Effective eNote technology implementation: An 8-step guide for credit unions

The new year is on the horizon–and with it comes an even greater call for credit unions to adopt e-closing technology to keep pace with member demand for the convenience and security that it provides as well as to leverage the operational benefits.

For context, credit union lenders should be familiar with the two key lending process instruments that are involved in digital loan closings:

1. An authoritative copy, which is the digital record of an original and unique document that evidences a monetary obligation and a security interest in specific goods, which has not been altered since it was signed and vaulted.
2. A digital asset pertains to an e-contract of a mortgage or an e-contract of goods and services such as automobiles, boats, or other high-value equipment.

These instruments are also known as electronic chattel papers. They have the same power as a paper contract and must be managed as such from a legal and security perspective. This is where your credit union must do its due diligence to identify a platform.

Once your credit union commits to making a strategic shift toward eNote transfers in its loan processes, your management team will need to create a strategic plan to accomplish the transition in order to create a streamlined and member-centric process.

The following guide outlines the specific steps your credit union can use to move toward closing loans digitally in 2022:

1. Identify sources for electronic loan closing documents that meet industry and investor standards. There are several platforms available to support the transfer of authoritative copies and other digital assets for the loan process. Make sure to do your due diligence to see how each alternative aligns with your particular needs. An important point is how the loan platform provides security and eSignature capabilities, both of which will be key to client adoption and peace of mind. You need to make sure that the solution you choose is fully compliant with UCC 9-105 which is the key legislation governing the use of eNotes in the financial services industry.
2. Research and evaluate your credit union’s preferred electronic loan closing platform. It is important to understand the capabilities and limitations of any potential platform that you may consider for e-closings. It is imperative that it is designed to handle the presentation and execution of eNotes and key loan documents in a compliant and efficient manner. Be sure to check to ensure that your chosen platform will meet any specific state mandates for loan closings as well as federal laws related to electronic loan closings.
3. Determine the eVault that you will use to manage your digital loan records.  When your credit union makes the move to adopt or further refine processes for digital loan closings, you will need a secure, compliant, and specialized document management system designed for this purpose. Any solution that you consider should be NCUA compliant, designed specifically to be a repository for e-chattel documents.
4. Integrate your eVault and loan processing platform with the required eNote registries depending on the loan type you are facilitating. If you are implementing eNotes for mortgages in your credit union, you will need to access MERSCORP Holdings, Inc. This platform which is required by some of the key investors purchasing eNotes, including Fannie Mae and Freddie Mac
5. Integrate your e-closing technology with a remote online notarization service. If your credit union is planning remote closings, then you need to make sure that the entire loan closing process is covered just as in a traditional closing. This includes digital notary services.
6. Communicate and coordinate with your credit union’s key warehouse lenders, investors, and loan servicers/subservicers to make the transition to e-closings as smooth as possible. They may also be able to give you additional guidance to make the process as easy as possible.
7. Consider how you will meet electronic filing requirements for digital loan documents. Whether you establish an in-house point person or team or contract services to support the filing of electronically executed mortgage documents, you need to have a system for filing them with the requisite government offices.
8. Create a plan for educating and training employees and members on your credit union’s e-closing process and how to handle eNotes. Since the concept of eNotes and e-closings plus the related processes may be new to your team and your members, you may have to invest considerable time in making them comfortable with this new way of transacting loans. However, with a fully integrated process and enough education, this transition should be a welcome change.

As your credit union navigates the process of moving to digital loan closings and the use of eNotes, it is critical to have a clear workflow mapped out, to know the laws related to eNotes that you must follow, and to be clear about any inherent liabilities in your e-closing processes. By working with trusted providers, such as SmartVault, you can put the right technology in place, by tapping into additional guidance that can save your credit union time and avoid any pitfalls which may slow your progress in leveraging the many benefits eNotes can provide.