The announcement sounded simple but its impact could be revolutionary.
Wells Fargo Home Lending and eOriginal announced they entered into an agreement to enable the purchase of eNotes through Wells Fargo’s correspondent channel, Wells Fargo Funding.
The move could lead to a wave of new digital mortgages offered by lenders who did not have the reach, scale or capabilities to do so previously on their own.
Simon Moir, eOriginal senior vice president and general manager, digital mortgage, and Brian Webster, Wells Fargo Home Mortgage senior vice president strategic planning manager, sat down with Dodd Frank Update at the Mortgage Bankers Association annual convention to discuss the benefits for their companies and the mortgage industry as a whole.
“eOriginal completed the first fully electronic closing in 2000. Now the reality of volume can truly be realized,” Moir said.
“This is a giant step forward in the right direction,” Webster added, “and we can’t wait to see what else it brings in 2019.”
The announcement brings to fruition a two-year work in progress, one that Moir and Webster said began as a conversation on how to accelerate industry adoption.
“As we started moving closer, and coming to the decision of selecting eOriginal, it was a lengthy process,” Webster said, “because we are doing something different, we are asking them to do something different, and we wanted to make sure we were setting both organizations up for long-term success.
“For Wells Fargo, it gives our correspondent channel an important tool that their customers are asking for. Clients wanted to be able to deliver eNotes, and we wanted to be able to give our clients what they were asking for. We will also see some operational efficiency gains internally, but the driving factor was, being able to give our clients what they were asking for.”
For eOriginal, completing a partnership with Wells Fargo – by far the largest non-agency investor in the mortgage industry – meant getting the scale necessary to move the entire industry toward digital closings.
“The fact is, Wells Fargo is leading,” Moir said. “People want it, and there are only a few outlets that could do it.”
Wells Fargo will facilitate the funding and secondary market certainty necessary for digital mortgages to be produced, offering their correspondent lenders the chance to initiate a digital mortgage with their customers without heavy investment in technology or relying on the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, to buy the note.
“There are many lenders that wanted to be able to do this that have been sitting on the sidelines,” Webster said. “By Wells Fargo Funding stepping up to the plate and providing that scalable outlet, it’s going to allow a lot of those lenders that have been sitting on the sidelines to be able to pull the trigger and make this move into the digital closing for their customers as well.”
The partnership is much more than just buying the note from a correspondent lender. Moir called this the second phase of digital mortgage, following the initial focus of digitizing the beginning of the mortgage process.
“(Wells) has been focusing a lot on changes in general, but the first part of digital mortgage with application and verification of data. This is like the second phase of that, at least that’s how we look at it,” he said. “These are fundamental changes for the industry.”
Why? Moir explained the difference primarily comes from the number of stakeholders who share in responsibilities at the end of a digital closing, as opposed to the start of a mortgage.
“It’s incredibly important. When people are looking at the option, they say ‘I want to do it but I need X to be in play.’ Whether that’s a major aggregator or a custodian or whoever, there’s multiple parties that need to come together,” he explained. “The first phase of digital mortgage was really about that application capture, and there were fewer parties that needed to be onboard. In the end that asset was created, it was paper, and it could be sold anywhere.
“When you talk about eNotes, you really need all of those players – custodians, warehouse lenders, aggregators, investors, servicers, etc. And that’s what’s so exciting – the creation of this ecosystem that didn’t exist.
That ecosystem allows Wells Fargo to serve its clients – the correspondent lenders – as well as helping those lenders serve their clients – homebuyers – down the chain.
“It puts another piece in our lifecycle of providing and leveraging tech in order to ensure that we’re delivering the best customer experience that we can,” Webster said. “A lot of the smaller lenders are wanting to get into this space, to be able to provide that digital customer experience as well. Without getting that final component, with the ability to do that digital closing and having an outlet to deliver, many lenders didn’t pull the trigger because their only funding source was the GSEs. So having another investor aggregator that’s available gives more certainty to the smaller lenders to be able to make that jump into a digital mortgage.”
There are other benefits as well. Servicing rights would be one, particularly for lenders who were not servicing retained and had difficulty with handling eNotes.
Compliance was another benefit, with the ability to track the mortgage digitally throughout the process, as well as the quicker turnaround time for non-banks using warehouse lines.
“Freeing up capital for those independent mortgage banks is a huge benefit,” Webster said. “Twelve people already grabbed me by the arm as I’m walking by saying, ‘When can I start selling to you?’ ”
Moir said eOriginal’s conversations already opened up the potential for more business to flow because of these new opportunities.
“Not only are we a provider of vaulting technology for the investors, such as Wells Fargo, but we also provide the closing capabilities as well. We’ve had back-to-back meetings today, and that’s been the topic of discussion – they’ve all said, that this could drive more of their volume to Wells Fargo.”
Both men smiled broadly discussing the best part of being able to announce this deal, which had been in the works for so long.
“It was about making something very real that had been a thought two years prior,” Moir said. “It was going to happen, it was going to have a major effect on this industry.”
“Seeing it in writing, published outside of eOriginal and Wells Fargo walls,” Webster said. “It’s been a long journey and a lot of hard work from a lot of people, and to finally be able to shout it from the mountaintop is the fantastic feeling.”
Wells Fargo will begin the program with a select few clients and plans for wider rollout in 2019 and 2020.
“We’ve been talking about this for well over a year, and being able to provide a solution for that entire ecosystem to our clients should have a significant impact on the industry,” Webster said.