Fannie Mae says, "eMortgages are sooo yesterday!"

Industry Getting Arms Around eMortgage Cost SavingsMurray, MichaelNEW YORK—A loan through Fannie Mae’s desktop underwriting using electronic loan delivery (eLoan Delivery) into the secondary market could provide cost savings of up $350 per loan if the loan closed the same day, according to Christos Bettios, the company’s senior portfolio manager.
“[Electronic] mortgages for Fannie Mae are no longer a new thing or a pilot,” Bettios said here at the Mortgage Bankers Association’s National Secondary Market Conference & Expo. “For us, this is not a new thing.” Bettios said faster funding through eLoan Delivery has been placed at $35 to $200 cost savings with same-day origination, closing and sale of the loan. Savings on operational costs could range from $80 to $150 per loan through automation. Bettios also estimated six to nine months for implementation. With industry-wide data standards, an interface from lenders to investors could be a one-time fee. The costs to change processes in report closings are “good kind of costs” because they provide long-term savings in quality assurance. Not simple to buy piece of software, plug it in and make it rumble, Bettios said. Harry Gardner, senior director of industry technology at MBA, said it is not always easy for lenders to quantify cost savings, but said he knows of at least one warehouse lender that keeps production through FedEx delivery in paper notes. In cases of bad weather, such as a snowstorm, the warehouse lender needs to spend the day speaking to correspondents on whether to take greater risks in waiting on the notes. An electronic note (eNote), Gardner noted, would arrive electronically, without dependence on paper delivery. Additionally, an eNote process gives immediate cost savings in delivery to Fannie Mae and Freddie Mac. “There is great savings potential,” Gardner said. “In some cases it is difficult to quantify. In some cases, there are obvious savings.” Implementation costs—expensive a few years ago—are changing because service providers charge on a transaction basis, said Brian Blair, senior vice president of sales at Wayne, Pa.-based GHR Systems, a subsidiary of Metavante Inc. After closing, the Mortgage Electronic Registry System (MERS) receives the electronic document—the eNote—by providing standard delivery of the eNote from one member to another. An existing MERS interface eliminates custom B2B interfaces. MERS, however, is not a vault storing the eDocument, according to Gardner. “Everyone is integrating with everyone else through proprietary interfaces,” Gardner said. “MERS has central ‘spoke and hub architecture’ for eDocs to move back and forth among partners.” The eNote is then registered on MERS eRegistry, a national eNote registry that is the central location to identify the current controller and location of the authoritative copy of an eNote. An eNote registered on MERS eRegistry keeps track of the owner of the eNote. The post-closing eRecording phase can happen in near real-time because documents are moving electronically, Gardner said. Quality assurance can certify eNotes faster, eliminating rekeying with fewer mistakes. Rather than “stare and compare,” data would be populated on the back-end with greater transparency into the depth of the loan and data quality. With an eNote acquired and traded in minutes, investors are also able to buy a loan faster at best execution and lower risk, Gardner said. “The data is immediately in our hand,” Bettios added. Fannie Mae has acquired eNotes from 1,000 or more lenders by sharing its best practices and guidelines with lenders. In a recent survey by Fannie Mae, 72 percent of its lenders expect to implement some form of electronic signatures (eSignatures) and nearly 45 percent of respondents expect their companies to implement eMortgages. Fannie Mae forecasts a “critical mass’ of lenders moving to eMortgages in the next three years, Bettios said. Gardner said hybrid loans are likely for some time with eNotes and paper closing documents. Custodians must manage paper or eDocuments for the same loan, and hybrid pools would include eNotes and paper notes. “The revolutionary move is toward an electronic note on the outset. Typically, with the signing pad, it is the legal document that is being delivered,” Gardner said. To gain the full eMortgage landscape and liquidity, more investors are integrating into loan origination systems and are becoming electronically enabled, according to Gardner. Electronic file transmission and shipping can be integrated into a loan origination system. Blair said Metavante has several clients that want a “lights-out processing” requirement, which includes minimum staff for processing a loan. Bettios said Fannie Mae’s eCommitONE for lenders to commit to a price does not incur pair-off fees if a loan falls out of the pipeline and it provides a window for loan officers to lock in a rate by 10 p.m. If closed and received, the commitment price is given to the lender With eDocuments, data and the view of information combine through SMART Docs, allowing the borrower to see and sign the documents, but it also provides data payload capability. It provides almost immediate quality assurance capabilities for investors and data in XML data payload links to signed eDocs. Automated underwriting at point-of-sale is a cost savings of $1,025, and costs of direct servicing are 50 percent less than the 1980s, with 2 percent to 5 percent errors. Blair said GHR Systems works with more than one appraisal vendor, and GHR could implement other proprietary data interfaces, although it would save costs to the entire industry for one standard interface. A study by MISMO said XML data standards alone could save $240 per loan transaction. Blair said GHR supports MISMO XML standards and the automated appraisal process. Bettios said the new servicer of electronic notes, if not already enabled electronically, will eventually need to become e-enabled. Fiserv, Encomia, Settleware, Digital Docs and Document Processing System are live on the eMERS Registry system. The combination of an eClosing—using eSignatures and eDocuments—provides borrowers with secure access well in advance of the closing for borrowers to find any mistakes prior to closing, rather than taking the time at closing to initial errors. The electronic notarization (eNotarization) is the same as notarizing in the paper world, but the notary seal is in electronic format. “For eSignatures, the intent to sign must be clear,” Gardner said. “The signer must agree in advance to use electronic documents and electronic signatures.” A Public Key Infrastructure (PKI) seal—a digital thumbprint on the eDocument—provides security. The eMERS Registry stores a “hash value,” protected with the PKI thumbprint and MERS confirms the eDocument was received and is identical to the document received by the borrower at the closing table. The eNotes include fixed-rate and ARM products. “When Fannie Mae talks about eMortgages, we mainly care about the eNote,” Bettios said. As sellers send loans to investors on a post-analysis basis, they provide variance-based expectations as data would populate an investor’s software to schedule and track cost expense guidelines. In an automated environment, investors could create any forms and retain that data, and investors would manipulate unrekeyed data to determine risks and costs. MISMO industry data standards would again prevent added costs to create new interfaces for each investor. “Electronic reporting is the next advent to get to with this type of technology,” Blair said. “We are still struggling with clients who do not want to uphold the [data] standards but they are certainly there.” Even with MISMO XML data industry standards, which would reduce costs to create separate interfaces for all investors, some investors do not necessarily want to comply with the standards. “I do see a need of custom forms and some institutions are feeling they need to be unique or different,” Blair said. Quality assurance departments could verify borrowers with automated compliance alerts to ensure loans meet certain thresholds on the front end, and they can provide exception alerts to management in shorter time frames, according to Blair. County recorders continue to adopt electronic recording (eRecording) capabilities and they are increasing through the Property Records Industry Association (PRIA). While there are 3,600 counties and municipal entities, the “80/20 rule” applies, as nearly 300 counties account for 80 to 90 percent of mortgages across the country. A statewide eRecording portal has been created to integrate eRecorders at the end of the origination process. New Jersey, for example, has taken to the statewide portal and it is offered for free to any other state government willing to use it.