How Lenders and Title Agents Can Simplify eNote Adoption

Marvin Stone (00:00)
Well, hey everyone, welcome back to another great episode of Stewart in the Studio. We just had an excellent conversation with Brian Webster, who heads our Signer's Choice team, talking about how eNotes are really no longer difficult to execute on. So, let's get to it. This is Stewart in the Studio from Stewart's thought leaders.

Okay. So we're here to talk about eNotes in detail. Now we did an episode recently with you, Brian, talking more about RON, IPEN, mobile notary, kind of the whole signing experience. But now we're going to deep dive and kind of geek out for the eNote piece, which to those who are not really in this space, that's a whole different technology-bound way of delivering the note. So, we'll go there.

Brian, you've been an expert in this field for a long, long time, dating back to all the way back to the CFPB, your days at the Bureau and things, and then through basically on the lending side, a couple of different operations, seen it firsthand and now you're over here at Stewart, and Signer's Choice. So, just a brief kind of high level on where your intersection comes with the whole eNote story.

Brian Webster (01:08)
Thanks, Marvin. I don't know if I'm an expert, but I did stay at a Holiday Inn Express last night. So hopefully I can opine on that.

Marvin Stone (01:15)
Bet you got that.

Brian Webster (01:17)
As you mentioned, it all kind of started, gosh, almost 15 years ago, I guess. You know, we were studying kind of the benefits of eClosings and a digital experience for the consumer at the closing table at the CFPB. You know, it did do some good things that just kind of progressed and snowballed into various stops along the way and then landed me here at Stewart running NotaryCam.

And one of the advantages of coming over to NotaryCam and the tools and resources that Stewart kind of provides to that is really being able to focus in on how can we as not only just the technology but the service provider kind of bring tools and resources to our users, to Stewart's customers, to our lender partners that can really help facilitate that digital mortgage adoption, specifically around kind of that electronic note piece because that's the most important that everyone focuses on because that's what follows the money. That’s the collateral piece that gets sold and bought in the secondary market. And so that's the one piece that everybody really kind of focuses on and makes sure they want to get it right.

Marvin Stone (02:36)
Yeah, good. So, and we've got a number of things kind of coming up in the works. You know, MBA Annual is coming up. They've got the MBA Tech Exchange ‘26 that you'll be at and we'll have a big crew at. So, one of the things that really has been striking about eNotes in that whole space is it's just out of reach for a lot of executives who are in the mortgage space. That's for the tech guys and they don't necessarily see the strategy behind it. So, we're going to kind of go into a plain English foundation just to set the table really quick on SMART Docs, MERS, eRegistry, what’s a MERS, and eVaults, you know, those types of things. Just a quick flyover in a few minutes on what that looks like.

Brian Webster (03:16)
So, it all starts with the eNotes, right? An electronic note, promissory note. And, you know, the introduction of this around kind of eSign and UETA around 1999 and 2000, you know, the GSEs really kind of push forward. Like, how can we bring this electronic document as a transferable asset into kind of a digital format, right? And so, working very closely with MISMO and a couple other kind of forward thinkers in this space, you know, develop the standards around a SMART Doc. And a SMART Doc.

Marvin Stone (03:49)
I can't remember the acronym.

Brian Webster (03:51)
I know. It's secure, marketable, accountable, readable, transferable, something like that. Charlie will yell at me. For not knowing this off the top of my head.

Marvin Stone (04:01)
Yeah, right. And others, yes.

Brian Webster (04:05)
And so, what that really kind of does is define the combination of the document and the data. That's what makes SMART Docs so powerful, is that really it is a data set that contains a readable version of what is represented within the document or what's represented within the data.

Marvin Stone (04:28)
And real quick, what's novel about that is the data goes with the document.

Brian Webster (04:31)
Absolutely.

Marvin Stone (04:31)
I mean, they go together. And so today we have so many across all the mortgage, title, every aspect of the industry, we've got things that are out of band. It's like, well, this goes the data channel, this goes the document channel, this goes in the system, that goes in email. So, to your point.

