The EMortgage Transition

Major effort coordination will soon result in eMortgage transactions as the industry’s normal operating process. An eMortgage is done with as little paper as possible, ideally none at all. This requires major technology coordination, but many changes have already been put in place. The eMortgage is a growing and viable loan transaction method. Fannie Mae announced purchasing its 1,000th eMortgage.

When you can originate a loan, process a loan, underwrite a loan, and do all the other needed steps to market, record, ship, insure and store mortgage instruments without transferring paper from one place to another, the eMortgage will be upon you. Many hundreds have already been done. The eMortgage is no longer hung up on “if” questions. The only remaining question is “when?”

You can find critical technical information on the Internet at The eMortgage technical specifications and implementation guides provide a framework for implementing paperless mortgages with electronic signatures.  They provide links to all of the documents and work products of the MISMO eMortgage Workgroup, including:

  • SMART Doc(TM) Implementation Guide
  • SMART Doc(TM) Specification, DTDs and supporting information
  • ePackaging DTD, Specification and Implementation Guide
  • eMessaging DTD and Implementation Guide
  • Background information on eRecording, eMortgage Vaulting and the National eNote Registry concept (now the MERS eRegistry).

You may not be the technical wizard of your company, but you still need to read the eMortgage Guide final document for version 2.0. In fact, if you intend to remain in the mortgage origination business, you must read this 96 page document. It is available free as a PDF download from the above site. What will you learn?

You will discover what an eMortgage really is. You will learn what is involved with this process and will discover the benefits and cost savings you should expect to flow from the eMortgage process, all important points. As the eMortgage becomes the industry standard, you and your company must adapt to these changes or you will need to find a new career. How close is this transition? Best estimate is more than a few months, but not many more years. Adapting your technology, your work flow, staffing requirements and all the rest of the changes needed for an eMortgage environment will require time. It is not too late to do the needed planning, but it is getting late to start your planning if you are still just doing business as usual.

Page 7 of the eMortgage Guide identifies many of the expected benefits that will flow from using this technology. These include significant reductions in cycle time for all processes, increased data integrity, cost savings for system integration and increased value of eMortgage assets. Opportunities exist in many areas such as compliance, disclosure, closing, delivery, recording and servicing.

The current legal framework surrounding mortgage transactions must also evolve, and already has in many areas including passage of the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN). The details of these laws and the requirements to be met therein require review by your legal staff. However, understanding and correctly implementing these laws with your eMortgage process is absolutely critical.

Another important area is notarization of documents. While the foregoing acts each address this issue, the laws of each state currently set the regulations for notarization. These will need to be modified to enable electronic notary services. Many states are already working on the needed changes; however, enabling legislation will require some time to complete. You need to determine the situation in each state where you conduct business. Additional information can be found through state and national notary associations.

eRecording is another area with conflicting positions between federal and state laws. At present, you need to clarify the rules in your county and state as to whether eDocuments are eligible for recording. This is another area of change as the various states and counties move to enact appropriate legal support for the process. Legislation in the form of the Uniform Real Property Electronic Recording Act (URPERA), has already been adopted by some states, and provides for recording of electronic documents as originals and eliminates the need for a physical or visual image of the notary’s seal.

The American Land Title Association (ALTA) has a 16-page draft of a new loan policy available. The draft contains a number of references to electronic loan obligations designed to emphasize coverage that already exists in the current ALTA policy. Obviously title insurance is a critical part of every mortgage transaction. Therefore, you must become familiar with these requirements to ensure you will have the protection you need for each eLoan.

Consumer disclosure delivery via electronic means is also subject to regulation. You must obtain prior consumer consent to receive such disclosures. Also, some notices are not eligible for electronic delivery such as any notice of acceleration, repossession, foreclosure, eviction or right to cure relating to a credit contract secured by the consumer’s primary residence. The general laws concerning disclosure requirements are included with Regulation B and Regulation Z and in advisory letters from the Comptroller of the Currency. You will find more details beginning on page 17 of the eMortgage Guide.

Once clear of the legal hurdle sections, you get to the structure concepts of eMortgages. Standards for SMART™ documents are important to understand; not the technical aspects for managers and production staff, but the concepts. SMART is the acronym for Securable, Manageable, Archivable, Retrievable and Transferable electronic documents. In general, the document contains information describing the document, a visual representation of the document, data embedded in the document, transparent linking of the data and visual representation, electronic signatures in the document, tamper-evident security in the document and an audit trail of changes in the document. These are features not available with paper documents as there is no way to know or discover skillful changes to paper documents. In this instance, a SMART document provides superior security for each transaction.

The eMortgage guide starts with a high level overview of the general process. It then provides greater detail about specific critical topics necessary with the eMortgage concept, such as eDocs, eSignatures, ePackages, eRegistry, eDoc Delivery and the Electronic Vault. Section six reviews information concerning eDisclosure, eCredit Reports, eAppraisal and much more.

Like it or not, the eMortgage process is descending upon you. Your choice is to be prepared to adapt to these changes or to be crushed by them. What is absolutely certain is that the business is changing again. The benefits in time saved, superior service, superior transaction security, fraud defense and general efficiencies will drive these changes. Change is not new but constant. Be ready for it or join the dinosaurs.

By Bruce Forge