eNotes vs eClose – The Full Digital Experience

Published On October 23, 2019

While the eNote is well on the way to adoption, final documents still require an electronic nudge and can require a few additional steps.

In earlier blogs – one on the evolution of eNotes and one of the state of adoption — I have written about eNote adoption but have only focused on the promissory note piece of the closing process. There are other documents worth discussing that impact a full eClose capability, such as title policies and security instruments, also known as trailing documents or final documents. These final documents are critical to the process and can prevent a full eClose experience. The closing process today can be completed in several different ways including.

• Physical document closing (the old fashioned way): All documents that require signature are done with wet ink and physical documents are delivered to the custodian or servicer.
• Hybrid eClosing: Some documents are electronically signed, and others are signed via wet ink.
• Full eClosing: All documents are signed electronically.

While the eNote is well on the way to adoption, final documents still require an electronic nudge and can require a few additional steps. There are three main factors holding full eClose capabilities back:

1. Notarization: A security instrument and power of attorney document requires notarization. State laws dictate whether the notarization can occur electronically; either remotely or in person. Today I know of seven states that do not allow an electronic notarization.
2. County Recorders: A security instrument requires recordation at the county. County recorders are slowly transitioning to electronic recording but adoption in rural counties is slow. With a security instrument requiring notarization and recording, it is the most complex document to complete electronically.
3. Ginnie Mae: Ginnie Mae holds nearly 30% of the MBS issuance with the number slowly increasing as issuers adopt more offerings. Physical collateral documents (including final documents such as a security instrument and title policy) are required to complete a Ginnie Mae pool certification. Without guidelines for electronic documents, any originator with a Ginnie Mae product will have to stick with wet ink signed documents. Ginnie Mae has released a 2020 plan to update requirements to address the electronic state and plans to release the official guide that will govern the digital documents during Q4, 2019.

Given the strong headwinds for electronic final documents, it is important to plan for how these will impact operations. I anticipate Ginnie Mae will be a big driving force based on the electronic pool certification requirements. This could be the final nudge required to accelerate the full eClose process. What will you do to navigate in the hybrid space?

• Could an originator only service counties that offer eNotarization and eRecording capabilities?
• Is the cost savings for all electronic documents enough to drop Ginnie Mae products?
• Can a servicer only buy loans that have all electronic documents?