Brian Webster (04:49)
There's always been a push by certain groups within the industry to try to get every document as a SMART Doc. Organizations, lenders, title, QC have these processes in place to take the document, extract the data from it, to validate the data on the document. Whereas if it was in a SMART Doc format, you have all of the data and the document together. You know that it is immutable because it's what's represented on what you see on the document. And it just goes back to the advantages of keeping everything digital. Because once you print something out on a piece of paper, you have lost that ability, that audit trail, that accountability, that control, that quality of the data that you've got within your systems. And so, a SMART Doc can kind of give you that benefit. But a SMART Doc is a requirement for a GSE eligible eNote, right?

So, it has to be in a MISMO SMART Doc format that's generated from approved vendors that allows it to be transferred, registered with MERS, and sold to the GSEs.

Marvin Stone (05:56)
Someone explained it to me as light socket, light plug. You know, I mean, just like these two go together, you don't even think about it. And that's the way SMART Docs are supposed to be is you just, you can bank on that standard.

Brian Webster (06:07)
And then the bulb comes on.

Marvin Stone (06:09)
There you go.

Brian Webster (06:09)
That's right.

Rich Kuegler (06:10)
You know, I think the enormity of going from kind of that paper-based, let's image it into a SMART Doc environment is also enough to have…really impact the adoption because it becomes such a huge job when in fact, I don't want to lead the witness, but I think you're going to probably talk a little bit about what we're doing in the eNote space that allow you to make that a simpler process than thinking about this whole thing you have to bite off.

Brian Webster (06:36)
Right. And that's really kind of setting that foundation what is it that you really need to do and then defining the stakeholders within the process that could be or should be doing those acts, right? Doing those tasks, right? You know, lenders always feeling like that it was on their shoulders, it was their burden to have to do this and that they had to do it on their own. Well, they're not. They're not alone. And if you think about it, right? Every real estate transaction doesn't necessarily have a lender involved, right?

Marvin Stone (07:14)
A third of them don't.

Brian Webster (07:16)
A third of them don't, right? So, there's opportunity there for really kind of spreading the responsibilities across all stakeholders.

Marvin Stone (07:23)
And putting it in the right place, really. I mean, if the third, why have two processes? And I think that's where we saw…

Rich Kuegler (07:26)
That’s huge.

Marvin Stone (07:28)
…in years past, okay the RON providers initially went to the lenders and say, you make your title agents do this, but then there are so many different systems, right? This is where that comes into play where a title agent can have one system to serve any number of lenders, right?

Rich Kuegler (07:43)
Well, I was going to say, Marvin, that's probably the issue too, is if you view it as a separate process entirely and something you have to do in parallel, it really doesn't work well because why would I have two processes?

Brian Webster (07:54)
And going back to kind of the groundwork, right? You know, we talked about the SMART Doc and then the other terms that you hear about quite a bit related to eNotes is MERS. And MERS eRegistry, right? So, MERS is a mortgage electronic registration system, really began with tracking kind of where physical notes were. They developed the eRegistry to track eNotes. So, any electronic note that gets generated in order for it to be sold to the GSEs, it has to be registered with MERS. And so, if you think about the location finder, right? The MERS eRegistry dictates who is the rightful owner of that collateral and where does it actually exist. In coordination with eVaults in the MERS eRegistry, you identify the people that are involved, the owner of the note, the holder of the note, and then the servicer of the note, any type of interested party guarantors associated with that note, all can be tracked within the eRegistry.

And that's what really kind of creates the fungibility, that creates the security, that creates the marketability of that digital asset because you're able to track it from start to finish and whoever needs to touch that asset can be tracked within the registry.

Marvin Stone (09:12)
So that's kind of the mechanics of it largely. Now talk about the done-for-you approach that you guys bring to the table. And really from the standpoint of what does a title agent need to do to serve multiple lenders and how can a lender take advantage of that?

