Over the past several years the heavy burden of paper loan closing documents has gradually become lighter, thanks to the emergence of electronic closing technologies. This is welcome news for many lenders, buyers, sellers and third-party agents involved in the process of facilitating car, home, and business mortgage loans—not to mention other transactions where the legal transfer of property and high-value assets must occur.
While the move toward e-closings has been on the horizon for at least a decade, COVID-19 has made the progression and adoption of these alternatives from traditional paper-based loan transactions much faster, especially by some key financial institutions. The trend is clearly toward electronic closings becoming a mainstream goal for credit union leaders, particularly those who have their eyes on the future viability and profitability of their own organizations.
The potential for lenders to secure and streamline workflows while realizing efficiencies that will positively impact the bottom line using eNotes is significant. In addition, the digital transformation of the loan process will provide an enhanced member experience. It is predicted that eNote technology will completely transform the lending landscape and the expectations and experience related to loan processing. This is an imperative that credit unions need to consider carefully as part of their strategic planning related to operations and service delivery.
Why implementing eNote technology is a game changer for loan transactions
Central to the ability of credit unions to execute e-closings is the usage of technology, enabling the digital transfer of authoritative copies (i.e. e-Notes, also referred to as e-chattel papers) related to the property and collateral at the heart of every loan transaction. When this transfer of authoritative copies can be executed digitally, in compliance with all regulatory and legal statutes, it is a game changer for credit unions from an internal processing perspective and the overall member experience. So how can your credit union leverage the advantages of e-Note technologies? Here are some key actions to take:
- Familiarize your credit union team with the terminology, tactics, and tools necessary for e-closings and fully digital loan processes. Start by understanding what an authoritative copy and digital asset are in the digital loan process.
At SmartVault, we define these two key lending process instruments this way:
- An authoritative copy 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.
- 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. Keep in mind that electronic chattel paper has the same power as a paper contract, and must be managed as such from a legal and security perspective.
- Consider how your credit union can create a plan to facilitate a strategic shift toward eNote transfers in its loan processes. As part of your strategic planning process, create a timeline for implementing digital closing processes for the various types of loans that your credit union provides, particularly those loans you plan to keep in your credit union portfolio. Explore the specific steps needed to move toward closing loans digitally such as implementing electronic underwriting, e-signatures, and electronic vault storage.
- Understand the compliance and regulatory requirements related to digital loan closings. The business case for moving toward a fully digital loan process is clear: it’s more efficient and will help your credit union retain a competitive advantage when it comes to the level of member service you can provide. It is also much more secure and reduces the risk related to misplaced, fraudulent, or lost authoritative copies. In order to execute digital loan closings you need to be able to meet the industry standards when it comes to legal compliance.
- Know the laws related to eNotes and your credit union’s responsibilities. A critical aspect of evaluating technology to support the use of eNotes in your credit union is the ability to meet all compliance requirements. The fundamental law dictating the usage of e-chattel documents is the Uniform Commercial Code (UCC).
This law has been adopted by all fifty states and governs the security interests of transactions related to movable property, intangible property, and fixtures. Specific to loans and the transfer of property is UCC 9-105. Any platform or tool you use to facilitate digital loan transactions must be in full compliance with UCC 9-105.
SmartVault’s Certified Vault extension supports the transfer of authoritative copies and other digital assets for the loan process as well as e-signature of these documents through an integration with DocuSign. These copies can then be stored in SmartVault. This process is fully compliant with UCC 9-105.
Industry associations and clearing houses for eNotes all report a sharp rise in their usage over the past several years. This indicates a mass shift towards digital loan transactions. For credit unions, now is the time to start creating a plan to optimize loan processes in order to meet the growing demand for digitization and to leverage the clear benefits of this transformative force in the loan processing industry.