What constitutes an enote and are emortgages the wave of the future? Presented by Rachael Sokolowski President Magnolia Technologies, LLC

Transcription

1 What constitutes an enote and are emortgages the wave of the future? Presented by Rachael Sokolowski President Magnolia Technologies, LLC

2 Rachael Sokolowski, CMSP Rachael Sokolowski is President of Magnolia Technologies LLC. She is a recognized leader in the mortgage banking industry acting as a trusted adviser, strategist and driver of results in industry initiatives. Rachael provides over 30 years of business and technical experience in industry standardization, integration, electronic and digital signatures, electronic mortgages and closings, secondary market delivery and patent applications/litigation. In her consulting practice, Rachael has advised mortgage banking lenders, technology vendors, GSEs, and insurance, student lending, and automotive finance companies. Rachael previously was the CIO of a community bank. Rachael is currently Co-Chair of the MISMO, emortgage Workgroup and is certified by MISMO as a Certified Mortgage Standards Professional (CMSP ). In March of 2006, Mortgage Banking Magazine named Rachael as a MISMO All- Star and in 2014, she was designated as a MISMO Standards Champion. In 2016, Rachael received the MISMO Chairman s Award. 2

3 Consumers Today Are accustomed to a digital experience for Banking and bill paying Shopping Signing documents and contracts Finding homes Experience a cumbersome and confusing mortgage experience Fill out forms Provide information multiple times After purchase, are handed a stack of paper documents that many never read or understand With adoption of electronic mortgages, Experience the ease and convenience of a digital process Review, receive and sign documents electronically before and at closing (eclosing) CFPB eclosing Pilot demonstrated Better Consumer Understanding through education (7% positive difference over paper) More efficient Process (About 40% of e-closings took less than 15 minutes.) Greater feeling of Consumer Empowerment (15% positive difference over paper) 3

4 Lenders and Settlement Companies Today Are accustomed to Performing closing with paper documents Paying shipping fees Scanning documents Retaining mortgage data and documents scattered across multiple systems Experience Time delays shipping documents in warehouse lending and post closing activities Lost documents High costs to process and retain the paper With adoption of electronic mortgages, have the opportunity to Automate the process for the life of the loan Reduce the time spent in post closing activities Centralize data and documents Achive capital efficiencies Minimize errors Never lose documents 4

5 Terminology: emortgage, Digital Mortgage and eclosing emortgage, the mortgage data and documents are electronic Traditionally, a mortgage where critical loan documentation, at a minimum including the promissory note, is created, executed, transferred, and ultimately stored electronically In common use, the term is sometimes used to refer to a mortgage transaction where any document might be esigned, and/or erecorded, and/or enotarized Digital Mortgage This term is coming into more current use to broadly describe a mortgage transaction where any component has an e. eclosing, the process of closing the loan electronically Much more than just esigning At least one document is signed electronically Consolidates communication for the consumer Provides consistent educational materials Contains tracking mechanisms to ensure delivery, receipt, signature & acknowledgement of documents 5

6 Removing Paper from the Mortgage Process What changes? Consumer interaction Processes Information Technology Operations Staffing Agreements Requires compliance with Federal and state laws for electronic documents and signatures, known as electronic records Handling the ownership of the promissory note Industry standards for electronic records Investor requirements 6

7 It s All About the Documents and Data Loan Documents URLA Disclosures Consumer Supporting Documents Closing Documents Closing Documents and Instructions Loan Closing Package Appraisal UCD enote Process Application Origination Pre-Closing Closing Post Closing Investor Delivery Events & Services Underwriting Credit Appraisal, Title, Flood, MI, Tax Schedule Closing, eclosing documents Signing Ceremony enotarization MERS eregistry and erecording edelivery 7

8 How to Turn off the Paper? What s Needed? Visual representation of the document Access to the document s data for automated processing Linking the data and visual representation Electronically sign Provide tamper-evident security Confirm that the document is exactly what the consumer e-signed Audit trail of changes in the document Identification of owner and location of electronic original Note vs. copies Electronic Document <MISMO_DATA_IN_XML> VIEW or presentation esignatures Log of Events

9 Enter the SMART Doc The MISMO SMART Doc was developed as an electronic document to include system consumable data and to support the mortgage document lifecycle. Locks together data, signatures and presentation in such a way that it can be system-validated to guarantee that the document is exactly what the borrower saw and signed on the computer screen. Allows for variation in the representation in the view of the document and the data ( vs. one hundred thousand). Complies with state and federal laws governing real estate transactions (UETA and ESIGN) Required for delivery to Fannie and Freddie for promissory notes and the closing disclosure. 9

