It’s not a matter of if lenders adopt eVault technology, but when and how
eVaults are an integral part of any end-to-end digital mortgage transformation. They enable lenders to originate and securely hold eNotes and accelerate capital market transactions. eVaults also support an enhanced customer experience for borrowers and streamline interactions with other participants — warehouse lenders, investors, servicers, etc. — within the mortgage ecosystem.
As mortgage and capital markets become increasingly digital, most lenders, regardless of their lending strategy, will eventually need an eVault, because eVaults are a requirement for moving eNotes through the digital mortgage ecosystem.
One of the common misperceptions about eVaults is that they are just for storage. This understates the true purpose of an eVault, which is to reliably establish the person or entity to whom the single, transferrable record of the digital loan is assigned, issued or transferred. It provides an immutable, tamper-proof eNote that financial institutions can rely on when they pledge, sell and securitize eNotes.
Yes, the eVault stores eNotes and other documents, including paper documents that have been wet-signed and uploaded into the eVault as part of a hybrid transaction. But secure storage is only part of what a complete eVault offers. It must also be compliant, provide a comprehensive audit trail to track various activities and actions, be seamlessly integrated with the MERS eRegistry, and have the scale and connectivity to enable capital market transactions.
Fannie Mae and Freddie Mac both use eVaults and encourage eNote sales. Having an eVault is a requirement for delivering eNotes to these entities and an opportunity to increase capital market efficiencies.
Different “why’s” for different lenders
eNotes and eVaults deliver operational and cost efficiencies for originators, warehouse lenders, investors, custodians and trustees. Various types of lenders may experience different advantages to using eVaults. A portfolio lender, for example, might want to add an eVault to offer eClosings and eNotes that enhance their borrower experience and help them compete more effectively against national retail lenders.
Non-bank lenders that originate to sell loans will appreciate how quickly eNotes can move on and off warehouse lines and, ultimately, to investors. Reducing the dwell time on a warehouse line from weeks to days can significantly reduce short-term borrowing costs. Likewise, the faster a loan sells, the sooner the lender’s capital is replenished and the gain on sale realized.
Originating digital assets also enhances the reliability and compliance of the entire process by digitizing previously manual activities, reducing human error and providing a court-accepted audit trail.
Deciding on an eVault provider
What steps should a lender take before investing in eVault technology?
Start with a few basic questions. How digital are your current origination and closing processes? For example, are you using eSigning and hybrid closings?
What’s your company’s lending footprint? Is it national or does it focus on a few states? And if so, what do those jurisdictions currently allow in terms of eSignature and various forms of eNotarization?
In addition to first mortgages, do you (or will you) offer HELOCs and closed-end seconds? If that’s on the table, you’ll want to select an eVault solution that can also accommodate those types of loans.
Next, look at your partners and counterparties. Do your settlement service providers offer eClosing and/or remote online notarization (RON)? How digital are your warehouse lenders? If you’re originating conventional or government loans, GSEs now accept eNotes, and an increasing number of aggregators and private investors now accept eNotes.
Private-label RMBS securitization of eNotes is still in the early stages. But given the growing use of digital lending in other asset classes (auto, equipment, credit cards, etc.), observers expect RMBS/eNote adoption to increase.
2. Understand what makes a successful implementation
Selecting and implementing an eVault solution isn’t as difficult or complex as many tech decisions in the mortgage space (think: POS/LOS, servicing system migrations, etc.), especially if you are working with an experienced provider. At the same time, it is not quite as simple as saying, “Take my existing workflow and replace it with software.” Digital lending is a new way of doing business and requires learning and committing to organizational change. If you’re starting from ground-zero, two to three months is a reasonable timeframe for a standard eVault implementation.
Plan for up-front time to map out how your workflow will change in a digital environment. Part of the initial implementation will involve becoming “active” on the MERS eRegistry and testing the interoperability throughout your partner ecosystem. As you add new partners and new lending products over time, you’ll need to conduct additional training and testing to ensure a seamless production experience.
Ideally, a business owner leads the implementation – someone in your operation who will be responsible for processing the loans – along with other key stakeholders from capital markets, compliance, legal and IT. However, with a skilled eVault provider, much of the implementation’s heavy lifting is handled by their experienced team.
3. Conduct due diligence on the experience and connectivity of potential eVault partners
There are several established eVault providers, and new entrants continue to come into the market. How do you pick the right one for your specific requirements?
MERS is a good starting point in the vendor selection process. Seamlessly interacting with MERS is a must for any eVault provider, and the registry maintains a list of integrated eVault participants. Wolters Kluwer eOriginal technology was one of the first to be integrated with MERS, and our clients have been the most active users on the MERS eRegistry. In fact, as of January 2022, 92% of all eNotes on the MERS eRegistry — nearly two million eNotes in all — originated using Wolters Kluwer eOriginal technology.
Next, look at who is using the vendor’s eVault technology, because that’s a good indicator of the reliability of the technology and its eventual connectivity. Within the mortgage industry, Wolters Kluwer eOriginal technology is used by some of the nation’s largest mortgage originators, banks, investors, GSEs, servicers and other industry participants to increase capital market efficiencies. Across all asset classes, more than 20 million transactions have gone through our eVaults.
An established vendor that has worked with numerous counterparties can often leverage that experience to convert a business need. for example, “we work with X warehouse and Y investor” into a set of specific steps that can simplify integrations.
Finally, does your vendor participate in all MISMO groups, such as eMortgage, eDoc/eVault Interoperability, RON and SMARTDoc? This can be important in staying ahead of future requirements and ensuring that if you need to work with partners on different eVault platforms, the transactions will be successful.
As a critically important component in digital mortgage lending, it’s not a matter of if lenders adopt eVault technology, but when and how. And more importantly, how successful they are in selecting an eVault provider with a proven track record to deliver.
Hope for a balanced market is real this year because, with higher rates, we should see more days on the housing market coming up.
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