Digital Mortgage and the Secondary Market Understanding the Full Lifecycle of the eNote

Both bank and non-bank lenders—and their financial networks—are discovering that a digital mortgage strategy is a competitive necessity to drive growth and profitability. Digital processes provide direct access to borrowers and accelerates the speed of delivery of high-quality, data-rich trusted mortgage documents to the secondary market. Today, technology can be used to manage, deliver and transfer the electronic promissory note (eNote) with greater efficiency and the confidence of knowing that a superior product is being acquire


Tom Wilkins: Hello and welcome to Digital Mortgage and the Secondary Market. Before we get started, I wanted to note that this session is being recorded and will be available on demand early next week. My name is Tom Wilkins and I’m CEO and Co-Founder of Mortgage Media and head of the executive round table for mortgage finance. I’ll be moderating today’s session and in the presentation, we’ll hear from three industry experts, Shane Hartzler, Director of eMortgage Strategy and Operations at Fannie Mae, Simon Moir, SVP and GM at Digital Mortgage at eOriginal, and Brian Webster, SVP and Strategic Planning Manager at Wells Fargo Home Mortgage. Welcome everyone.

Simon Moir: Hello there.

Shane Hartzler: Hey Tom.

Brian Webster: Hey Tom. Thanks for having us.

Tom Wilkins: The goal for this webinar is to host an interactive and dynamic discussion with Simon, Brian, and Shane, focusing on key milestones in the digitization of mortgage, manual vs. digital:what’s the difference?, the journey of the eNote from execution to downstream life, improving loan quality and investor confidence via digital best practices, and making the leap:acceleration adoption across the mortgage ecosystem.

Tom Wilkins: Both bank and non-bank lenders and their financial networks are discovering that a digital mortgage strategy is a competitive necessity. It drives growth by providing direct access to borrowers and accelerates the speed and delivery of high-quality, data rich trusted mortgage documents to the secondary market.

Tom Wilkins: Simon, can you start it off by telling us a bit more about the digitization of mortgage?

Simon Moir: Yeah, absolutely Tom. Thanks for that question. We have a slide here coming up that talks about what we see as what was the first phase of digital mortgage and really where the name came about. Everyone can think back to that Superbowl ad when Rocket Mortgage was launched. That was really that first phase. It was focused around the borrower portal, that consumer experience of being able to take an application online, any time of the day, through the internet, any device. It has continued through other technology vendors that have come to play, such as Blend and Roostify, with a lot around data aggregation and validation as well. Really, what has been focused on is streamlining that front-end of the process. You’ll see there that there’s a logo there from Fannie Mae. Shane, I don’t know if you want to comment on your position around that as well.

Shane Hartzler: No, I think what we see, Simon, is your absolutely right. When we go out and we talk to a lot of our customers and a lot of the lenders who are out there and we ask them sort of what’s the reason for why they’re doing the investments that they’re doing or why are they focusing on some of these technologies that we’re talking about. Certainly, almost to everyone of them that first and foremost it’s always about the borrower experience. How do we improve the borrower experience? How do we make it so that the consumer is interacting with us through the mortgage process in the same way that they’re interacting with vendors in a lot of the other spaces. Think about how they interact with Amazon or think about how they’re interacting with their banks even in a lot of those situations. That consumer experience is really what’s driving a lot of this technology investment.

Simon Moir: Yeah, I think you’re right. As part of that, Day1 Certainty is there obviously with direct to source data, much easier for the consumer, but as an institution, as an inventor, as an originator, certainly getting better data is part of that process and getting certainty around that transaction seems critically important. So, Tom, that’s probably it in regards around that phase one. As we move in a little bit, you’ll see that when we talk about phase two, that you’re going to see similar benefits, sort of building upon what has been seen in phase one.

Tom Wilkins: Great. Thanks very much and talk to us a little bit more about phase two and elaborate on the news that you’re seeing surrounding closing, servicing in the secondary market, Simon.

Simon Moir: Yeah. It’s been an incredible few years. We actually start at the bottom of this slide, this is sort of a build slide that works from the bottom up. Brian’s probably going to be able to make some comments on what the CFPB did in 2014 and 15 around the digital closings and really promoting that from a borrower experience perspective and we can certainly come back to that. We’ve seen just press release after press release, and more importantly just as a press release, it’s that actually these things are in operation. People are moving forward with this and really starting to do this at scale. North Carolina was really another trailblazer along with the CFPB, where they have put in place a structure within their state to allow fully digital closings to occur. That’s been an incredible piece of work that’s been done from them, as well as other states are moving in that direction, as well. Fannie Mae is mentioned here. You know Shane may want to pass comment on this as well. They were looking to support scale that was coming into the industry and looking for technology that could support that. Really showing the market that they were ready to do this. Likewise with Quicken, the announcement that they made last year, but what was the buzz this year at the MBA Annual Show, was Wells Fargo’s announcement, that they are going to be getting to buy e-notes. Brian, we sort of started with you and the CFPB down there at the bottom and finished with you at the top at Wells Fargo. Have you got some additional comments?