Brian Webster (09:28)
When I had the opportunity to go into a lender to try to implement this, right? The traditional model was the lender owned it, I defined it, I defined the platform, you know, originally eClosing and RON vendors went to the lender because typically the lender controls the entire transaction, right? You know, as I was thinking through this, it's like, well, the title company, the settlement agent, the closing attorneys are the ones that are actually executing the documents. Why not focus on the person that's actually executing the documents?

Marvin Stone (09:57)
And by the way, you were the only one who ever said that. I mean, everyone else was like full on talking to the lender.

Brian Webster (10:02)
I sat with you and Scott Gillen in 2015, you know, having this very conversation, right? The challenge that a lot of lenders were having early on was, well, I've got to go to this title company, I got to go to that title company, I got to go to this title company.

Rich Kuegler (10:07)
It's too many touch points, right?

Brian Webster (10:18)
Way too many touch points. But then flip it, look at the other side of the table, right? As a title agent, I've got five lenders, they all have their own closing platform. So, I now need to know five different platforms. We got to manage logins, I got to manage users across five different platforms. Let's go back to Betty Sue. Betty Sue’s sitting at the table, she's doing a Wells Fargo transaction at nine on platform A, she's doing a Bank of America transaction at 10 on platform B, she's doing a Citibank at 11 o'clock on platform C.

And the ability for her to be effective and efficient at her job, delivering the type of experience that all of these lenders want for their customers. And Betty Sue wants to be delivered to her customers. It makes it a challenge. Why not go to the person and give them a better pen, right? Upgrade their Bic to something much better, right? Give the title agent, give them the technology to execute the documents and control the transaction. Then they can go to the lender and say, look, what I can do for you. So, going back to the whole eNote digital transformation, right? It was always a challenge at the lender in order to manage all the touch points. To figure out what I needed to do, who was going to do it internally, right?

And so what we've done and that done-for-you model is built a solution that we can give to a title agent that says, look, we figured out mostly what lenders need to do in order to adopt digital mortgage. And we can give you tools that can help you facilitate majority of those tasks, right? So we can take the dumb PDF documents so lender doesn't need to change doc providers. They don't need to do anything different with their doc systems. You can take the dumb PDFs. We can get the agent documents directly sent to us. So, the dumb PDFs from the title company. We then transform those. We can flag and tag and index all the documents and understand what each of the documents are. We add the appropriate annotations. We then extract the data that we receive, generate a GSE approved eNote, get everything executed within the same session between the notary and the signer.

We have a NotaryCam eVault so that the eNote is deposited into the eVault and then, depending upon the lender and the title agent's requirements at a transaction level because this could be different for every single transaction. We then dictate where we deliver that eNote to. So, thanks to some changes that MERS made a few years ago with the eRegistry, it allows me to do that. So, I can deliver an unregistered eNote back to the lender, to the custodian, to the warehouse lender, wherever I need to without having to kind of step into that chain of custody, right? So, I don't necessarily want to do that. But they've also added the ability for me as NotaryCam to register on behalf of the lender under the DFT model, Delegatee for Transfer. So, it gives me the ability to kind of act as an agent for the lender for a registration purpose.

What all of that does is it gives the title agent basically an unmanaged tool because they're not really doing anything much different. We're managing all of it between our processes and technology to really create that digital transaction, that digital mortgage for the lender through the title agent, the title agent's relationship. That really only leaves what the lender needs to do is fund it and sell it, right?

Marvin Stone (13:50)
Which is all they want to do.

Brian Webster (13:52)
That's all they want to do anyway.

T.J. Harrington (13:53)
And title agents don't want extra work, right? So, some of the early platforms you were manually flagging and tagging. And what we found was that the savings and not having to post-close your packages were basically eating up with click times, having to click all the fields manually to add the tags.

Brian Webster (14:09)
Well, and part of that too was the title agent wasn't seeing the benefits.

T.J. Harrington (14:12)
Yeah, that's right.

