The Role of the eNote in an Online Mortgage

Online mortgage closings, also known as eClosings, are becoming more popular because they offer a more efficient, convenient way to close on a mortgage. Home buyers, lenders, title agents and real estate agents all see benefits from going digital. However, not every eClosing is the same. An eClosing is only a “full remote online” closing if all of the required components are transacted digitally, otherwise it is known as a “hybrid” eClosing.

A full online eClosing process includes the following:

• eSigning: The ability to sign electronic documents online
• eNote: The electronic promissory note
• Online notarization: Remote digital notarization of electronic documents
• Electronic recording: Digital audio and visual recording of the transaction

What is an eNote?

eClosings need to have digital versions of all of the same components of a traditional ink-and-paper mortgage closing. One of the required elements of a full online eClosing is the eNote, which is the electronic version of the promissory note. The eNote is the official document with all of the details of the mortgage itself, and acts as the proof that the borrower has promised to pay the lender the amount specified.

When a lender issues a loan, a promissory note is created with all of the details of the agreement. Typically during an ink-and-paper mortgage closing, the promissory note is signed by the lender and loan recipient and then held by the lender until the loan is paid in full. The eNote plays the same role in a digital closing, only it is signed electronically by the lender and the borrower.

In order to be accepted as a binding agreement, the eNote needs to have the following components:

• Borrower name and contact information
• Lender and title information
• Date and location of issuance
• Specified property address
• The amount of the mortgage loan and interest rate information
• The term of the mortgage loan, including first payment date

How to use an eNote in the online mortgage closing process

Once the eNote is signed digitally, the lender uses the eNote to register or sell the loan to investors. In order for the eNote to be considered to be legitimate by third parties, it needs to be in a specific XML document format called MISMO SMARTdoc. This allows the eNote to be registered on the MISMO registry and stored in an “eVault.” The eVault is an approved document management system that is used by lenders and investors to share loan information including eNotes.

Since an eNote is not a paper document, the Mortgage Electronic Registration System (MERS) eRegistry was created to keep track of eNotes, ensuring that they are not altered or tampered with and that they are only accessed by approved parties. MERS does this with a special online identification process that creates an authoritative copy of the eNote, so that no one can forge a different version.

A lender or home buyer interested in an eClosing will be glad to know that eNotes are legal in all 50 states because of two laws that govern their creation and use; the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act. That said, it’s important to note that not all lenders and warehouse investors currently accept them.

The benefits of eNotes and eClosings

There are a variety of benefits to moving mortgage closings online for lenders, borrowers, title real estate agents and homebuyers. Borrowers are used to online transactions for so much of their lives, and have come to expect that they can use their computer or mobile phone to do everything from online banking to buying a car. Mortgages are no different. A full online mortgage closing allows borrowers to close on a house remotely, from wherever they are, and be confident that the mortgage is safe and secure.

A recent study from Notarize and Marketwise reveals the return on investment for fully-digital closings. With eClosings, which includes online notarization and eNotes, lenders save $444 per loan, while title agents earn $100 in ROI from reduced errors and increased efficiency. 

What’s more, with an eNote, the mortgage is ready for the lender to sell much more quickly, creating faster cycle time and higher potential profits.

With so many reasons to move online, it’s no surprise that more people are interested in digital options and asking their real estate agents and lenders to offer eClosings.