VAULTING SOLUTIONS
Conquering the final frontier of the eMortgage
Though we specifically discuss the requirements and nuances of the mortgage industry in this
white paper, the need for secure management of electronically signed contracts and other
electronic documents exists across many industries. Advanced electronic vaulting is a technology
designed to protect and mange these documents in the most robust, compliant and secure
manner. An advanced electronic vault may be used in any industry for any electronic document
where legal admissibility, enforceability, and/or negotiability are a critical business requirement.
I Executive Summary
In the following pages, this paper will explore the need for, and the benefits of, such
The Burden of Proof
electronic vaulting solutions. While we’ll be focusing specifically on electronic vaulting in
is Yours
relation to mortgage banking, the real solution for financial institutions is truly a single
A high-profile 2005 legal decision involving
horizontal electronic vaulting infrastructure that can provide substantial benefits across
American Express points to the risks lenders
assume when they fail to properly maintain the market segments and products of the entire financial institution enterprise, meeting
electronic documents in a protected closed
system. In a bankruptcy proceeding involving the needs of multiple business segments such as mortgage, automotive finance, leasing,
a cardholder and the company, American
student loans, commercial lending, etc.
Express attempted to collect a debt outside
of the defendant’s bankruptcy filing. There
were also two different sets of documents –
one the company’s, the other the debtor’s –
each alleging different amounts in dispute.
Having established the necessity for financial institutions to manage, maintain, and
protect electronically signed documents and that advanced electronic vaulting is the
means to that end, it’s important to understand the concept behind the solution. In
MERS
Mortgage Electronic Registration order for the validity of any electronic document to be upheld in a court of law, or for
System. MERS was created by the
mortgage banking industry to any electronic document to be sold or transferred to a new secured party, the financial
streamline the mortgage process by institution must be able to show the documents under its control to be the legally
using electronic commerce to
eliminate paper. www.mersinc.org binding Authoritative Copies. For example, there must be a unique copy of the eNote,
which can be proven to be unaltered since the time of signing.
Once an electronic mortgage has been closed and the eNote electronically signed, a
percentage of lenders will then register the ownership of that loan with MERS. While
MERS does an outstanding job of enabling and maintaining the industry registry of
eNotes (and the other functions MERS has traditionally served) for the financial
institution, there is still more work to be done to both ensure compliance and legal
protection as well as meeting the often more stringent requirements for resale within
the secondary market. In fact, even MERS itself requires the lender have the ability to
store eNotes and transfer them to investors. This is where the electronic vault comes
into play.
What is it?
Before defining exactly what an electronic vault is, it’s important to know what it isn’t.
File systems and e-mailed copies of documents most definitely do not meet the criteria
of an electronic vault, or the requirements of the secondary market. Copies created by
Reprinted from MERS “Integration documents. Document and content management systems, for example, while facilitating
Series: Business Overview”, Dec. 18, the ease of access and sharing of electronic documents, are not vaults. There is a world
2006.
of functionality electronic vaults possess which eclipse the abilities of even the most
If you close loans using eNotes, buy
eNotes, or offer custodial services for robust of these systems.
eNotes, you must have an eVault in
which to store them. You must also
have a process for moving eNotes So what then is an electronic vault? An electronic vault manages the legally
between your eVault and others.
binding, Authoritative Copy of an electronically signed contract or other
Physically moving eNotes happens document, and possibly its related transaction documents, in a secure
outside the MERS® eRegistry process,
but when an eNote changes location location where it is held and transitioned during the entirety of its lifecycle.
that change must be reported to the
MERS® eRegistry (as a Transfer of To ensure that an electronic contract remains negotiable and legally enforceable, the
Location). Some investors will only electronic vault permanently binds electronic signatures to the document and creates a
accept a transfer of Control for an
eNote after they have received the tamper-evident audit trail demonstrating ownership (control) and compliance. As
eNote in their eVault.
document interaction occurs throughout multiple stages along the mortgage lifecycle,
While the eVault itself does not the vault controls access and tracks all document activity from closing, through
communicate with the MERS®
eRegistry, the Location of the eNote is servicing, and finally to sale or payoff.
a required field on the system.
Therefore, the owner/operator of the
eVault will be reflected in this field,
and is required to respond to transfer
Why do I need it?
requests and receive notification
messages sent from the MERS® Holding eNotes and other loan documents in an electronic vault bolsters legal
eRegistry.
enforceability – of both the electronic original and properly certified paper copies of the
Your MERS Business Integration electronic original. It also ensures compliance with the various legislative requirements.
Resource will work with your eVault
provider to ensure it is compliant with A true electronic vault should provide irrefutable proof that the document in the
the MERS® eRegistry.
institution’s possession is the original, unaltered document. The electronic vault should
www.mersinc.org also allow privileged access to the documents without compromising the integrity of the
Copyright © MERS, 2006
originals.