Brian Webster: Yeah, I’m glad I can be the bookend for all of this. Simon mentioned, you know, the work that was undertaking at the CFPB at that time was really focused on the benefits to the consumer and that consumer experience at the closing table. Simon and Shane both hit on it. Many organizations, including Wells Fargo, have spent quite a bit of effort in kind of adopting this age of the consumer and spending a lot of our focus on that customer engagement, whether it’s in retail or in correspondent. In the thought process and the theory going into this is that, if organizations can leverage technology, in order to be able to provide information and deliver information to the consumer in a different way, as opposed to a two-inch stack of paperwork that’s dropped in front of them at the closing table. How does that benefit the consumer to allow them more time to review the information, more time to absorb it and understand it, and more time to be able to develop, you know, very valuable questions that they may have? Where in the traditional setting they may be intimidated to ask those questions. They may not have time to actually think about it until well after closing. Being able to give those opportunities to the consumer, really proved beneficial and during the surveys and the resulting report that was generated, there was a measurable difference, both in customer satisfaction, in customer knowledge of their transaction and what they were actually agreeing to. It was a very enlightening and eye-opening endeavor that we were able to sponsor and share with the industry. We’ve been very proud, I’ve been proud personally, is to see the activity that has really been generated within the industry following that report. As Simon mentioned, booking the end as well here at Wells Fargo. I’ve been at Wells for three years and we’ve been on a long journey ourselves in moving and adopting the digital mortgage. We were proud to announce at MBA Annual that with our correspondent division, we’ve kicked off an e-note program and are beginning to buy e-notes from our correspondent clients.

Simon Moir: Just one other comment on this, this is just five announcements. We could have pulled out many, many more. I think what is also important to know, many that haven’t been announced. There’s a number of technology providers out there, there’s a number of different participants in there that are all doing different things behind the scenes. They regularly get leaked to the industry but I think folks need to know that there is a lot of work behind the scenes that is already being done. Ready for this wave of transactions coming through. Back to you Tom.

Tom Wilkins: Right, thanks Simon. Simon, back to you. From a tech perspective, from your perspective, can you tell me a little bit more about phase two?

Simon Moir: Yes, sure. Phase two technology, as we talked about, is very much about the closing, the creation of digital assets and associated documents along with them and the move of that into the secondary market. So, in this slide here, I wanted to start off with just the first one. Just a recap of that borrower’s experience, right? This is absolutely what is being provided in phase one and it continues into phase two. It’s not much fun doing a complete digital loan up front and thinking you’re doing a digital mortgage and then all of the sudden you get to the closing table and you have a pile of paper that you have to review. That borrower experience and the conversion of that, that closing into a digital experience is an important part. You start to see other things, such as the other items there and I’d probably pass back to Shane and Brian to talk a little bit about that form a secondary market perspective. Shane?

Shane Hartzler: Yeah, I was going to say I think I’ll jump in there first Simon. I think when we…The other sort of key benefit that we start to see as we think about phase two and as we think about this movement to digital closings and having this asset. I think one of the first things that we would really highlight is, is the increase in loan quality. I think there’s a couple pieces to that. First, the closing system and the closing platform is going to naturally enforce some things that in a paper world, you run into issues. You’re not going to have a problem with missing signatures and missing documents. You’re going to have all of that packaged. What that means is that, both in terms of some of your pre-closing QCs and sort of pulling all of that documentation together, but even more so on the back end, on the post-closing side of things. It means that what you have been doing in the shops and what you have to do in a manual paper world where you have to sort of validate that you have everything…I’ve been in some of the post-closing shops where some of the people doing the post-close QC are licking their finger and rubbing the signature to make sure that it actually was wet-signed. A lot of that goes away. You’re starting to see some of those operational efficiencies that are a part of that. I talked to one lender who, they had been doing e for a while and they acquired another company. When they went to look at that company’s post-closing shop, they had thirty people that were in that post-closing operation, that were manually reviewing all of the documents. He was like, “That’s just a different world for us. We have maybe three people in our shop that are doing post-close QC.” From a loan quality perspective, we really think as an investor that we’re going to see a better asset that’s coming through. The other thing that having this digital asset does for me is, we now have the ability where we can bump the data up against what was told to us at loan delivery and we can do some of that automated verification. A, it means that I’m not relying on, again, some of that manual intervention to do that stare and compare. I’m not relying on a human to do that. Now, I can have the system do that validation and so I feel like I’m getting a better asset. It also now means that I can turn that funding around and I can push things through a lot faster so I can begin to fund things back out in a lot more efficient way, as well. That’s probably a good point for me to sort of turn it off then to Brian, as well, to talk about some of the other things that you see from an investor perspective.

