After a record year for volume, Ginnie Mae has accepted its first mortgage protection fully backed by pools of credit with electronic promissory notes, bringing the industry closer to widespread adoption.
The transaction, which consisted of $ 24 million securitized Ginnie pools, followed an industry eNote enrollment increase of 265% over the past year and the establishment of a program to help Ginnie recruit new applicants to test the electronic documents.
Industry interest in e-docs that set repayment obligations has increased as Ginnie's transaction fueled housing agency adoption of the technology and demand for automation that enables remote working and efficient processing has increased due to the pandemic and origins boom .
“Ginnie Mae's note is the last item in our final batch of documents, made of paper. With this and an amendment in Texas Electronic Notaries Act that allows e-docs to be created electronically, we can electronically close every part of our stack of documents, ”said Jeff Bode, owner, president and CEO of MidAmerica Mortgage, a lender based in Texas the Lone Star State.
MidAmerica hopes to help Ginnie test eNotes once a document retention agreement that meets these requirements is in place, and estimates that minimizing the need for paper documents can save up to eight days of processing time.
The increase in eNotes in the MERS registry over the past two years suggests that the value is becoming more and more convincing. 464,691 eNotes were registered last year, up from 127,178 in 2019 and 16,950 in 2018, according to MERSCORP Holdings, a division of Intercontinental Exchange that owns the register that serves as the industry's record keeping system.
"In addition to the record volume of eNotes registered in the MERS eRegistry, there has been a significant increase in companies that both integrate with the MERS eRegistry and transact on the system," said Joe Tyrrell, President of ICE Mortgage Technology , in a statement sent by email.
Establishing eNote processes at Ginnie, Fannie, Freddie and the Federal Home Loan Banks has posed a major hurdle for the industry in recent years, said Seth Appleton, president of the Mortgage Industry Standards Maintenance Organization and former Ginnie EVP.
"This securitization means we are clearly nearing the point where companies no longer have to split systems or worry about using an eNote based on the loan a borrower selected," Appleton said.
While great strides have been made in the use of eNote, the fact that Issuers and Ginnie are still in the process of setting agreements and other standards for them means that the market is nowhere near coming close to the technology.
"Since Fannie Mae and Freddie Mac took this path, we've done as much as we can to build on their work, but there are many instances where we need to develop policies and infrastructures for our business model," said Michael Drayne, acting Executive Vice President at Ginnie Mae.
Thirteen issuers have started testing the Ginnie Mae process as part of their digital mortgage program. Five have completed the logs and the government agency continues to accept applications.
With eNotes still in the works, their efficiency may be limited right now, but the economic incentive to use the technology is likely to increase as they become standardized and their costs decrease compared to alternatives.
"When it gets expensive not to use eNotes, it can become a bigger problem if you don't invest in them." Then the issuers may have to make some interesting decisions about acceptance, ”said Drayne. "I don't think we're there yet, though. We're just trying to get to the point where they can be used to a great extent."
While Ginnie is queuing up to test the eNote rollout, most of its activity to date has been generated outside of the bank by Quicken Loans, an early adopter that has been rebranded under the Rocket name since going public last year .
Relatively few lenders use eNotes, but with a big player like Rocket, the impact of technology is growing, according to Austin Kilgore, director of digital lending at Javelin Strategy & Research. (Kilgore is a former editor-in-chief of National Mortgage News.)
"We are at least three to five years away from seeing more than 50% of the mortgage volume as eNotes," Kilgore said in an email. "The recent influx of equity among large non-bank lenders provides additional resources for relocation and this will force the hands of the large banks to follow suit."