Additionally, secondary market requirements dictate that such documents reside within
a secure, closed system, and the leading ratings agencies have determined – along with
their legal counterparts – that electronic vaulting meets this requirement. A robust
Each of these two segments has, like If a mortgage loan has been registered with MERS, the financial institution would benefit
mortgage, electronic document
legislation in place (in this case, UCC from locally mirroring the control activities as they occur within MERS. This serves the
Revised Article 9-105). Unlike mortgage, institution’s own record-keeping purposes as well as providing a safeguard against
neither segment has the sort of
recognized safe harbor of MERS,, but unforeseen events that may require proof of such controls outside the auspices of
that hasn’t stopped the pervasive
adoption of eContracts and electronic MERS. Such information should obviously be tied to the eNote and other loan
vaulting solutions for their maintenance documents, and become part of an ongoing document-specific audit trail.
and management.
Given the pressing need to secure, manage, maintain and track privileged financial
documents, particularly those signed with electronic signatures, institutions should be
actively seeking out an electronic vaulting solution. But the fact is that all vaulting
solutions are not created equal. In fact, many solutions which purport to serve
electronic vaulting needs are not vaults at all.
As already stated, document and content management systems, while not without their
benefits to certain tasks, are not vaulting solutions. Much of the high level functionality
vaults offer is simply not available in such systems, and would have to be designed,
developed and integrated at a greater expense of time, effort and money. It makes much
more fiscal and operational sense to look to established, true vaulting solutions instead.
Having established what does not constitute an electronic vaulting solution, what then
should an institution expect from an actual electronic vault?
An electronic vault should provide a secure environment that will ensure that a
document remains negotiable, transferable and legally enforceable.
Though securing and tracking the documents is of primary importance, the vaulting
solution can ensure the negotiability and transferability of eMortgages and strengthen
lenders’ ability to sell them in the secondary market.
To prepare for the widespread transition to eNotes, any vault under consideration
should include vault-to-vault transfer capability. Vault-to-vault transfers facilitate the
transfer of ownership upon sale of the loan. This transfers not only the Authoritative
Copy itself, but also may register the new legal control of the eNote with MERS.
An electronic vault should also support the new TOLEC (Transfer of Location of
Electronic Contracts) ANSI X-9 standard for moving the electronic original
Authoritative Copy of non-real-estate items of property from one vault to another.
It’s also in the institution’s best interest to choose a vaulting solution that can easily
interface and/or adapt to existing systems already in use. The provider should make
available developer toolkits and the necessary application programming interface (API)
calls that will allow for interfacing or integration with existing systems.
A single vaulting solution should meet compliance and security needs in a cross section
of industries. Since the electronic signature is the key to a completely electronic
process, the electronic vault must support integration with available e-signature vendors
and their technologies. The solution also needs to work with all the various front-end e-
signing approaches at use in the industry today, including:
Again, depending upon the individual organization’s size, needs and scope of operations,
one model might prove a better fit than the others. The expertise and best practices of
the electronic vaulting provider can be of great assistance to the institution as it decides
from among the options.
V Conclusion
The case for electronic vaulting is abundantly clear in all aspects of financial services,
particularly given the intricacies and demanding requirements of mortgage lending.
Choosing an advanced horizontal electronic vaulting solution can serve every business
segment in which the institution operates.
Advanced electronic vaulting solutions go far beyond merely managing or even securely
storing electronic documents. The aforementioned controls, in conjunction with the
blessing of ratings agencies and legal counsels and coupled with the ability to produce
legally admissible print copies of documents when necessary, provide the institution
with the greatest possible level of protection. Seamlessly integrated with existing
systems and processes, a true electronic vault brings electronic post-closing processes
and procedures in line with both paper-based and electronic origination functions.
About eOriginal
eOriginal Inc.’s advanced electronic vaulting solutions enable lenders and investors to
eliminate paper while legally protecting their assets as electronic mortgage documents
are managed and transitioned throughout their lifecycle. eOriginal eCore® technology
and processes create electronic finance documents that are tamper-evident, legally
enforceable, admissible and negotiable. eOriginal solutions are compliant with ESIGN
and UETA, and support the MERS registry. eOriginal® technology has managed
approximately 500,000 electronic contracts representing over $10 Billion in originations,
with over $1 Billion pooled and securitized – all without a single error or legal challenge.
For more information about how to turn eOriginal’s experience into your advantage,
visit www.eoriginal.com or call us at 410-895-7699.
Copyright © 2007, eOriginal, Inc. Electronic Original, eOriginal eCore, Vault-in-a-Box, Certified Print and Paper Out are registered trademarks of
eOriginal, Inc.