Brian Webster: Yeah, thanks Shane. You know, as we’ve rolled out, as Wells Fargo has rolled out the e-note program, we are working through a lot of the same factors that Shane has mentioned and what Fannie Mae goes through. As you’re leveraging the digital components of it and moving into this phase two, Simon and Shane have both hit on it, is that…Through the use of the data, and moving away from a paper-centric focus, you see increased loan quality. You’re able to reduce your operation costs. But also, you’re able to help manage compliance. When you have the data and you can work against the data itself, that allows you to go in and review the data, always be checking the data and Shane mentioned it within the closing platforms, but also within our manufacturing process. When we’re looking directly at the data, we can put it checks, second checks, stops, that will prevent us from moving forward if we haven’t ensured that we’ve met all of the particular requirements that we need to meet. Whether that’s from investor requirements, if we’re going to be delivering it to Fannie Mae. If it’s from regulatory requirements that we have to ensure that we meet. It gives us a better control over managing our compliance but also being able to develop an evidence of compliance. The reporting capabilities that we can build off of having this data, having the audit trail, the timestamps of when information was getting to the consumer, when it came back to the consumer. What steps did we take. How long did it take for us to complete those steps? All of that is being tracked and with moving into this phase two, you can continue those benefits far into closing and post-closing operations. You get to actually take some of the traditional post-closing activities and move them into pre-closing to ensure that you’re meeting all of those requirements up front before moving too far down the line. Shane kind of talking about post-closing shops, something that is ironic is when you go into an organization that has a mostly paper manufacturing process…Excuse me, mostly digital manufacturing process convert to paper for the closing, get the loan files sent back to them as the investor, scan all of the documents into their document management platform, and then shred all of the paper. That is a very inefficient process. A friend of mine said, “Why should we have to be forced to Oregon every time we want to make a mortgage transaction?” Other gains that you can see, Shane mentioned as well, is around capital utilization. When you are able to have predictability between your delivery and fundings, it gives you better capital management. This results in a better management of your warehouse lines. It can potentially reduce your cost of capital because you now know what each transaction will cost to fund. You’re not replying on floats, so you can actually allocate what each allocation is going to cost you in order to fund it, deliver it, and ultimately get that off your line. When you’re moving the lines over much faster, it gives you better utilization of that line of credit but it also helps reduce some of the risk that you have with lines remaining on, or excuse me, loans remaining on that line of credit for an extended period of time. Additionally, the predictability in the efficiencies that help organizations better manage these capital allocations, they can potentially use those funds more effectively elsewhere. Finally the benefits to the secondary market seem to an organization is where the real benefits can be realized. Having that e-note and being able to manage that asset and give lenders better execution into the secondary market. They can look at faster delivery, getting better pricing from their investors. They can also help minimize their hedging risks. Again, the predictability of how long that note or that commitment is going to be out there, really will help an organization better manage those secondary market and hedging risks going forward.

Simon Moir: Yeah, Brian, just if I could jump in there for a second. It was interesting we started off with the borrower experience at the beginning but if we change that to enhanced customer experience and sort of the borrower being a customer, but also your correspondence or the seller services to Fannie, in Shane’s case. You’re giving them a better experience because of this increased compliance and certainty around it. The capital efficiencies, the better market executions. It’s an interesting play if we just change that one word.

Brian Webster: Absolutely and that’s the way that we’ve been looking at it. Is, our customer, whether that customer is a retail bank or a mortgage consumer that is getting a mortgage directly from us, or if it’s a lender that’s a customer of our correspondent division and being able to empower them to start realizing a lot of these benefits from being able to adopt a digital mortgage all the way into the secondary market but in turn, empowers them to push that up to the front end to help their direct consumers, as well.

Tom Wilkins: That’s great. Thanks Brian. Shane, I’m going to kick it back to you now and kind of a basic question, but tell us what the key differences are between paper and digital.