10 MISMO SMART Documents SMART Document Information about the entire document; such as the document type and form number Metadata: Document Classification and Versions Data MISMO Industry Standard data Human Readable Representation of the Document with signatures I promise to pay Ninety six thousand five hundred dollars View LINK Electronic Signatures Audit Trail esignatures History of events and activities for the document Tamper evident Signatures Tamperseal 10

11 Advantages of Data and Documents brought Together in SMART Docs Certify Documents faster Industry data and document standards create uniformity Eliminate re-keying, stare and compare Automatically identify non-saleable loan issues Improved compliance review Transparency into depth of loan, data quality Increase fraud detection opportunities Process loans faster Streamlined process without paper Faster execution, lower risk Easier (e)servicing, (e)custodial setup Instant document sharing when documents are in electronic format Easier compliance with changing regulations 11

12 How to Handle Signatures? Systems that sign/store electronic records require: esignature Laws compliance: ESIGN Act of USC 7006 (5) Federal solution... Electronic Signatures in Global and National Commerce Act UETA Uniform Electronic Transactions Act -- State law solution for electronic documents and signature Major parts of ESIGN and UETA A record or a signature may not be denied legal effect or enforceability solely because it is in an electronic form If a law requires a record to be in writing, an electronic record satisfies the law If a law requires a signature, an electronic signature satisfies the law Both contain other provisions for storage, reproduction and electronic consent. 12

13 Electronic Signatures: Required Features ESIGN and UETA give legal force and effect to electronic signatures. The law defines an electronic signature as: An electronic sound, symbol or process (e.g., typed names, PIN, Password, a click, a digitized picture of handwritten signature, biometric, audio, video or a digital signature) Attached or logically associated with a contract or other record, and Executed or adopted by a person with the intent to sign the record. An electronic signature is a process ESIGN and UETA answer the question of Is it a signature? ESIGN and UETA do not answer the questions: Why was the signature created? (Purpose) Did the signer want to create and signature? (Intent) Whose signature is it anyway? ( Authentication) Did the electronic document change in any way after signing? (Tamper Evidence) The recipient not the signer bears the burden of proof 13

14 How to Prevent Changes to Electronic Documents? A digital signature is type of electronic signature that can be used to verify that the document has not changed since signature execution, providing Peace of mind for the consumer Mechanism for lenders and investors to have confidence that the terms of the document have not been altered. A Tamper Evident Signature is a special case of an electronic signature in emortgages Seals the document and provides tamper-evidence of alteration during the document s lifecycle Typically applied once all human signers have signed the document There may be more than one After closing After recording in the public land records 14

15 Special Considerations for the Promissory Note In the paper world, ownership of the loan is provided by physical possession of the paper promissory note document Is as good as cash Transferred by endorsement Risk of loss What happens in the electronic world? There are multiple electronic copies of the promissory note Need a mechanism to indicate the owner 15

16 The Electronic Promissory Note is a Transferable Record A single authoritative copy of the transferable record exists unique identifiable The authoritative copy identifies the person asserting control controller The person to which the transferable record was issued or If the authoritative copy indicates that the transferable record has been transferred, the person to which the transferable record was most recently transferred; The authoritative copy is maintained by the controller or its designated custodian (electronic Vault) Copies or revisions that add or change an identified assignee of the authoritative copy can be made only with the consent of the controller Each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy and that is not the authoritative copy Any revision of the authoritative copy is readily identifiable as authorized or unauthorized 16

17 How to meet the Safe Harbor Requirements of the esignature Laws? enote is originated and closed Multiple parties can have copies: Lender Title company Servicer Warehouse Lender gets a copy. Which party has the legal rights to sell the enote? 1. What copy is identified as the authoritative copy? 2. Who is the controller? 3. Where is the authoritative copy retained? 4. Changes in assignment of controller must be made with consent of current controller 5. Are copies identified as copies? 6. Revisions are tracked in auditable and verifiable way 17

18 Electronic Note Registry - MERS The industry s response to some of the requirements imposed by UETA and E-SIGN Secondary Investors developed requirements for enotes using MISMO defined technical standards There was an industry need for a system to register ownership of enotes: the Controller (holder) Location (custodian) of the Authoritative Copy of an enote 18