Rich Kuegler (!4:14)
Because it became more cumbersome for them.

Brian Webster (14:15)
Right? The lender was getting the benefits of the digital mortgage and the eNote and the better execution and shorter delivery times. The title agent is seeing an increase in time per file and all the files to be able to flag and get the documents ready. You know, as an agent, I'm like, why do I want to do extra work? Why am I going to put 50% more kind of operational time on a single transaction for you to see a 10-basis-points-better execution on your delivery.

T.J. Harrington (14:42)
To your point, I remember my first eNote closing transaction was on AmTrust Gemstone. So got spicy back in the day. And again, that was a very manual process having to click through that. But to your point about delivery, even if it wasn't someone using Gemstone, well, now it's AmTrust Gemstone. It's different banks' Gemstone. I'm now logging into the same platform for four or five different lenders and balkanizing my process by lender and my lender partners are feeding into me as the distribution partner.

Brian Webster (15:14)
Right, exactly. So, what we tried to do is give the title agents additional tools, additional resources to be able to go to sell their services to the lender. You can now deliver a better product to your lender customers not really doing much more.

Marvin Stone (15:28)
Right.

Rich Kuegler (15:29)
Right. We allow the technology to really be that efficiency tool that it was intended to be, right? You've removed a lot of those obstacles and hurdles and that's got to really be a great business case for sure. Now you can adopt this as part of your process.

Marvin Stone (15:43)
And now both the lender and the title agent have a business case for this. It's a matter of explaining that business case. The cost of origination is, what, sitting still at $12,000 and how much money can this take out of the process? In addition to time and efficiency and error, how much hard dollar savings do we know is it like…?

Brian Webster (15:59)
There's been a few studies. The latest one that I can recall from a few years ago said about an average of $300 a transaction from the lender's perspective by doing kind of RON and digital mortgage. I've had originators tell me they equate it to like 10 basis points just in execution delivery. And that really isn't taking into account the actual benefits from a capital markets execution.

Rich Kuegler (16:25)
It probably hasn’t been priced in yet.

Brian Webster (16:29)
It's really just kind of an operational advantage. They're like, as soon as I know I'm doing eNotes, I know I'm getting a 10-basis-point lift because conversations have always been like, OK, if I have an eNote and I know that it's going to close on Thursday, you know, I know that there's not going to be any issues. I know that, you know, it's going to be rock solid. I can get it certified. I can get it verified by my investor for the GSEs.

They do auto certifications, right? So, I know that I can then deliver that note almost immediately. And so, you may have some very bold marketing managers out there that, you know, are starting to do more mandatory delivery or shorter best efforts on their secondary market execution, which can really result in some pretty significant gains.

Rich Kuegler (17:13)
Right. You can take advantage of not having that many collateral issues.

T.J. Harrington (17:15)
It changes your hedging strategy, your rate lock strategy, it changes the cost of capital, which I think when you bake that $12,000 number, that's a big chunk of that, right? Particularly in a volatile market environment, rate environment, where you lock in today and rates go higher tomorrow, that cost of that capital is going to be very different.

Brian Webster (17:33)
Because especially if you can ensure that, I mean, some of the advantages around kind of an electronic note or electronic asset, digital mortgages, RON, those type of benefits is that, you know, the systems, the technology help mitigate errors. And if you think about I'm taking my QC process from post-closing to pre-closing and closing so that I'm actually performing post-closing checks while I'm actually executing the documents and delivering their documents. So, if I can eliminate that risk of pushbacks or even buybacks, unfortunately, you know, downstream, again, it creates efficiencies, it creates cost savings where I can start, you know, redeploying resources elsewhere where I may need them within the organization.

Marvin Stone (18:22)
One of the things we wanted to talk about a little more is the business case. And you guys too, you know, when you're talking to lenders out there, are they aware of the business case like, hey, I should do this, or where does that stand?

