The Mortgage Electronic Registration Systems
eRegistry provides this information. For their part,
the GSEs defined delivery requirements for accepting
electronic promissory notes. Fannie Mae defines the
e-mortgage as: “A mortgage loan where the critical
loan documentation, specifically the promissory note
(eNote), is created electronically, executed electronically, transferred electronically and ultimately stored
electronically.” This definition narrows what can be
described as an e-mortgage. Only loans with an
electronic promissory note document qualify.
Despite this legal and technical infrastructure
for electronic mortgages, however, the number of
e-mortgages remains static at around one percent
of all mortgages. One reason for this is that the GSEs
require an older version of the SMART document
developed in the early 2000s. The industry has been
slow to upgrade for the electronic promissory note.
The security instrument on mortgage loans, more
often than not, is still wet ink signed on paper.
Bright future on the horizon
MISMO Version 3 SMART documents can be generated
for any mortgage document — from promissory notes
to security instruments to name affidavits to the new
loan estimate and closing disclosure forms that will be
required come August. Once the GSEs upgrade the
version of the eNote, all mortgage documents will be
SMART documents in MIMSO Version 3. This will standardize and simplify processing much as electronic
ticketing did for the airline industry.
Despite the lack of adoption of the truly paperless
mortgage, many closings today are performed in a
hybrid way, with some closing documents accessed
and signed electronically while others are printed on
paper and signed in ink. This has even been termed
an electronic closing.
Is it a paperless mortgage? No. Does it reduce paper
use? Yes. Will paper be eliminated completely in the
mortgage industry? Probably not before boarding
passes are no longer printed. ■
Paper is an autocratic ruler in the mort- gage industry. The electronic mortgage (e-mortgage)seemsaselusiveasthepaper- less office. BusinessWeek magazine touted
the term “paperless office” 40 years ago, and predicted
that most record-handling would be electronic by the
1990s. What happened?
Electronic mortgages launched more than 10 years
ago, and in that time several parts of the mortgage
process have significantly reduced paper usage. Still,
the industry has not been able to remove paper altogether. It has been estimated that the average mortgage generates 6,000 pieces of paper by various
stakeholders. This is not exactly paperless. But some of
these documents are created, signed and stored electronically. These documents are only printed when
necessary, so it is paperless to a degree.
Even if a loan file only contains a few electronic
files, this reduces the paper used, automates quality
control checks and reduces costs. But is this hybrid
loan file — a mixture of paper and electronic files —
an e-mortgage? It’s an interesting question and one
A little perspective
For some perspective on reducing paper and moving to electronic records, look at the airline industry.
After a long history with paper, the airline industry
has been extremely successful in eliminating printed
tickets. Although the complexity of the transaction
and the amount of paper needed pale in comparison
to mortgages, the major benefits of electronic tickets
are similar. They provide information in an electronic
format that can be recreated anytime and exchanged
between trading partners.
Has the airline industry become completely paperless? No. It is still possible to get a paper ticket, and
you still need to print out a boarding pass, but many
travelers do this at home, at no cost to the airlines. You
could argue that electronic ticketing is not a paperless
process because there still is paper in use. Semantics.
The process is electronic and it has the capability to be
The electronic transition of airline ticketing is similar
to the story of the mortgage industry’s move toward
e-mortgages. Paper mortgages have existed for about
as long as airline tickets. The modern mortgage as we
know it today did not take shape until the 1930s, when
the federal government intervened to stabilize the
economy during the Great Depression.
To develop and promulgate standards, the mortgage
banking industry formed the Mortgage Industry
Standards Maintenance Organization (MISMO), which
functions much like the International Air Transport
electronic ticketing. In the early 2000s, MISMO devel-
oped a standard representation for e-mortgage
documents, based on early work by Fannie Mae, and
with the support of the government-sponsored enter-
These aptly named SMART documents carry data in
a standardized format and link the visual presentation
to the data. It is possible to automatically verify that
data provided for computer consumption matches
information presented to humans.
Unlike an electronic airline ticket, however, a promissory note document requires special considerations
because the document is a negotiable instrument —
effectively a document as good as cash. Investors
need to know the document has not been tampered
with after the document is signed. Because it is easy
to make copies and/or change electronic documents,
the industry agreed to designate a registry to identify
the “authoritative copy” — the electronic equivalent
of the paper original — to ensure that an electronic
document had not changed in any way after the last
borrower signed it.
Rachael Sokolowski is president of Magnolia Technologies.
She is a recognized leader in the mortgage banking industry
as a technology evangelist and subject-matter expert who
has acted as a trusted adviser, key decisionmaker and driver
of results in industry initiatives. She has advised many of the
financial industry’s leading companies and has consulted
for mortgage-banking lenders, financial services technology
vendors, government-sponsored enterprises, insurance
companies and automotive-finance companies. Reach her
Wherefore Art Thou, E-Mortgage?
The electronic home loan has proved as elusive as the paperless office
By Rachael Sokolowski
For more articles on e-mortgages
View these articles and more at
“Clearing the Way for Electronic Signatures,”
by Jeff Knott,
“Are We Finally Ready for E-Signatures?”
by Russ Gould,