The Critical Importance of eNote in the Mortgage Ecosystem

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What is an eNote and why is it important?

The American Bankers Association projects the total value of digital loans to reach $90 billion in 2020 (and jump to $200 billion by 2025), as more and more businesses leave behind paper-based and manual processes to meet the changing expectations of a modern customer who demands enhanced speed, greater convenience, and security from their lender.

While digital loans aren’t new, the pandemic has accelerated demand for technology-enabled digital assets, like eNotes.

An eNote is the electronic version of a paper promissory note to investors. Since an eNote is electronic, it needs to be created, stored, and assigned in a specific way to ensure that it has the same legal enforceability as paper. This is the most critical document for all parties in the mortgage ecosystem, including originators, warehouse lenders, custodians, investors, and servicers, as its validity is essential for the downstream life of the loan on the secondary market.

To be negotiable and transferable, a digital asset must be labeled the ‘authoritative copy.’ This is what eOriginal calls a Digital Original – proof of an immutable chain of custody and evidence in how assets are created, transferred, and maintained.

Digital Asset Certainty provides the assurance of an auditable and tamper-proof digital chain of custody for loans originated electronically, as well as legal standing proving these digital loans comply with three enabling laws that govern digital lending:

  1. The Uniform Electronic Transactions Act (UETA)
  2. The Electronic Signatures in Global and National Commerce Act (ESIGN)
  3. Uniform Commercial Code Section 9-105 (UCC 9-105) including meeting their Safe Harbor provisions.

All digital loans should also comply with various technical requirements and standards specific to their industry to establish the burden of proof for ownership of an authoritative copy of a loan. Digital Asset Certainty guarantees all loans have the highest level of legal enforceability and, specifically, shifts the burden of proof from the lender to the borrower.

eNotes can easily be incorporated into the closing process just like other lender documents. However, it can also be the foundation of a full eClosing strategy. From the perspective of a lender, the benefits of eClosing include a better borrower experience, expedited sale to the secondary market and faster replenishment of capital.

eNote Formatting and Registration Considerations

To implement the eNote, the mortgage industry has agreed on a technology ecosystem that stipulates how the note is formatted, stored and registered. The Mortgage Electronic Registration System (MERS® eRegistry), outlines:

It is the authorized registry that identifies the current Controller (holder) and Location (custodian) of the Authoritative Copy of an eNote. The Controller of an eNote can have the equivalent rights as that of a “Holder in Due Course” of a paper negotiable promissory note. The MERS® eRegistry is the mortgage industry’s “system of record” for holders of eNotes.

A national eNote registry is part of the industry’s response to develop systems that can rely upon the Uniform Electronic Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (E-SIGN) to establish legal effectiveness of electronic notes for mortgage loans.

MISMO, the standards body for the mortgage industry, established the format of the eNote and mandates that they must be stored in an eVault. As interaction with the document occurs throughout its lifecycle, the eVault also enables the owner or secured party to control the access rights to the asset and tracks all activity regarding the asset: from signing, maintenance, sale, pledging, collateralization and securitization through to its ultimate disposition or destruction.

To navigate these requirements, it is vital to have an experienced and knowledgeable partner with the technology to do this effectively. eOriginal’s digital mortgage solution enables the creation of eNotes for a digital closing, and the ability to securely store and manage them in an eVault to support servicing of the mortgage and the movement of the asset to the secondary market.

Embracing Digital Transformation

The benefits of shifting from paper are immense, especially in the digital lending scenarios emerging after COVID-19. Technology enables remote and contactless digital loans with speed, accuracy, data quality, and transparency.

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