eNote adoption is a critical step along the pathway to fully digital lending, and it’s something lenders across the industry have been working very hard to achieve.
eNotes have been finally enjoying significant adoption across the industry, 20 years after the federal eSign legislation opened the door to digital lending.
But many mid-tier lenders who depend upon the Federal Home Loan Bank (FHLBank) system for liquidity have found the path to digital lending difficult because the FHLBanks were not ready to accept eNotes.
That just changed. As John McClane, played by Bruce Willis, famously said in the movie Die Hard, “Welcome to the party, pal!” or welcome to the eNote party FHLBank System.
MERSCORP Holdings (MERS) has announced a new partnership with the FHLBank System that will allow FHLBank member financial institutions to use the MERS® eRegistry to pledge eNotes as collateral. This has the potential to finally put digital lending within reach of 6,900 member financial institutions.
The 11 FHLBanks each have their own systems, processes, and policies regarding collateral. Implementation timelines for each FHLBank to begin accepting eNotes varies, but three system banks are already online with the new program: Chicago, Dallas and Des Moines.
On August 1, FHLB Chicago sent its members a guidebook entitled “Member Collateral Electronic Promissory Notes (eNotes) Acceptance Requirements and Guidelines” outlining the new process.
The document outlined requirements for eSignatures, eClosing, eNote documentation and working with MERS. For many of the smaller banks and credit unions that work with FHLBanks but that are not currently among the 5,000 MERS® System Members, this is all new information.
To help them make sense of it, MERS is partnering with the Federal Home Loan Bank of Des Moines to put on an informative webinar on September 16. Presenters include Vonda Renfrow, Vice President and Director of member services for FHLB Des Moines, and Tiffany Toale, Training and development analyst for MERSCORP Holdings.
The webinar will cover the basic eMortgage information lenders must know but will also get specific on what the lenders must do to come online with the FHLB and MERS.
To become eligible to submit eNotes, FHLBank member financial institutions will need to work simultaneously with their respective FHLBank and MERS to execute the necessary legal and operational requirements, implement a compliant eVault, and integrate with the MERS®eRegistry to establish their respective FHLBank as the eligible secured party of eNotes pledged as collateral.
MERS launched the Secured Party and Secured Party Delegatee fields in the MERS® eRegistry last November to reflect an organization’s (like the FHLBank) security interest in an eNote.
A great opportunity for Docutech® customers
In its guidebook, FHLBank Chicago wrote: “As part of the FHLBank Chicago eNote readiness review process, Members will need to provide information about the systems and processes employed to originate, to close, to vault and to service eNotes.” This is a message we expect to hear echoed by the other banks in the system.
To align with the MERS® eRegistry, Docutech’s Solex® platform supports the secured party capabilities. Docutech’s Solex eVault, part of the Solex eClosing platform, provides full document storage, management, and security, as well as the ability for lenders to transfer, store and control electronic promissory notes and related loan documents. This platform, approved by Fannie Mae and Freddie Mac, also allows documents to be shared both internally and externally with warehouse lenders and document custodians alike.
Lenders utilizing Docutech’s Solex eVault now have the ability to enable the Secured Party feature, which allows them to deliver eNotes as pledged collateral to the FHLBank System.
“We are excited to see increased institutional support for eNotes in the marketplace” says Fred Gooch, Docutech General Counsel and SVP of Compliance. “We continue to support avenues that expand lender’s capabilities to provide a digital lending experience that is safer and much more user friendly for consumers.”
This development removes a major roadblock that has been standing between thousands of financial institutions and the better borrower or member experience that digital lending can provide. As a result, we expect to see the digital lending party continue to skyrocket in 2021.