Shane Hartzler: Yeah, I’m happy to go into that. I think the first thing I would say is we’ve been purchasing eNotes now for about 15 years, so we started doing this actually in 2003. There have been about a little less than 350,000 eNotes that have been originated over that time frame, again both by us as well as by Freddie Mac, primarily. I think what I would say there is, the good news is that there’s legal precedent for this, so a lot of customers when we first talk to them, they say, “Oh, what’s the legal standing of this?” or, “How does this relate to paper?” And I think the key thing that would say, first and foremost is there’s legal precedent for all of this. So that is not even necessarily a concern. I think the key difference, and really this is obvious and tangible difference. In a paper world, I have that paper, I have the collateral. And that collateral gets passed from the different entities. So it goes from the seller and maybe it goes to the warehouse, or it goes to the warehouse custodian, and the custodian has it and they verify the information, and then it passes on to me as the ambassador, or it passes on to an aggregator. But, in all those instances, I know what the ownership is because I have that piece of paper and I can prove that ownership because I have the piece of paper. In a digital world, A) we don’t necessarily have that same, I can’t necessarily say A) I have this piece of paper because it’s just an electronic record and the second this is, I could have multiple copies of that record. And so, in the digital world what we do is we have the MERS eRegistry is our legal system of record, that’s what we use to identify what we say is both the controller and the location. And really, those are the two key pieces. So the controller is basically, who is the owner of that? So again, thinking back from a legal perspective, who has that can take control of that and can say, “I am the owner of this collateral.” The second piece is, from a location standpoint, it’s really around who has the authoritative copy. So if there are multiple versions out there because everybody has a copy in their ball. What is the version that everybody would say, this is the source of truth if there were a question around that. And so, the eRegistry really sort of helps to manage that for all of the participants and has made it so, again, there’s a standard way for us to think about it and we can all get comfortable in terms of how that operates. And then the last thing I would say is in a paper world, this is one of the key differences, and we talked about it a little bit earlier, but in a paper world again, because I have to physically ship that collateral among different parties, A) It means I run the risk that there could be lost notes, but it also means that I’m dependent on that process. And so my funding cycle is going to be dependent on that physical process. Whereas in and e-world, because all this is being done electronically, it’s going to dramatically shrink the amount of time that it’s going to take both to certify the loan as well as to get in into the secondary market. So that’s really where, from a different standpoint that we see, is just how that collateral gets treated and the amount of time that it takes to move through that transaction. And we’ve dramatically shortened that time.

Tom Wilkins: Alright, thanks Shane. Brian, I’m going to ask you now, so from a risk management perspective, how do you can Wells view this?

Brian Webster: Well, we’ve all been hitting on this already, is that by leveraging the technology, it gives you much greater controls and capabilities in managing multiple types of risks. Give the compliance question to the former CFPV guy, but the ability to manage against regulatory requirements and investor requirements is, again, when you’re working off of the data, every single data point, every change in data point, every single action taken on that data point, or on that file, is being tracked. It’s being put into that audit file. And it gives you the ability to go back to ensure that you’re meeting all your requirements. It gives you the ability to go back and perform reviews internally to ensure that you’re meeting all of those requirements. Some of the things to think about when you are operating both in a digital and a paper world, or at least making that transition, is as we see here, making sure that you clearly understand what is possible between different transactions. What can you do, and especially when you are managing investor and regulatory requirements, that you don’t inadvertently think that you’re relying on something from a data and technology when, in turn, you still need to have your operational controls in place for those paper-based transactions. From a strategic perspective, we have dedicated groups that drive different components of our go forward strategy and several of those that are focused specifically on all our digital strategies. Either through partnerships or building on our own, we’re able to begin to offer some of the really cool features that you see the thin tech companies offering to other lenders or direct to consumers. And so that gives us great advantages of being able to move forward, being able to really drive our strategic and digital visions moving forward. The other component, sorry.

Simon Moir: I was just going to interrupt you there, because strategic risk is clearly Wells Fargo made that big announcement and what does it really mean. We met with a number of originators who deliver to you various amounts of volume, and it was interesting to get the comments back. The comment was, now that Wells Fargo’s in the game, we’re going to look at our mix of who we’re delivering to and think we can deliver more to Wells Fargo because of this initiative. Which is interesting because of course that’s advantageous to you, but then I think that then your competitors in this space as well now need to consider that. This may become the next normal. That if they’re not doing it, they’re at a disadvantage now with your strategic game. That I’ve got the strategic risk right now of not having it, perhaps.

