More than 95% of first-time homebuyers search for a home online, but less than one percent close on their home digitally. As the demand for simplicity and convenience grows, homebuyers will drive the adoption of electronic closings, but what does that mean for the industry as a whole?
The truth is: an eMortgage is nothing more than what you do today, just digitally.
This article will teach you everything you need to know about eNotes, the ecosystem that supports them, and how widespread adoption will revolutionize the mortgage process.
What is a Promissory Note?
The promissory note is the most important document in the housing finance market and mortgage lending process. This is the physical document borrowers sign promising to repay their lender for the amount borrowed.
Whoever possesses the promissory note is entitled to enforce the debt collection. Mortgages are stored in a physical location until they are sold, usually into the secondary market. When this happens, the promissory note is physically transferred to the purchasing investor.
There’s just one problem: the promissory note cannot be copied.
This can be an issue for lenders during the foreclosure process. A borrower can request the lender to produce the promissory note, and if the lender cannot, a court can invalidate the debt obligation.
That makes each note – and the way we create, transfer, and store it – incredibly important.
Think about it this way: Any time you drive down the highway and see a broken-down FedEx truck, there’s a good chance there’s a promissory note worth hundreds of thousands of dollars sitting in the back.
There are safer, simpler, more efficient ways to handle promissory notes. That’s where the eNote comes in.
What is an eNote?
An eNote is simply an electronic promissory note. The eNote contains all of the same information you include in a traditional paper note – property address, title agent address, loan amount, percentages, etc. – but is created, signed, and managed digitally.
As soon as you complete your eClosing, your eNote is tamper-sealed and registered underneath organization ID with the Mortgage Electronic Registration Systems (MERS®). eNotes cannot be changed without that change being recorded on a digital audit trail, and the note cannot be lost.
eNotes are a critical component of a fully digital mortgage experience, and their popularity is growing. According to MERS®, the number of eNotes registered during the first quarter of 2019 exceeded the total number registered for all of 2018, and represented a 5,000% growth from the first quarter of 2018.
How to Generate an eNote
Notarize requires a MISMO SMARTDoc 1.02 or XML seed file in order to generate an eNote. The file can be submitted in a number of ways: secure email, secure webform, or through API if you are planning to integrate with the Notarize platform. eNote data may also be manually entered within a Notarize transaction via our eNote form builder.
There is a common misconception that eNotes are difficult to generate. This is because the file must be a MISMO SMARTDoc to begin with; it can’t become one later in the transaction. MISMO designed the SMARTDoc as an industry standard, and the format allows for widespread adoption. Notarize will provide consulting on how to generate this eNote, along with examples and aid with testing and validation.
As you work to adopt eMortgages, you may need to work with your IT department to systematically pull the data out of your loan file to generate the eNote.
Documents are prepared as soon as a signer’s loan is approved. Notarize then creates a transaction using the document package, leveraging an API call to generate a MISMO SMART Doc and a Seed XML file.
Thanks to the standards established by the Uniform Electronic Transactions Act (UETA) and the E-Sign Act, eNotes can be signed in any state, but because they are digital, eNotes require processes that can ensure their authenticity and enforceability. This includes controls that prevent the copying of the promissory note, systems that track changes, and integrations that help the note move digitally and automatically between vaults.
What is an eVault?
An eVault is a specialized document storage system, sometimes referred to as a data warehouse, that holds your eNotes and manages their transfer across vaults.
Your eVault is where you’ll find granular audit trails and tools that help you manage your post-close process easily and efficiently. Your eVault may also have other baked-in security measures like watermarks, convert to paper, charged-off, etc.
When you register your eVault with MERS®, you establish three data points that are critical to the storing and transferring of eNotes: the control, location, and servicer of each loan.
When you sell your eNote on the secondary market, you will perform these actions from within your eVault. If you are selling an eNote, the receiving party will receive a notification that an eNote is on its way. They can accept or deny this delivery, and if accepted, the control, location, and servicer fields within the eNote update to reflect the transfer.
The eNote Ecosystem
An eNote relies on three parties working harmoniously: a closing platform like Notarize, an eVault platform owned by the lender, and MERS®.
In a fully digital closing, Notarize manages the document package and handles the closing. When the transaction is complete, the Notarize platform ships the package to a lender’s eVault, where it stays until sold to an investor or the secondary market.
Within MERS® are two separate systems: the MERS® System (MOMS), which is used for registering loans and tracking changes and servicing rights, and the MERS® eRegistry, which maintains digital audit trails of any and all changes that occur on an eNote.
Every lender, warehouse lender, servicer, investor, and government-sponsored enterprise (GSE) has a MERS® Mortgage Identification Number (MIN), which is a unique, 18-digit identifier. The first seven digits uniquely identify the loan servicer (often referred to as the MERS® ServicerID), while the remaining 11 digits are used internally by the servicer. If you are already in the MERS® system, your existing MIN can be added to your eVault, which is connected through an integration during your on-boarding process with Notarize.
The control and location of a loan will be updated with the MERS® MIN of the purchaser when the loan is sold. You will retain a copy of the loan within your eVault, but the authoritative version of that note will live with the new buyer.
Notarize is directly integrated with an eVault provider and will train you on the platform during your on-boarding process. Notarize has access to your eVault to help with any required troubleshooting, but at the end of the day, the lender is responsible for managing the vault.
Notarize is also the only non-lender on the MERS® eRegistry and features a built-in solution to automatically transfer your eNotes to your vault of choice immediately following the eClosing.
Getting Started with Notarize
Notarize can get you up and running with eNotes in as little as four weeks. We offer training and support lenders throughout the eMortgage on-boarding process, including getting lenders activated on the eRegistry if they are not already a member.
The first step involves a call with MERS® to discuss your secondary market strategy. MERS® then puts together a testing matrix, which is a series of eNote tests to be performed from your eVault to ensure the vault can communicate with the vaults you will be transferring to. You will return the matrix to MERS® for validation.
Once your tests are approved by all parties, MERS® will promote your MIN to the production environment on the eRegistry, and you can begin closing some loans fully online.