T.J. Harrington (18:34)
I think it's hard to quantify a numbers perspective. Everyone's always chasing that cost reduction in fulfillment, but it's a no-brainer from a customer experience perspective. So, if they're really focused on the customer experience pieces, it's such a better experience to go through eNotes and RON where possible than not. And so, I do think that we see that, you know, we just had a conversation with a major lender on it and it's on the roadmap. They found it kind of insurmountable because of all the ecosystem pieces they perceived they had to build. And so, they had a big rock budget to try and do that, you know, when we shared kind of the vision that Brian brought with the, you know, solve-for-you turnkey execution, they're like, why aren’t we talking about this?

Marvin Stone (19:17)
Right.

Brian Webster (19:19)
I think that's a great point to start thinking about because traditionally from a lender's perspective, it's always been, you know, what is my ROI? Like, what is my…how am I going to get better execution? How am I going to either reduce costs by moving to eNotes? And that honestly, you know, if that is the only metric that you're looking at, when you start running all the numbers, you're going to have institutions are going to be like, it's going to cost me too much money and too much time and resources and technology changes to be able to do it for just the dollars and cents on the back end. You got to look at it as a much bigger picture. You know, you're hitting on it about the customer experience. What does the customer want? What are my operational efficiencies and gains that I'm going to get within my organizations, right?

It goes far beyond just cost savings or better execution in the secondary market and meeting the customers where they're wanting to be met today and tomorrow. Right? We're seeing this in the home equity space…

T.J. Harrington (20:19)
That’s precisely it.

Brian Webster (20:20)
…and other lending products outside of just real estate. The customers are demanding, they’re wanting a better experience.

Rich Kuegler (20:26)
Well really, and someone said this to me in a meeting not too long ago, is that they're really looking to see how can we make this experience to be like an Amazon experience?

Brian Webster and T.J. Harrington (20:35)
That's right.

Rich Kuegler (20:36)
So, every other part of the consumer experience is I'm on my phone. I'm on my PC. I'm ordering something electronically. I'm interfacing that way as well. So why can't the mortgage process do the same?

And I think as we looked at, you know, the traditional causes that were traditional adoption obstacles where it's too much of a scope, it's too much cost to do all this stuff. And now it's not necessarily that way. So that I think is going to change the complexity of that and to be more competitive in the market. It's something that someone's almost going to have to do.

T.J. Harrington (21:11)
When we see the winners in the home equity space, especially the fintechs plan, they focus almost fully on experience and they've been winning the consumer that way.

Rich Kuegler (21:18)
Exactly. Despite higher rates.

T.J. Harrington (21:21)
That’s right. Customer experience is winning the day. And you even have, you know, your average HELOC today is under six figures. You see the car buying experience or maybe you're buying a Wagoneer for $110,000 and that will take you, you know, super duper, duper fast execution primarily because it's electronic and it's insured. And so it's at least parity from a serious dollars perspective, but the execution on a mortgage is that much harder when you don't have a digital process.

Marvin Stone (21:53)
And even to the point of a lot of people who come up to home buying or renting today and the rental experience in many cases is now fully electronic. So, we didn't see that 10 years ago. Now it's pretty prevalent. So, they're expecting that just as you said, right? They want that Amazon experience.

T.J. Harrington (22:09)
It's beginning to become market stakes. Yeah, table stakes for the market.

Marvin Stone (22:10)
Yeah, and great point.

Brian Webster (22:14)
And you just start looking at all different components in order to get that full experience to be able to deliver that across the board, eNotes is a big part of it. And eNotes has always been the kind of daunting piece because it is the collateral.

Rich Kuegler (22:28)
Right, right.

Brian Webster (22:29)
But it's not as much of a challenge really because, you know, the technologies are there, the doc providers are there and the warehouse lenders are there and the investors are there, right? So, all the ecosystem surrounding and the stakeholders involved are coming to the table to make it easier for lenders to be able to adopt.

