eNotes: If you build it they will come…15 years later

Dan Courtright

In April of 2004, MERS announced the launch of the eRegistry, the system that would be the holder for the eNote controller and location. Over the next few years providers began establishing a market space for eSign, electronic form creation, and eVault capabilities. The technology was available to create, store, and process an eNote.

Although the technology was available to create, store and process eNotes in 2004, it wasn’t until fifteen years later that the mortgage industry has finally begun to see rapid adoption of the eNote. eNote registration saw a quarter over quarter jump of eNote adoption of 4,967%. More eNotes were registered in Q1 2019 than in all of 2018. Standing up an eNote process requires a sizeable upfront investment in technology and process transformation which was difficult to justify when adoption rates were low. Early adopters who capture the full capabilities of digital notes will experience a cost advantage over their peers.

The transition period to eNotes may prove difficult because it requires a company to operate under two scenarios over a lengthy timeframe: electronic asset and physical asset management. This can also be referred to as a hybrid operation. For an originator, servicer or custodian this hybrid state requires careful planning.

eNotes increase process automation capabilities that can impact both real estate and resources. While paper needs to be prepped, shipped, and stored, an electronic document just requires a few clicks of a button. Stare and compare activities can be performed by the latest AI and machine learning algorithms, requiring only exceptions to be handled manually. Even with accelerated eNote adoption, physical assets will remain lingering in the industry in the foreseeable future. This means companies will have to work in a hybrid state for a number of years – if not decades.

Navigating the waters ahead

There are factors that could further accelerate the eNote adoption – Ginnie Mae guidance being the most impactful. Currently Fannie Mae and Freddie Mac both support eNotes. Ginnie Mae is playing catch up with a Ginnie Mae 2020 roadmap. Ginnie Mae released a progress update on June 1, 2019 which included additional eNote timeline updates. In the Fall of 2019 new guidance will be released for electronic documents along with a Ginnie Mae eVault selection. In 2020 Ginnie Mae should be prepared to accept eNotes and further accelerate eNote adoption.

Preparing for the transition for full adoption

The transition to eNotes is full steam ahead. Now it’s time to begin the next phase after waiting over a decade for the critical mass adoption. Are you prepared for a digital eNote process? To ensure you are prepared, here are some questions to consider:

  • Do you have the technology to support an eNote process?
  • Are you prepared to work in a hybrid environment during the transition?
  • Do you have a plan as resource and physical footprint needs diminish?

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