The rise of the fully digital mortgage is about to take a big step forward, as Ginnie Mae, the government agency that issues mortgage bonds backed by Federal Housing Administration or Department of Veterans Affairs loans, is moving closer to accepting and utilizing eNotes (electronic promissory notes).
In recent years, numerous lenders have digitized the front-end of the mortgage process, but there were still serious hurdles that needed to be cleared to transform the entire mortgage from a paper-intensive process to a computer-driven one.
One of the main issues standing in the way of digitizing the entire mortgage process was the use and acceptance of electronic promissory notes, also called eNotes. An eNote is an electronic version of a promissory note, the record of the obligation to repay the mortgage.
Previously, the promissory note was a paper document, but in recent years, a move towards digitization in the mortgage business saw a rise in digital promissory notes. The eNote also needs to be stored digitally in a way that ensures it has the same legal enforceability as a paper document.
The move towards more widespread use of eNotes was aided last year when Wells Fargo announced that it would begin buying eNotes. And data released earlier this year by MERSCORP shows that the number of eNotes added to the MERS eRegistry skyrocketed in the first quarter of this year.
Now, Ginnie Mae is planning to launch a pilot program that will see the agency begin to accept eNotes as satisfactory collateral for its mortgage-backed securities.
The move is a step towards fully digital FHA and VA loans.
This effort will be aided by eOriginal, a 2019 HW Tech100 winner. Ginnie Mae announced this week that it selected eOriginal to provide eVault software and services to the agency.
“Ginnie Mae and eOriginal share a common goal of minimizing risk and providing liquidity and stability for the mortgage industry,” said Brian Madocks, eOriginal CEO. “We view Ginnie Mae’s support of eNotes as integral and a key accelerator of digital adoption in the mortgage industry, and eOriginal is committed to providing the most trusted and compliant solution for Ginnie Mae and their partners.”
According to Ginnie Mae, eOriginal will serve as a “key business partner” as it moves towards adopting the use of eNotes.
“This announcement underscores Ginnie Mae’s commitment to modernizing its MBS program and platform, as outlined in our Ginnie Mae 2020 white paper, ‘The Road to Modernizing and Enhancing our Programs,’” said Angel Hernandez, director, MBS policy and program development at Ginnie Mae.
“Creating a digital mortgage ecosystem, from loan application through securitization, increases access to credit for many Americans. It will also enhance the integrity of Ginnie Mae collateral by reducing the risk from defects in loan instruments,” Hernandez added.
“For these reasons, Ginnie Mae is investing to develop and implement the policies, technology and operational capabilities necessary to take in digital promissory notes and other digitized loan files as acceptable collateral for our securities,” Hernandez concluded.
As Hernandez said, Ginnie Mae has already indicated that it plans to accept eNotes, but that effort is now moving forward in a big way.