19 Electronic Note Registry - MERS Determines who owns the emortgage The mortgage industry s system to identify the party that has the right to enforce the Authoritative Copy of an enote Mortgage Negotiable Instrument Original Note Possession Investor/Holder Custodian Vault Endorsement Chain of Endorsements emortgage Transferable Record ( enote ) Authoritative Copy of the enote Control Controller Location evault Transfer of Control Transferable Record Audit Trail of Controllers 19

20 MERS Facts The eregistry transactions are system-to-system, with all transactions moving through secure VPN tunnels exclusive to eregistry traffic. There is a user Interface for view-only access to the eregistry enotes MUST have a MIN which matches the MIN on the Security Instrument Participants use evaults (typically third parties) to store the authoritative copy of the enote. evaults must be secure environments (technically, physically) that comply with Investor requirements. THE MERS eregistry is not an evault nor does it maintain a copy of the enote on the eregistry eregistry uses the MISMO (mortgage industry standards maintenance organization) XML standards for enotes and related transactions 20

21 The Document Repository: evaults MISMO definition - An Electronic Note Vault is a secure storage solution that meets the requirements of esignature Laws. Has the ability to partition or segregate transferable records from other electronic records Functionality to view and print a copy of an enote and see its associated data (Controller, Location, Servicer, relationship to enote, loan status, other documents) Security (authorized access, transaction audit trails, back ups, etc) Typically includes integration with the MERS eregistry and is provided as part of a vendor s solution but the MERS eregistry is not an evault. 21

22 Sample Scenario Lender creates a uniform enote to satisfy GSE requirements for purchase Electronic document standards Reference to registry maintained by MERSCORP Holdings MIN Lender executes enote on eclosing platform using Electronic signatures Tamper evident seal Lender stores the enote in an evault Lender registers enote on the MERS eregistry Tamper evident seal Loan data Identifies controller, location and servicer 22

23 What the Borrower Sees 23

24 What the Borrower Sees 24

25 What the Borrower Signs 25

26 The Record at Registration 26

27 Sample Scenario, continued After Registration: The Servicer named on the enote record (or Controller, if a Servicer not designated) is responsible for reporting life of loan events Payoffs, Charge Offs, Modifications, Assumptions, and Servicing Transfers Similar to reporting to the MERS System. For Transfers of Control or Location, a handshake is required: the currently named Controller initiates the transfer with an effective date the new party must confirm the transaction by the effective date Virtually all transfers are intra-day 27

28 The Record at Registration 28

29 The Record after a Transfer of Control Who owns the Authoritative Copy? 29

30 MERS edelivery How copies of enotes move around edelivery transactions use the MERS eregistry infrastructure to securely send copies of enotes (or any document or file) to other participants of the MERS eregistry. Delivery in seconds Operates like FedEx they don t open the package, they just deliver it Multiple recipients are allowed 30

31 Court Case Precedents Rivera v. Wells Fargo Bank, No. 4D (Fla. App. April 20,2016) New York Community Bank v. McClendon, N.Y. Slip Opinion

32 enotarization Patchwork of differing rules and laws on a state by state basis Some states have published rules for enotarization. Others have stated publicly that it is allowed but have not provided any guidance There are states that have remained silent on the issue. Two types Face-to-face with electronic signatures Remote -- video notarization over the Internet There are over 1,380 enotary counties -- representing approximately 74 percent of total population 32

33 erecording Title companies, banks, attorneys, and lien filers now have the ability to electronically record documents The recorder is able to electronically review, stamp, record, and return documents back to the submitter within minutes of receipt Counties erecording which is approximately 79% of the U.S. population, with more counties coming online every week erecording means different things in different recording offices The major roadblock is the uncertainty with enotarization 33

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35 Mortgage Industry Solution is not the only way: econtracts Automotive Finance Companies don t use MERS Have econtracts that must conform to the esignature Laws Typically do not transfer ownership as in the mortgage industry To the extent a security interest will be created and will attach to each econtract, such security interest can be perfected by control within the meaning of Article 9 of the UCC. Must have explicit and well documented processes for Creation of econtracts for signature Execution of electronic signatures for Obligors and Dealers Designation of a single copy of the econtract as the System Authoritative Copy Retention and authentication of copies of the executed documents. 35

36 enotes and emortgages are the Future User friendly process for all participants Compliance with esignature Laws Increased collateral control Improved auditing and tracking of mortgage documents and data Transparent record of ownership Elimination of lost promissory notes Centralizes the process and transaction for everyone 36

37 Questions? 37

38 Contact Information Rachael Sokolowski, CMSP, Magnolia Technologies, LLC