Brian Webster: Our competitors do, absolutely. And that’s why we are excited to be able to get in this game. Many organizations wanted the capability to offer that digital mortgage to their consumers, but they were not positioned well to deliver straight to the GSCs. And us being able to come to market to provide that secondary market outlet and really connecting and bridging that gap is a huge benefit to everyone in the industry. So, yes, our competitors are going to see that. We’ve already seen reports coming out of our correspondents sales divisions, where existing clients are wanting to commit more volume to us because of this, and we’ve also had new customers come to us to want to sign on because of that capability that it gives them in their delivery options. And so it’s great for us, but you’re absolutely right, we’re not going to be the only one for very long, we anticipate there are going to be others, peer aggregators coming to market with this. And we look forward to it because the more options that you have out there, the better it is for everyone in the industry. Some of the other kind of risk items as you see here from operations, and financial, and regulatory, or reputational, excuse me. You get those controls again by getting back to having all of that available to you. You can really automate your quality control processes. It give you the capability of repeating QC processings multiple times and in multiple locations without really increasing costs. So that helps really improve those operational controls. Now, again, looking back at it is that you need to ensure that as you’re rolling this out and making this transition that you truly understand what the different requirements are, if you need to have different workflows. Certain transactions are going to move to different groups within your organization and really have a very definite understanding of what those requirements are going to be so that you can realize those operational gains without introducing additional risk to the organization. On the financial side, we’re getting back into the same thing. Data, QC, better quality, but also one of the disadvantages of moving into the eNotes, as everyone has said, is liquidity. Lack of warehouse lenders providing funding for eNotes, lack of investors out there buying them. Many organizations that Wells Fargo had been talking to, especially within our correspondent division, told us that they were reluctant to march down a path where their only outlet was Fanny and Freddie. When it comes to eNotes, there’s not that much difference in delivering to either one, and being stuck with that electronic asset and not being able to get it off their books was a huge deterrent for them in order to make this leap forward. So ensuring that you’ve got the right relationships, the right funding sources, and the right secondary market outlet is key in order to be able to mitigate that financial risk of moving to that digital mortgage. And lastly from reputational risks, when I was in secondary, every time I saw a FedEx or UPS truck crashed on the side of the road, or at least broken down, I’d get a little nauseous worried about some of my notes being on the back of that truck. Because again, Shane and Simon both have mentioned that the longer that turn time or that longer uncertainty that it takes me to certify, deliver, and get that note funded, costs me as a lender, it costs me money. And so, again, moving to that digital asset, as Shane was going through those advantages, is that you eliminate a lot of that risk and you get that predictability. And definitely someone like banks don’t want to have to go to the public in being able to talk about lost documents and lost notes. But on the flip side, as we see with several organizations getting hacked these days, you still have that kind of reputational risk. You definitely don’t want these systems to become vulnerable and have a lot of your private customer data being exposed to criminals out there. So again, having a very robust third party oversight process and truly understanding your vendor partners and who you’re working with can go a long way in helping prevent some of those negative outcomes.

Simon Moir: Brian, I always find it interesting, the slide, it goes to the point that there’s risk in everything that we do. Getting out of bed in the morning, there’s risk to that. Driving to work, et cetera. And it’s really about risk management and understanding those and having a good conversation within your own organization of what’s important to you. And each organization will have a different set of risk issues that they will or should address. And I think this is just one of those slides that gets you thinking about how folks should move forward.

Brian Webster: And it’s a balancing act, I totally agree, Simon. It’s definitely a balancing act between risk mitigation and business opportunities. You need to be able to have great risk management controls to the point where you can identify where your risks are, set up a program that can monitor, measure, and mitigate those risks. And being able to look across the whole spectrum of where your exposure is is critical to being able to have solid controls over that, and leveraging the technology where you can gives organizations a much better insight, makes it much more transparent, and therefore gives the ability to improve many of your risk management controls within the organization.

Tom Wilkins: Yeah, sure. Shane, did you have something to add, there?

Shane Hartzler: The only thing I was going to say is this kind of goes back to the operational risk. I think the other thing that we’re still, even though again like I said, we’ve been doing the eNotes now for some time. I think what interesting is, we’re only at the point where, let me pause and say one of the goals I have as we think about eNotes is, I want this process to become ubiquitous. So I don’t want people to have to choose between what am I doing with e versus paper. I need to make sure that, as a lender, I always want to optimize to one process, I don’t want to think “This is what I have to do for e, this is what I do for paper.” And so, we want to get to the point where you remove that thinking and it becomes a ubiquitous process. But if I begin to co-mingle paper and e, it does mean that as an organization, you have to really rethink some of the controls that you have in place. We’ve been doing paper mortgages for a long time, we have a lot of controls around that and there’s a lot of safeguards, and reviews, and validations. And as we move into e, I might even be able to have some of those safeguards. And again, as we’ve talked about, I can build those into the system a lot more where that happens automatically. But what we don’t necessarily have, or what we still have to think about is, what do I do in this world where now I’m co-mingling my paper processes, my e-processes, and building my workloads to accommodate both. And I think that is an area where, the advice that I have for lenders is as they implement this, is to make sure that you’re thinking about those things and you’re thinking about those workflows, and you’re managing and allowing yourself to be able to adapt your processes, because things are going to come up because this is a world where a lot of people just haven’t done it before and we’re going to see scenarios that have never come up before.

