevant Laws and Requirements

November 9, 2017

By Michael Gordon and Rajasekhar Penugonda

The industry is working to streamline the overall mortgage process by encouraging the use of electronic documents. Fortunately, there are U.S. federal and state laws that permit lenders to originate e-mortgages in any state and deliver them to investors, including Freddie Mac, for purchase. And with the legal framework in place, interest in e-mortgages is picking up speed.

While barriers to adoption remain, powerful forces are driving interest in e-mortgages, not the least of which is borrower demand for faster, better and more reliable service. No fewer than 15 financial institutions have begun implementing e-mortgage process tests or committing to the e-mortgage business outright over the past year. Eight other financial institutions are ready to provide warehouse financing for e-notes.

With increasing interest from lenders, now is the time for title companies to talk to lender partners to get ready to implement electronic closings.

Legal Foundation

An e-mortgage is a mortgage loan where the critical loan documentation—specifically the promissory note—is created, executed, registered, transferred and ultimately stored electronically. An electronic closing or e-closing produces an e-mortgage only if an electronic note or e-note was signed electronically.

E-mortgages were not possible before 1999 because there were no federal or state laws that enabled them. Then, after almost a decade of hard work, the National Conference of Commissioners on Uniform State Laws (NCCUSL) drafted the Uniform Electronic Transactions Act (UETA). Versions of the UETA have been adopted in 47 states and the District of Columbia, but not in Illinois, New York or Washington. California rushed to pass the UETA, but removed the provisions governing transferable records, commonly called e-notes.

In light of California’s actions in 2000, supporters of a national uniform electronic mortgage transactions law asked Congress and the president to support a new federal law. Specifically, they were looking for a law that would pre-empt non-uniform versions of UETA or supply federal enabling legislation in states that did not enact UETA as written by NCCUSL. The result was the Electronic Signatures in Global and National Commerce Act (ESIGN).

Since then, other laws have been drafted, revised or amended to support the implementation of UETA and ESIGN. The Uniform Real Property Electronic Recording Act (URPERA) and the Revised Uniform Law on Notarial Acts (RULONA) are two such uniform model state laws.

Although electronic recording of electronic records is enabled by the UETA and ESIGN, the passage of URPERA provided states with a clear path to implement electronic recording of electronic records—for example, with electronic instruments such as security instruments, assignments and modification agreements.

The current version of RULONA establishes the ability for states to permit notaries to notarize digital records electronically. In the future, it’s possible that laws may permit remote electronic notarization as well—a development that could vastly improve the homebuying process for people purchasing properties in distant locations. Think of members of the military working overseas who want to buy homes back in the United States, for example.

Lender Landscape

With the necessary laws in place, an increasing number of lenders are using electronic documents. There are several factors driving interest, including a better customer experience, improved operational and financial efficiencies and the ability to easily prove compliance with regulatory requirements.

Most lenders are currently using electronic documents for initial loan applications and loan disclosures provided to borrowers. The vast majority of these lenders are looking at implementing electronic closing documents and including e-note s in the process as well. 

Most of the lenders that are employing electronic closing documents are using a hybrid approach with either the e-note or notarized documents wet-ink signed. Lenders that excluded e-notes from their initial rollout are now working on including them in their e-closing process. And with more and more states adopting e-notarization, it’s only a matter of time before the lenders that currently exclude notarized documents move to conducting fully electronic closings.

E-closing and E-mortgage Delivery Requirements

While sellers don’t need special approvals to use electronic documents (as long as their procedures meet the requirements laid out in Freddie Mac’s Single-Family Seller/Servicer Guide), they do need Freddie Mac approval to deliver e-notes.

The e-note is a critical document that must remain a single, unique, unaltered, authoritative copy. The mortgage industry has designed special technology to comply with these requirements; any system used must facilitate the creation, signing, transfer and storage of the e-note in compliance with ESIGN and UETA.

Lenders are required to register their e-mortgage security instruments with the Mortgage Electronic Registration Systems (MERS) and the e-note with MERS eRegistry. The MERS eRegistry identifies the “controller” of the authoritative copy of an e-note and the party storing that e-note as the “location” for the controller.

As of May 2017, MERS had registered over 341,000 e-notes and the number continues to grow. There are approximately 38 lenders/investors integrated with the MERS eRegistry, and several technology solutions are readily available for interested lenders to use that have completed integration with MERS eRegistry.

Title Industry Adoption of E-closings

In 2016, Freddie Mac and Fannie Mae conducted a joint survey, under the direction of the Federal Housing Finance Agency (FHFA), to better understand the obstacles facing the e-mortgage market. The Joint GSE eMortgage Outreach Survey Findings on the State of Industry Adoption report found that lenders are willing to spearhead the e-mortgage process and that warehouse banks, servicers and title/settlement partners will adopt the technology when requested by their lender partners.

The results showed that title companies have three primary concerns:

  • multiple e-closing solutions are difficult to manage
  • lack of lender demand
  • staff not trained to conduct e-closings

Analysis of the findings led to three conclusions:

  • Lenders must drive adoption among their title/settlement partners
  • Training and education on e-closing platforms are essential for title agent acceptance
  • Having the e-closing process integrated into the most widely used loan origination systems could benefit adoption

With increasing lender demand, more and more closing agents are now either supporting or ready to support e-closings. The industry is exploring solutions that would either integrate title documents into lenders’ e-closing systems or establish a centralized electronic signing platform that integrates documents from lenders and title agents to minimize the need for closing agents to learn multiple systems.

In the interim, closing agents will need trained on multiple systems. While this is not ideal, a growing number of title companies think the benefits far outweigh the effort. The benefits include reduced risk of sending incomplete packages and faster delivery of signed closing docs to the lender.


As more lenders enter the e-mortgage business, efficiencies are already apparent. Everything is faster—the turn-around of warehouse lines, delivery to Freddie Mac, titling, settlement/funding and securitization. Shrinking paper-intensive timelines saves time and money.

With the UETA and/or ESIGN enacted and the e-mortgage infrastructure in place, a lender may originate an e-mortgage in any state and deliver it to Freddie Mac for purchase. All that’s required is that the e-mortgage complies with ESIGN/UETA and meets the requirements laid out in Freddie Mac’s Single-Family Seller/Servicer Guide and its eMortgage Guide, as well as the lender’s specific contract with Freddie Mac.

We believe the future is bright for e-mortgages. These are interesting times. We should all be looking forward to implementing more electronic solutions.

Michael Gordon is associate general counsel for Freddie Mac Single-Family, while Rajasekhar Penugonda is product capabilities manager for Freddie Mac Single-Family.


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