Widespread industry adoption of electronic promissory notes presents challenges but has steadily gained momentum over time as various aggregators sign on, and one is paying up for certain downpayment assistance loans using them.
These developments, combined with data and projections that show this form of digital collateral on track to triple to nearly 30% by 2028, show e-notes are here to stay, according to panelists at a meeting in New York. Currently, close to 10% of the industry uses e-notes.
"We will be going this direction and not looking back because it solves so many problems," said Lynne Chandler, digital program director at Ginnie Mae, a government securitization guarantor that boosted adoption a year earlier by
Ginnie is a corporation within the Department of Housing and Urban Development that oversees a multitrillion-dollar securitized mortgage market, so it's given e-notes momentum.
As has often been the case with government-related technology initiatives in the mortgage industry, this one started out at influential quasi-governmental loan buyers Fannie Mae and Freddie Mac, later migrating to Ginnie Mae in 2021.
E-note use in the Ginnie market has grown unevenly over the years, with the count jumping 205% from 17,580 the first year to 53,655 in 2022, then growing by 16% in 2023 to 62,175, and rising by 44% to 89,764, according to figures Chandler shared.
While there has been some turnover in senior leadership since last year at Ginnie, and the election has raised some questions about the direction of past policies,
Teri Pansing, a senior vice president responsible for corporate closing at Fairway Independent Mortgage, said getting settlement agents and other stakeholders involved was a challenge that took several years to address, but e-note use is finally becoming routine for the company.
"It's how we do business now," she said.
The number of players involved has grown significantly, according to Camelia Martin, vice president of e-mortgage strategy and adoption at Snapdocs, who shared a breakdown of e-note users by market segment.
There are 267 originators, 47 warehouse lenders, 38 investors, 29 servicers, 12 subservicers, six custodians and a number of government-related entities like Ginnie Mae that use e-notes, including the government-sponsored enterprises and most Federal Home Loan Banks.
"We think we're going to see a tremendous spike-up in e-notes," said Gil Lopez, senior vice president in Amerihome Mortgage's correspondent division.
The company is tracking the expense savings possible by using e-notes rather than physical documents that may require more time to get to borrowers, particularly when a natural disaster or accident may impede delivery.
While some savings from e-notes are possible, they are limited because the broader closing process still can't be consistently automated. A hybrid mix of manual and automated steps that accommodate different jurisdictional rules are most commonly used for e-closings as a result.
Based on the extent of any savings, Lopez said the company will consider whether e-notes warrant a premium.
"That's what we're hoping for," he said.