Tom Wilkins: So clearly, digital is a differentiator in the mortgage space. So, my question is, why on earth are certain industry segments still behind the adoption curve? Simon, you’ve been in the digital space for a long time, do you have any insights to this?

Simon Moir: Yeah, it’s quite incredible to hear some dates that Shane talked about and the original has some other ones, so early 2000’s, the first digital mortgages were actually completed, yet we call this a phase 2 with the front-end portals being the phase 1. So it actually even pre-dates that. So, I think what you have with mortgage is you have a very complicated eco system that is not just a single party that can make a decision to make the change and not have to care about everyone else. eOriginal delivers technology to many other financial institutions around other asset classes. Auto, alarm systems, marketplace lending, et cetera. And those tend to be more closed or smaller eco systems, but what you can see here with this landscape, right from the first touchpoint at closing being with the [inaudible 00:39:40] age and then the [inaudible 00:39:42], right through the originator who’s lending the money, the warehouse end that may be temporarily funding custodians that may be holding onto a document, electronic or paper, investors who are buying and servicing, who are managing that over the life of a loan is an incredible number of participants that need to be involved. And I think there was a comment about liquidity before that right now, there’s certain investors who will buy, warehouse enders that will fund. I would say that we’re hitting this acceleration, this curve is moving up very very quickly as these major players are moving in, ones that we haven’t even mentioned today, but we know are in place and operating today, actually, at scale.

Tom Wilkins: Well at this point I’d like to open up the discussion to the entire panel as to who your various stakeholders are in terms of digital transformation and adoption. We’ve seen the press releases, but what else is happening? Simon?

Simon Moir: Yeah, so if you don’t mind, I’d like to take on that first one around the settlement community. This is a community that we don’t even sell to, but we don’t have a license agreement with those folks or anything like that, but what we do see them as is incredibly important enablers to the industry. They are the connection with the borrower at closing. Our lenders rely upon them to get the documents completed, and we’ve been very excited about the settlement community and how they’re embracing the technology that lenders and technology providers are delivering to that portion of the market. We’ve seen First American do a couple of just press releases recently, one about supporting closing solutions that lenders are bringing to them and saying, “Yes, we’re ready to close on those platforms.” And also, First American is moving forward with also delivering their own technology out to that space as well. We see organizations such as the American Lane Title Association, ALTA, put together programs. There’s been a lot of discussions in that space because the settlement community is concerned. How much will it truly disrupt them? They’re excited that there’s approaches to this market where disruption for them is minimized. We’re seeing it with standards groups such as MISMO getting involved in the remote notary discussions. And certainly, the secretary of state, I mentioned North Carolina before, really putting their foot forward in regards to how can they support this as part of a state initiative. I would just say the settlement community is ready to go in that space.

Tom Wilkins: Yes, Simon, I would like to jump in there. When the CFPB was conducting the pilot, ALTA and many of the settlement community participants, came to the Bureau questioning the intent of the study and they felt threatened initially. When we explained it to them, that the move to digital, the move to leverage the technology, the idea is giving them a different pend, giving them a new way to perform their jobs, perform their duties and serve the common customer. From a lender’s perspective, you hit on it. They are an agent of ours. They are a partner of ours. And getting engaged with that community, seeing the positive movement and the support in that space, is a necessity for us as a lending community to really push this forward and get adoption at scale. Because that common customer experience is what we have to focus on and what we’re driving to. The borrowers today as we’re seeing them, it’s not just the millennials. It’s everyone that is looking for that experience. It was mentioned earlier, how do I interact with Amazon when I’m able to do with my banking organizations and how do I interact with them when I want to, where I want to, how I want to. The mortgage needs to be able to move in that direction as well. Borrowers are wanting and asking for it. Going back to the Bureau’s study, there are measurable advantages to the consumer when you’re able to look at the delivery of information differently, provide that information in a much more consumable format, and really empower the consumers in order to be able to control that interaction that they’re having at the closing table.

Brian Webster: Shane, do you have some comments on that?

