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Expecting Great Things: A Lender’s Adoption of eNotes

Freddie Mac / Wednesday, May 5, 2021

By: The Single-Family Team, Freddie Mac

Up to now, the mortgage industry has been fairly slow to adapt to the digital environment, but outside factors – such as, say, a pandemic – have sped up digital adoption in ways previously unanticipated.

At the same time, application programming interfaces (APIs) and other digital aspects of the loan manufacturing process are pushing the industry closer to exclusive use of eNotes.

What is an eNote?

An eNote encompasses the digital version of collateral in a loan file. This digital promissory note is created and stored electronically, rather than by using traditional paper documentation that has a pen-and-ink signature.

Some lenders are further along with eNotes than others. Take Legend Lending, a Texas-based lender. They’re a mutual client of Freddie Mac and Vice Capital Markets Inc., one of Freddie Mac’s secondary market advisors (SMAs). Vice Capital’s hedging platform, HedgePro, connects with Freddie Mac’s Loan Selling Advisor® via API.

Through the API, Legend Lending is leveraging our Cash-Released XChange®, realizing greater pricing benefits and gaining significant operational efficiencies. (Read their story here.)

On the Fast Track

“Selling eNotes is available in Cash-Released XChange for lenders originating such loans and enhances the program’s efficiency even more,” says Freddie Mac’s Hakan Beygo, Senior Director of Secondary Execution Strategies.

Troy Baars, President, Vice Capital, agrees. He acknowledges that Legend Lending is ahead of the eNotes game. “They made the move pretty early,” he says. “They’re on the fast track.”

For Freddie Mac loans today, Legend Lending does six-day contracts with paper notes, while their warehouse dwell time is around seven to eight days. The longer those loans sit in the warehouse, the more financing costs they incur. eNotes will cut down warehouse time and associated expense.

Nich Hughes, Legend Lending’s CEO, says, “The digital nature of eNotes means we will get the data and documents to the document custodian much faster. When we officially flip to eNotes later this year – that’s our plan – our dwell time will be cut to two days. We’ll have all our loans shipped/imported and errors cleared into Loan Selling Advisor the same day we allocate and ship.”

For Legend Lending, the ultimate goal with eNotes is to improve their process and cash fund all of their production – which means no longer having to borrow money. “This is nirvana,” adds Nich. “We expect quicker funding, reduced warehouse costs and a fundamental change to our borrowing requirements.”

But you can’t know the true benefits of eNotes without testing. Legend Lending recently successfully tested an eNote transaction to make sure the API was able to accurately enter data from HedgePro into Loan Selling Advisor.

“Everything went perfectly,” says Nich. “We imported the loan into Loan Selling Advisor, and it was instantly certified. It was awesome. I can’t wait until every loan is that way.”

Troy is a champion of the adoption of eNotes. “Forward-thinking lenders are oriented toward where the market is going. And that direction is toward eNotes.”

Legend Lending is ahead of the game. “We’re working with Vice Capital and Freddie Mac to reap the benefits of eNotes as soon as possible,” says Nich. “Our goal is to be fully cash funding and 95% eNotes by the end of 2021.”

He adds, “We’re expecting great things.”

This article originally appeared on the Freddie Mac Single Family website.

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