Ginnie Mae’s issuance of digital collateral has grown rapidly since the government agency accepted its first mortgage security backed entirely by pools of loans with electronic documents early this year.
Issuance backed by digital collateral such as electronic promissory notes has risen to nearly $2.1 billion from late January, when an initial $24 million transaction with Rocket Mortgage was completed, according to a recent Ginnie Mae report. That deal appears to have contributed towards a large increase in the number of eNotes. As of Aug. 1, eNotes totaled nearly 1.28 million, up from 464,691 at the end of last year, according to MERSCorp Holdings, a division of Intercontinental Exchange.
These numbers suggest that Ginnie’s acceptance of digital collateral, which followed similar moves by government-sponsored enterprises Fannie Mae and Freddie Mac, have risen in line with predictions suggesting that the three secondary market entities’ approval of eNotes use could increase broader industry adoption rates. Loans that Ginnie, Fannie and Freddie facilitate dominate U.S. home lending.
An increase in the share of lending guaranteed by the Department of Veterans’ of Affairs has also incentivized Ginnie issuers to use technology associated with digital or remote closings. The VA is one of multiple government agencies that guarantee or insure the loans in Ginnie securitizations. VA loans comprised 44% of collateral in Ginnie securities as of year-end 2020 and their share has nearly doubled since 2011 when it was 23%.
“Many types of mortgage borrowers may need remote and virtual closing, but it could be argued that the most acute need is felt by deployed military service members,” Lynne Chandler, an attorney at the Department of Housing and Urban Development, said in the report she authored for Ginnie. Ginnie is an arm of HUD.
In total, a dozen issuers have Ginnie Mae’s digital collateral approval. One of them, Atlantic Bay Mortgage Group, has closed 300 loans under the digital collateral program since April and many of those loans were made to veterans, according to the report.
Several stakeholders such as document custodians, and warehouse lenders that finance mortgage companies’ loan pipelines, also have participated in Ginnie’s digital collateral program and played a key role in its expansion, the report noted. Generally, eNotes provide more efficiencies for lenders when their use is approved not only by Ginnie but other counterparties
In addition to facilitating remote closings and making the mortgage process more efficient, digital collateral makes notes easier to track. Lost notes were a key concern in the wake of the Great Recession, which complicated many foreclosures at the time.
“It does improve the process because there are fewer touches for handling a note,” said Jeff Bode, president and owner of Mid America Mortgage, in an interview earlier this summer about the company’s participation in Ginnie’s eIssuer program. “We also should be able to avoid having one go missing.”