Shane Hartzler: Well, I was gonna say, I think obviously we talked earlier about customers. Certainly one of the things that we’re trying to do and the reasons why we see a lot of lenders looking at this is, again, we talked about the borrower experience. Brian talked about that, I think. The other thing is particularly if you’re a mortgage banker, if you’re dealing with the warehouse lenders, one of the key things, and we touched on this, but I want to make sure that I highlight on this earlier, it can really change the funding model for you as well if you’re an originator. What we’ve seen is I’ve got lenders who deliver to me, 50% of their deliveries are E, 50% of their deliveries are paper. From a paper execution standpoint, from the time they close until the time it comes into me is usually around 18 to 22 days, something like that. If you think about that it’s sitting on a warehouse line, there’s a cost that’s associated with that. AT the same time, when we go to E, those deliveries are now around two days or three days. It’s dramatically changing what that funding looks like. It changes both the origination cycle and how you think about that, but it also has implications for a lot of the other entities that are involved here, for the warehouse or for the custodians. I highlight that. I don’t know if anyone else on the panel has anything to say about that. But it really is changing some of those business models for some of those entities.

Simon Moir: I’ll take that warehouse piece. That’s certainly been a portion of the industry that has had concern. We’ve seen some early adopters, such as Origin, Texas Capital, People’s United, among others. I know that list is available on your website, I believe. It is a concern. It changes their whole business model. We’ve had folks, very concerned about the 20-day well time going down to two days. Is that going to be true for all folks? I don’t know. It’s going to depend on how these loans are delivered, whether delivering through some sort of cash window or on a flow basis or committing to polls and delivering. I think it does change, but what is more important is that the market is demanding that and for warehouses, lenders to stay competitive, to not have that risk that we talked about with Wells Fargo competitors on the investor side, they need to consider this. This is not going to go backwards. This is the future. How can I get ahead of that and ensure that operationally and financially, this makes sense for me as a warehouse lender. The interesting thing is I always think warehouse lenders, traditional warehouse lenders, are not the only source of temporary funds. Shane, I don’t know if you’ve got any comments about the federal home loan banks or anyone like that.

Shane Hartzler: It’s interesting when we think about the federal home loan banks. We’ve had a number of conversations with them about it. I think one of the things that they’re interested in and is, there are some changes that MERS is thinking about making to the E-registry that will change how the collateral gets recognized a little bit. I think the federal home loan banks are, in a lot of ways, waiting to see what that’s going to look like. I know when I talk to a lot of our customers, they say I’m ready to go on this but I need the home loan banks to come on. That’s the piece. I think we’re still probably looking at the end of Q1 time frame before they’re going to be ready to go. The good news is they all came together and they hired a consultant. And they’ve been talking to us and they’ve been talking to Freddie and they’ve been talking to other entities out in the market. And they are trying to do this in a consolidated way, which if you’ve interacted with the home loan banks traditionally, that hasn’t always been the case. They’ve sort of operated independently. The fact that they’re all coming together on this is, I think, a positive mark for us as we think about where this is going.

Tom Wilkins: I’ll jump in here in the custodial space. Not only are the warehouse lenders needing to adopt different models, but the custodians will have to as well. They’re critical, critical components within the digital mortgage ecosystem, just like the warehouse lenders are. Some organizations leverage third-party custodians. Some don’t. Some have those capabilities already in house. There will need to be a change in the space as we move forward and custodians have typically provided the type of services around certification of the note, shipping and delivery between originators, warehouse lenders, investors. And also, safekeeping. Holding on to that paper asset. Some of those things, services are still going to be required moving into the digital mortgage and for those custodians to remain a part of it, they too will have to make some adjustments within their operating model as well.

Simon Moir: Shane, can you, as an investor, one of the GOCs, you also have Jenny May there as well as a major, or at least part of the secondary market around the insurance. Can you talk to them and also maybe how that affects the services?

Shane Hartzler: Just real quick, in terms of from the investor, again, this is one of the other … the two things we heard from a lot of our lenders is the reason why I’m not doing this is either because I need an investor outlet or I need the servicing. I need to understand what my co-issue servicing release options are. The first thing on the investors side, I think, again, the good news is Jenny may came out with their 2020 White Paper that was out in June. They are engaged with us. They’ve been engaging with Freddie through FHFA to really understand what we did when we rolled out our E-mortgage programs and they’re trying to leverage a lot of that learning. The goal is they’re going to be able to do that a lot faster and get to market a lot faster. I suspect that we will see some pilots from Jenny some time towards the second half probably of 2019, but the goal is that they’re really going to have something that’s out there by 2020. I think that again is going to be, if you think about where the market is, the government side of things is probably 35% of the mortgage market right now, something like that. That’s a huge opportunity for us to have that as well. The last thing is the servicers. I think we have a slide that’s coming up, right, Tom, that talks a little bit about where we are as you start to put a note into the secondary market, both in terms of servicing release versus servicing retain model.

Tom Wilkins: Yes. Since we covered the secondary market, where are the servicers in the space right now? Brian, can you step in on that?

