Ginnie Mae’s acceptance of eNotes is helping transform the mortgage lending landscape. The time for lenders to adopt eNotes is now – and realize increased closing operations efficiency, accelerated capital velocity, and deliver an improved borrower experience.
For years now, mortgage lenders have been inching toward end-to-end digital capabilities. First banks and independent mortgage originators began digitizing upfront processes for greater customer convenience. Then the Covid-19 pandemic and its social-distancing requirements drove rapid adoption of e-enabled functionality like remote online notarization (RON).
Yet the mortgage note itself has remained a stumbling block in the path to fully digital mortgages. While federal legislation authorized the use of eNotes fully two decades ago, many lenders hesitated to replace paper notes with digital.
Now, the eNote essentials are falling into place. Lenders and originators registered well over 286,000 eNotes between January and September 2020 alone – more than double the number in all of 2019.1
In July 2020, the Government National Mortgage Association (GNMA), or Ginnie Mae, launched its 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.
By December 2020, Rocket Mortgage, owned by Quicken Loans, had become the first lender to use an eNote in closing a Ginnie Mae-backed loan. The company says it anticipates widespread use of eNotes for Ginnie Mae loans by the end of 2021.2
Ginnie Mae’s acceptance of eNotes fundamentally rearranges the eMortgage landscape. Smart lenders are already taking steps to see how eNotes will fit into their operations – but to succeed, they need to first fully understand how eNotes interact and engage with existing closing operations and technology partnerships.
Ginnie Mae and the eNote Revolution
The Covid-19 crisis created overnight demand for remote and contactless digital mortgages. But the pandemic merely accelerated a digital transformation that was already underway.
In 2018, the U.S. Treasury issued a report promoting a regulatory foundation to drive wide use of eNotes and enable end-to-end digital mortgages. That same year, Wells Fargo Home Lending entered into an agreement with eOriginal to enable the purchase of eNotes through Wells Fargo funding. The introduction of eNote capabilities by the nation’s leading residential mortgage aggregator represented a major step forward in the digitization of the mortgage industry.
Then in late 2019, MERS added a Secured Party field to its registry. The action drove acceptance of eNotes by warehouse banks and other interim funders, which requested that their security interests in eNotes be distinguishable on the MERS eRegistry from those of loan originators or investors.
Now, Ginnie Mae’s acceptance of eNotes completes the infrastructure that will drive widespread use of digital mortgage notes. The move is part of the organization’s Digital Collateral Program – a set of policies, technologies and operational capabilities that enable it to accept electronic promissory notes and other digitized loan files as collateral for Ginnie Mae securities.
Ginnie Mae’s acceptance of eNotes completes the infrastructure that will drive widespread use of digital mortgage notes.
The Ginnie Mae program is expected to transform Federal Housing Administration (FHA) and Veterans Administration (VA) lending, which make up one-quarter of Ginnie Mae’s originations.3 The FHA and VA already allowed eSignatures on their loan documents, but Ginnie Mae rules for these securities prevented them from closing with eNotes.
But the organization’s embrace of eNotes should drive record-breaking issuance of digital mortgage notes. It’s worth noting that issuance of mortgage-backed securities (MBSes) by Ginnie Mae hit an all-time high of $77.62 billion in August 2020.4 Looking forward, the increase of eNote issuance for Ginnie Mae-backed loans should make 2021 the tipping point for eNote adoption across the mortgage banking industry.
1 “Demand for Electronic Solutions and Strong Origination Volumes Drive Record Registrations on the MERS eRegistry,” MERS, October 2020
2 “Rocket Performs First eNote Close on Ginnie Mae Mortgage,” Housing Wire, January 2021
3 “Enabled by Lenders, Embraced by Borrowers, Enforced by the Courts: What You Need to Know About eNotes,” DLA Piper, May 2018
4 “Rocket Performs First eNote Close on Ginnie Mae Mortgage,” Housing Wire, January 2021