Marvin Stone (22:47)
But I know as a lender on a transactional basis, I think you mentioned e-eligibility in the past and I'm just kind of looking down. You just checked off a bunch of items here on my checklist and things that the lender would have to take into account. So those things are taken care of. But on a transactional basis in a certain state, certain type of transaction, how do I know I can do this one electronically all the way to an eNote?

Brian Webster (23:10)
A couple of different ways, right? I mean, if depending upon your technology or LOS, what you're able to do, my last lender that I worked at in order to implement a fully digital offering, we added two data points to our systems. We had one upfront that basically set the eligibility requirement. Like what could we do? And that was based on loan program and it was based on property location. And then we had an indicator kind of on the back end to indicate, well, was there actually an eNote on this transaction that flowed into our post-closing and secondary market that says, can I fund this with this warehouse lender or that warehouse lender? Can I sell it to this investor or that investor, right? And so sometimes the technology is easy to update and can move forward and add that in there.
You can also look to your partners.

Going at this alone is, that's where it really becomes, extremely daunting. It makes it seem to be unattainable. So finding the right partner. So you get up, your partners could have the technology to be able to tell you, right? And when submitting an order to your title company or submitting an order to kind of a NotaryCam from a signing service, we have the tools to be able to flag and it says, hey, you can do RON.

Rich Kuegler (24:27)
What might this qualify for?

Brian Webster (24:28)
Right, exactly. Luckily, from a RON perspective, it's driven by the state. So, 45 states have RON legislation, roughly. Recording can be a challenge that we've talked about before, right? So really, it's property location. I can do RON or not. And then typically, it's based on the loan programs, right? So, your conventional conforming GSEs, made by RON, eNotes all day long.

Some of your niche products that you may be selling off to some private investors that are non-GSE programs or maybe not on board yet. But all of those can be easily programmed in. Usually, it's just kind of a lookup table. Like that's what we've created internally. It's a lookup table based on property location and based on a title underwriter because several underwriters might have additional overlays. So, we manage that internally to be able to let our clients know if they can do it.

Rich Kuegler (25:22)
Yeah, again, that allows the lender to have a better customer experience, right? So, you don't have to stop and start. You can allow it to flow through that waterfall.

T.J. Harrington (25:29)
Brian's being a little humble because, you know, a lot of the adoption for warehouse banks from the other aggregators, he's had those conversations to be an evangelist on eSign across his career. So that part of it's gotten easier. That wasn't always the case.

Rich Kuegler (25:43)
True, true.

T.J. Harrington (25:44)
To toot your horn a little bit. He's been kind of carrying water for that part of the industry to remove that as part of the execution risk because it used to be, yeah, I programmed it. But now I go eSign and now half my investor list or my aggregators are out and now my best ex from a profitability perspective is off the table. Well, now it's only one or two not taking it versus one or two that would take it. So, it’s a flipping of the economics there. And you don't always know and you don't always know on a given day if you're not pledging ahead of time or have some forward delivery who your best execution is. And now that's that math problem has gone away where you can count on that from a profitability standpoint.

Marvin Stone (26:27)
Yeah, so great conversation. Obviously, there's a lot more we can talk about when it comes to eNotes. And I love the done-for-you approach it. It kind of reminds me of home improvement projects. You start going to the store figuring out what you have to do. It's like, oh man, it's going to be a lot when you realize that somebody who really does this as their day job and really knows this space well can make short work of it. And that's kind of what you guys are doing. So, if anybody wants to talk at MBA with you guys about anything e-related, you're both going to be there. I think you're going to be maybe at ALTA, but you will have people at MBA. So plenty of opportunity there. So that's it for this episode. Thanks for getting together to talk eNotes.

Brian Webster, T.J. Harrington, Rich Kuegler (27:05)
Great. Thanks a lot.

Marvin Stone (27:07)
That's it for Stewart in the Studio. Find more episodes and insights at stewart.com/lender. We'll see you next time.

Disclaimer (27:15)
This podcast is for informational purposes only and reflects the views of the speakers. It should not be considered legal or business advice and listeners should consult their own advisors before making decisions.