E-mortgage Volume Spikes During Covid

The increase of e-mortgages purchased by Fannie Mae and Freddie Mac spiked significantly over the first six months of 2020, the Federal Housing Finance Agency (FHFA) reported.

In a September white paper, the FHFA reported that e-mortgages comprised 4.25 percent of all single-family mortgage purchases made by the Government Sponsored Entities (GSE) during the first half of the year. This accounted for $38.8 billion in mortgages. As a comparison, e-mortgages comprised 2.8 percent ($29.3 billion) of all single-family mortgage purchased made by the GSEs in 2018.

Fannie Mae and Freddie Mac attributed the spike to the COVID-19 pandemic in 2020. The FHFA reported that lenders have accelerated their e-mortgage implementation plans because of social distancing requirements and borrowers’ desire to conduct business remotely.

“As a Fannie Mae official explained, the COVID-19 crisis put e-mortgages front and center, and lenders began to realize some of the benefits, such as speed and efficiency,” FHFA noted.

in the face of the COVID-19 pandemic, a number of jurisdictions have implemented emergency or permanent orders relaxing notarization laws, including allowing remote online notarizations (RON) in those areas. In addition, the GSEs have extended temporary loan measures, including the use of RON.

The FHFA reported the GSEs expect e-mortgage purchases to increase during the second half of 2020 and 2021. Its estimated that e-mortgages will represent 5 percent of total GSE volume by the end of the year.

GSE officials said longer-term expansion could be impeded because e-notarization (including RON) was not available in all 50 states. Additionally, despite initiatives and orders allowing for RON, an official with Freddie Mac said the number of notaries certified and available to act as electronic notaries is low.

Use of e-mortgages carries both risk management benefits and potentially heightened risks.

Both the GSEs said e-mortgages offer fewer signing errors and ensure that documents, pages and signatures are not missing from the closing package, which minimizes post-closing review delays.

Other benefits noted in the report include:

• may reduce the need for settlement provider and lender back office teams to perform quality post-closing reviews for missing signatures and unsigned documents and can help minimize efforts associated with trailing documents.
• GSE systems can automatically certify the loan when it is delivered by verifying that all the information in the note, such as loan terms and property information, matches the loan delivery data.
• Eliminating the need to physically transfer a note improves efficiency, reduces costs and eliminates the risk that it will be lost.
• Borrowers can review and electronically sign some documents before the closing, making the closing faster and easier.

While underwriting parameters are the same for an e-mortgage versus a traditional paper-based mortgage, differences for signing processes introduces potential risk.

According to Fitch Ratings, e-mortgages can increase risk if counterparties do not have proper controls and remediation plans for their e-mortgage systems and platform. For example, Freddie Mac told FHFA that if counterparties do not comply with the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA) in the e-mortgage and e-closing processes, then the resulting e-mortgage may have issues or delays in enforcement. According to Freddie Mac, the potential for enforceability issues with e-mortgages is their highest risk.