Of the many paper documents used to close a mortgage loan, the original promissory note is arguably the most valuable and the most vulnerable. It is the promise to pay; the negotiable instrument under the UCC Article 3. If it is lost, damaged or destroyed, ownership rights can be contested and future transfers of the note, loan payoff and foreclosure processing is halted until a lost note affidavit is produced by the owner and accepted by trading partners, the courts, and regulators.
The Note must be safeguarded in a secure custodial vault throughout the life of the loan. It is the only document that must be “possessed” by the investor or their custodian to ensure ownership and therefore gives the investor the right to repayment of the debt.
Hence it is easy to see the benefits of an electronic promissory note (eNote). The “Authoritative Copy” of the eNote can’t be lost, destroyed or fraudulently duplicated, since it is stored electronically, backed up in secure data centers and registered on the MERS® eRegistry (which is the legal, system of record of ownership of eNotes for the mortgage industry). This centralized ownership structure also greatly reduces fraud related to double funding that can occur with duplicate paper notes.
Unlike paper notes, which must be physically shipped from one custodial facility to another, eNotes can be transferred in seconds, eliminating the costs and risks associated with shipping paper documents and enabling same day funding by warehouse lenders and investors.
When accepting delivery of paper notes, the custodian must manually certify that the note is the signed original and is unaltered. This can be a time-consuming and error-prone process. Due to the unique, tamper evident seal associated with eNotes and the ability to extract variable data points such as Note Date, Note Amount, Interest Rate, Term, etc., eNotes can be electronically certified without human intervention. This ability to electronically verify the data payload of the eNote also lowers the cost of quality assurance, regulatory exams and on-boarding for the loan servicer. There is no more need for the time-consuming “stare and compare” process that is required for paper notes.
There is also the cost reduction benefit in the QC area to electronically compare the data on the eNote to the data on all other mortgage documents. This automated process can correct errors, limit fraud, and assess for inconsistencies, thereby enhancing the quality of the QC effort (assuming the documents have been scanned into electronic images). The ability to review/compare and then identify differences in the electronic documents in an automated fashion would allow 100% of loans to be checked for data errors, instead of only 10% QC sampling used by most lenders today.
For borrowers, the process of signing the eNote electronically enables loan closings to occur virtually anywhere in the world at their convenience. The eSigning process also ensures that borrowers’ initials and signatures are not missed, which expedites the closing process for all involved.
Implementing eNotes finally brings the mortgage lender into the 21st century on par with virtually every other form of consumer lending, which is performed electronically today. Expanding the use of electronic data from all mortgage documents provides significant opportunities to cut operational costs, improve data completeness and accuracy, reduce time to re-process errors, fraud, loan handling costs, servicing on-boarding costs and reduce investor repurchase risk. Hilltop Advisors can help you move down this path to efficiency, lower costs and reduced risk.
Call Dan McLaughlin 703-356-3350 ext 207 or Jeff Oliver 703-356-3350 ext 201