Brian Webster: Happy to. There are a few servicers out there that have the capabilities to service E-notes and do it on behalf of other organizations. Wells Fargo, we’ve actually been servicing E-notes for well over a decade. They were legacy or part of pool purchases that we’ve done. But having those capabilities goes a long way. I think a big benefit to the industry not only from the liquidity perspective, but as Wells Fargo moves into the space of purchasing E-notes, we’re also going to be purchasing the servicing. Having that outlet for a servicer to be able to control those E-notes is a huge lift and benefit for organizations to be able to move forward. You’ve got those that sell their servicing whenever they’re selling their assets, which is typically the model that we work under or do a co-issue. Those organizations may have that outlet for the asset itself, but they need to be able to find that outlet for the master servicing rights as well. As more and more sub-servicers start getting the demand, they’re going to be moving into the space as well. I think Wells moving into the space from our E-note program, we’re able to not only fulfill from a liquidity and from a custodial, but we can also fill that space in the ecosystem from being a servicer of E-notes.

Simon Moir: It is interesting. I think we have a couple of slides on this that look very similar. One is servicing released and one is servicing retained. If we went to that slide, you’ll see very little difference. For the originator, it’s really around operational and contractual agreements that you have with your counterparties, as to whether it’s servicing released or retained or co-issued.

Shane Hartzler: Simon, the only other thing that I would add to that and we talked about it is one of the things we’ve really seen, one of the big changes that we’ve seen over the last six to 10 months, is we didn’t have a lot of outlets on the servicing right side of things, so we didn’t have a lot of MSR investors that were out there that were buying E-notes either in bulk or on a co-issue basis. I think that’s one of the things that we’ve really seen change, and it’s one of the pieces where we really think that’s where there’s a lot of the momentum there, right? If I think about some of the large MSR investors like Pingora or Roundpoint or Brian mentioned a lot of the sub-servicers, Loancare or Dovenmuehle or Cenlar, all of them, if they don’t have their own vaults, at least have their own capabilities where they’re able to do that. From a liquidity standpoint, the servicing side of things, that was where a year ago when I talked to people, they were like, I don’t know about originating the E-notes because I don’t know what the market is going to be on the servicing side. I think now we can safely say that there are a lot of outlets out there. There’s a lot of investors out there. So that liquidity concern has really gone away from that standpoint.

Simon Moir: Yeah, I would say just in the last 30 days, we’ve had two more come on to our platform from a servicing side, which is interesting because it wasn’t moving fast on that side at all. We definitely are starting to see more adoption there.

Tom Wilkins: Okay, well, gentlemen, I thank you very much for your insight. In closing, perhaps each of you can provide a few final comments. Simon, let’s start with you.

Simon Moir: For me, although this is the E-note and the secondary market, so much about the secondary market existing is for the primary market. Creating liquidity and allowing monetarization to flow is really the important thing here. As I mentioned a little earlier in the session, the momentum that we’re seeing is really, really quite incredible. What we hope to see is basically a new best execution occurring around E and digital mortgages just becoming the new norm. That would be my closing comments.

Tom Wilkins: Great. Shane?

Shane Hartzler: I think for me, I think the thing that I would say is one of the approaches that we really recommend with folks is they think about a phased approach, that they think about, because as I said, you really have to rethink some of your workflows, you have to rethink some of your processes and your controls. And so, because of that, I would also say now is really the time to be thinking about this and to be really moving forward. We talked about oh, the home loan banks are waiting for a little bit. Some of the warehouses aren’t quite there yet. I think though that we’re going to see those changes coming about in the next six months or so. Now is the time to start thinking about these things, to start implementing some of these things, because you don’t want to get to the point where you’re now in the middle of 2019, the end of 2019, and suddenly the market has really taken off and you’re going, and you’re not necessarily there. So take the time now to really think about a phased approach. But really now is really the time to start thinking about it.

Tom Wilkins: Thanks, Shane. Brian, we’ve just got a few minutes, well, one minute left. Can you sum up?

Brian Webster: Yeah, I’ll try to be quick on that. Just building on what Shane was talking about, we, Wells Fargo have spent years working on all of our backend processes, technology, system changes that no one sees, but that’s what helped us get to bringing our online mortgage application to market and kicking off our E-note program. What we are at Wells Fargo and what we’re really thinking about twofold is the customer. The customer is driving our digital transformation whether it be that borrower walking into a branch, whether it be a lender that’s selling us loans through a correspondent channel. It’s what can we do to give the customer what they’re asking for in order to make their experience with doing business with us as easy, as convenient, and as simple as we can. And that’s where we’re focused.

Tom Wilkins: Gentlemen, thank you for joining us today and I thank all of you listeners for joining us as well, and as we mentioned earlier, the recorded session will be distributed early next week. Have a great day, everyone.

Simon Moir: Thanks so very much, Tom.