MERS May Reduce Obstacles to E-Notes

When Chicago-based 1st Advantage Mortgage LLC set out to do an actual e-mortgage with "the first MERS-regulated commercially reproducible eNote," recalled Paul Lueken, the company's president and owner, the event was delayed because someone at the title company "was afraid that somebody might trip over a computer wire" at closing. It was months before he got the OK to try again.

That incident, said Mr. Lueken, illustrated the difficulty of doing e-mortgages in the recent past, he told attendees of a session on e-mortgage technology and standards at the Mortgage Technology conference just concluded here.

Though his warehouse lender declined to participate, Mr. Leuken persisted in closing his first e-mortgage, he told attendees, because the e-mortgage promises to deliver a flawless closing, flawless signing of all docs, a flawless MERS registration and low-cost electronic delivery of the loan package.

Also on the panel were MERS EVP Dan McLaughlin, who briefed the audience on the MERS eRegistry, and Paul Rakowicz, president of Document Processing Systems. 1st Advantage Mortgage used Document Processing Systems' patent-pending electronic mortgage document management system to complete the two e-mortgages it has closed to date.

To originate and register loans on the MERS eRegistry, said Mr. McLaughlin, a lender must close loans on e-notes using MISMO standard SMART Docs and send XML transactions signed by a digital certificate provided from a SISAC-accredited issuing authority.

In January 2004 Secure Identity Services Accreditation Corp., a nonprofit subsidiary of the Mortgage Bankers Association, announced accreditation of VeriSign Inc. as a credential service provider for the mortgage industry.

Crucial to the e-mortgage is the Public Key Infrastructure digital signature, said Mr. Rakowicz, because it identifies both "what the borrower saw and what the borrower signed in a SMART Doc." On the B2B level, PKI compliance is mandatory for e-mortgages that can be transferred and sold on the secondary market. "Everyone doing a MERS transaction is going to have to embrace a PKI solution of some sort," Mr. Rakowicz told MSN. "And a SMART Doc solution has to be signed with a PKI certificate. The title company and all the players have to embrace PKI."

It's also the hardest form of digital signature to implement. "Is that a bad thing or a good one," he asked, noting that its security features are what complicate PKI implementation. However, a lender deploying system-level PKI can expose any e-signature type to the consumer, he said. "You can hide the complexity so that you get the best signature type with the easiest user experience. Another signing type might be easier, but without the security of PKI, that's not going to matter."

Though 1st Advantage's fledgling efforts were the first MERS-related e-mortgages closed, they were not the first done in a production setting. Since 2001 Navy Federal Credit Union has done "dozens" and has sold them to Fannie Mae on a servicing-retained basis, said Navy FCU assistant vice president Karen Pearson in an earlier panel at the conference. Navy FCU has realized savings from electronic recordation of lien releases and projects saving $39 per loan by automating post-closing QC.

When will the rest of the industry join in? Mr. McLaughlin said he expects to see both GSEs and "four or five conduits" using the MERS eRegistry by the end of this year.

Investor adoption of the eRegistry will spur lenders to follow 1st Advantage into the e-mortgage world, predicted Mr. Rakowicz. "By the end of the year I think we will have answered enough questions that everyone will be saying, 'I know how to do this. I know how this transaction works.'"

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