DS News

DS News January 2021

DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.

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Page 37 of 99

36 that person as the person to which the transferable record was issued or transferred. (ESIGN 15 U.S.C. §7021 (b); UETA §16b). » Authoritative Copy: ESIGN and UETA requires that a single, unique, identifiable, and generally unalterable copy of the transferrable record be maintained. For example, while there can be many copies of each eNote, there can be only one authoritative copy of the eNote, and only the Controller of the authoritative copy can enforce it. » Location: MERS eRegistry tracks the "location" of every eNote, using the name of the Controller or its designee, that stores the eNote in an eNote Vault, like a document custodian storing an original paper note. 4 PROCESS FLOW OF ENOTE DELIVERY » eNote electronically signed by the borrower through use of an electronic closing system. » eClosing system secures electronically signed documents by applying a tamper- evident seal to the entire transferable record (eNote). » eNote must be registered on MERS eRegistry within one business day. » Lender transmits eNote to eNote Vault. » Lender submits a request to the MERS eRegistry to transfer control of the eNote from the lender to the GSE, if applicable. Note: eMortgages would be recorded in county or local records to create the lien on the real property. HISTORY AND BACKGROUND OF UNDERSTANDING ENOTES In February 2020, the 11 Federal Home Loan Banks, chartered by the U.S. Congress in 1932 to promote homeownership, created Electronic Promissory Notes (eNotes) Model Collateral Acceptance Requirements and Guidelines, which established guidelines for its members (6,900 banks, credit unions, insurance companies, community development financial institutions) for accepting eNotes as collateral. Use of eNotes and eMortgages skyrocketed in the first quarter of 2019 with the origination of 19,000 eNotes, compared to 17,000 eNotes in 2017. A writer for Iron Mountain used a differential equation to predict adoption of eNotes. His model predicted a 98% adoption rate for originations in 15 years, or the year 2034. UNDERSTANDING ENOTES e legal framework for eNotes was created by the Uniform Electronic Transactions Act in 1999 and the passage of the Electronic Signature in Global and National Commerce Act in 2000. e acts ensure that eNotes and other electronic documents are accepted and encourages the growth of electronic commerce. e Uniform Electronic Transactions Act has been adopted by all states except New York and Illinois, however both have adopted similar statues. Many servicers were initially reluctant to originate eNotes, and Ginnie Mae did not initially authorize the purchase of eNotes. e financial crisis likely hampered the adoption of eNotes, as mortgage companies had to focus their attention on other matters. Another factor in the adoption of eNotes originations is the consumer appetite to electronically close the mortgage. For most borrowers, their home mortgage is the largest financial transaction they will ever be a party to. As a result, some may be hesitant to electronically close such a large obligation. Instead, the borrower may feel more comfortable meeting face to face with the closing agent. Younger and more technologically savvy millennials are more comfortable with the digital process and are likely to increase originations. Also, with the COVID-19 pandemic and stay-at-home orders, many states relaxed rules regarding electronic notarization and lenders and borrowers increased their use of eClosings since they were unable to attend physical closings. FANNIE MAE & FREDDIE'S ENOTE GUIDELINES In 2005, Fannie Mae and Freddie Mac began purchasing eNotes and set forth detailed guides for the purchase and servicing of eNotes. Per the guides, an originator must obtain separate approval from Fannie Mae to originate eNotes. e guides set forth all the technical specifications required for approval. Once approved to originate eNotes, the seller may originate any product as an eNote except for the following: » Mortgages secured by mortgaged premises located in Puerto Rico Legal Industry Update Source: Iron Mountain 4 https://www.mersinc.org/products-services/mers-esuite/mers-enote-solutions

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