E-Mortgages: Reshaping the Way You Do Business

December 5, 2017

The electronic mortgage you knew has changed. Consumer expectations of the mortgage process are evolving. With the help of industry players, lenders are meeting increased digital demands by transitioning into new e-mortgage strategies. The new e-mortgage age has increased adoption, but not without growing pains, misconceptions and overcoming barriers.

This transition is essential to the future of the mortgage industry. In fact, surveys by Fannie Mae’s Economic and Strategic Research Group found that consumers want a fully mobile retail experience in nearly all aspects of their lives, including their financial and mortgage activities.

This need will only sharpen as more young buyers enter the market. The National Association of Realtors (NAR) indicates buyers 36 years and younger (millennials/Gen Yers) are the largest share of homebuyers at 34 percent—and have been for the past four years.

E-mortgages will be a comparison factor for these buyers—and for your existing and future business partners. To remain competitive, businesses should be well on their way to full adoption. ALTA asked Shane Hartzler, director of eMortgage strategy and operations at Fannie Mae, to help us define this business imperative and explain how it benefits buyers and the mortgage industry.

ALTA: What’s the difference between an e-closing and an e-mortgage?

Hartzler: An e-mortgage occurs when the mortgage loan documentation (specifically the promissory note, or e-note) is created, executed, transferred and stored electronically. An e-closing is broader in which some mortgage loan documents are executed electronically in a secure digital environment, while other key documents are printed to paper and wet-signed (e.g., note, security instrument).

Keep in mind, e-mortgages are produced by the e-closing process only if the promissory note is signed electronically. Therefore, not all e-closings result in e-mortgages, but all e-mortgages are the product of e-closings.

ALTA: Why are e-mortgages advantageous?

Hartzler: We think there are three main benefits of e-mortgages. First, e-mortgages save time and money by automating manual processes and reducing cycle time from origination through delivery and funding. They eliminate paper, shipping and storage fees. Second, e-mortgages speed up funding through e-note delivery, maximizing capital. Finally, e-mortgages can minimize risk by reducing operational errors, eliminating missing signatures, documents and fees, and improving data quality and validation.

ALTA: What are the typical steps of an e-mortgage delivery?

Hartzler: We look at the e-mortgage delivery process as three main steps. Keep in mind that delivering e-notes follows a similar process to closing a loan. However, there are some unique steps for “e.” For instance, during closing, a lender would have the borrower and notary electronically sign the e-note and other documents through an e-closing system. The e-closing system then tamper seals the documents, which is an automated method of ensuring that the data in the note can’t be changed or manipulated.

Then, after closing, the e-note gets registered on the MERS eRegistry system within one business day.

Finally, when delivering to Fannie Mae, the lender transmits the e-note and other investor documents to using MERS e-delivery. The lender initiates Transfer of Control and Location to Fannie Mae via the MERS eRegistry. Then, the lender submits delivery data to Fannie Mae, including a special feature code (508: eMortgage) that identifies that it is an e-note. The loan is then certified and funded, assuming all requirements have been met.

Most e-mortgages follow this general process and can take as little as a few minutes or up to three days based on the lender’s operational procedures.

ALTA: What is the MERS eRegistry? Are lenders required to be members to deliver e-mortgages?

Hartzler: The MERS eRegistry is the system of record identifying the owner and location of the e-note. The MERS eRegistry allows e-notes to be registered and uniquely identified for tracking and verification. Fannie Mae’s technology is integrated with the MERS eRegistry.

Lenders, servicers and warehouse banks must use the MERS eRegistry to deliver e-mortgages and must become MERS members to use it. Access to the MERS eRegistry requires system integration and a testing cycle.

ALTA: What should title and settlement companies be doing now to get ready?

Hartzler: Settlement providers should talk with their lender partners about changes in process and/or training they may need to make to support this transition. They should discuss:

  • What technology will be required to support the e-closing process (mobile or in-office)?
  • How will agents be trained?
  • What are the impacts on the closing and post-closing procedures?
  • Where does electronic notarization of recordable documents fit into the lender’s plans and in what states/jurisdictions is it permissible?
ALTA: Is there anything else you’d like to tell our members?

Hartzler: Yes, Fannie Mae is committed to addressing barriers to e-closings and supporting all industry stakeholders during this transition. We believe that e-closings provide significant benefits to settlement agents, including better-educated borrowers, shorter closings and operational efficiencies. But we also understand that until technology solutions and standards mature, this transition remains challenging. For example, settlement providers will need to accommodate individual lender e-closing requirements and train agents to conduct e-closings on multiple platforms.

Despite these challenges, Fannie Mae believes now is the time that settlement companies should learn and prepare for e-mortgages, so title agents can hit the ground running when your partners are ready. In other words, the time for “e” is now.

For more information, visit Fannie Mae’s website at www.fanniemae.com/singlefamily/emortgage.

Contact ALTA at 202-296-3671 or communications@alta.org.