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MERS® eRegistry: Role of the Rightsholders webinarNovember 6, 2019

Tiffany Toale Ann Ploetz

Training and Development Analyst

Our Moderator and Panelists

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Sharon HorstkampJames Macmillan

MERSCORP Holdings Inc.

Co-Head, Document Custody

Deutsche Bank

Senior Product Manager

MERSCORP Holdings Inc.

Director, Chief Legal and Legislative Officer

MERSCORP Holdings Inc.

PROPRIETARY

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• Overview of Legal Framework for establishing validity of eNotes

• The Role of MERS® eRegistry

• MERS® eRegistry Rightsholders• Q & A

• Introduction of Secured Party field • Q & A

Agenda

PROPRIETARY

Surge in eNotes

4

Source: MERSCORP Holdings, Inc.

2956

38884376

5082

6257

78748338

70267593

9102

12,360

14,726

17100

OCTOBER NOVEMBERDECEMBER JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER

2018 2019

eNotes Registered on the MERS® eRegistry

PROPRIETARY

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Legal Framework – Legality of eNotes

• The criteria for an eNote:• The eNote contains only the same terms and conditions that are permitted in

a paper negotiable promissory note;

• The eNote includes specific terms mandated by investors;

• The eNote is electronically issued and signed;

• The issuer of the eNote (the borrower) has expressly agreed that it should be treated as a “transferable record” under the UETA or ESIGN (as applicable); and...

PROPRIETARY5

Legal Framework – Legality of eNotes (Continued)

• The identity of the person entitled to enforce the eNote (the “Controller”) can be reliably determined from:• the eNote itself, or

• a method employed for recording, registering, or otherwise evidencing the transfer of interests in the eNote.

• The Controller has the same rights as a holder of a negotiable promissory note.

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eNote Language

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eNote Language

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MERS® eRegistry Overview

• The legal system of record for identifying the Controller (holder) and Location (custodian) of the authoritative copy of a registered eNote

PROPRIETARY9

Paper World Electronic World

Negotiable Instrument Transferable Record (‘eNote’)

Original Note Authoritative Copy of eNote

Possession Control

Holder Controller

Custodian Location

Endorsement and Delivery Transfer of Control

Chain of Endorsements and Delivery Transferable Record Audit Trail

Wet Signature Electronic Signature

All transactions on the MERS® eRegistry are system-to-system and are typically initiated via interfaces with an eVault

eNotes are Electronic Files and Can be Duplicated

PROPRIETARY10

OriginatorWarehouse

LenderInvestor Servicing Agent

Document Custodian

Copy of eNote Copy of eNote Copy of eNote Copy of eNote Copy of eNote

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• MERS® eRegistry: Integrated with MERS® eDelivery, allowing secure transfer of copies of eNotes and other eMortgage documents

• For each eNote Record, it stores: Key loan info

Tamperseal of eNotes

Changes to rightsholders

Life of loan events

MERS® eRegistry

PROPRIETARY

MERS® eRegistry vs. MERS ® System: What’s Different?

PROPRIETARY12

MERS® eRegistry MERS® System

Legal System of Record that identifies the party that has control of the eNote (“Controller”)

Electronic registry that tracks changes in Mortgage servicing rights and beneficial ownership interests in loans secured by residential real estate

All transactions are system-to-system Transactions may be initiated manually via MERS® OnLine

Location field is required Document Custodian is not required

Servicing Agent is not required Servicer is required

Transfer transactions are processed real time Transfer transactions require an overnight cycle to process

MERS® eDelivery transactions available to deliver copies of eNotes to trading partners

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PROPRIETARY 13

Standard eNote Flow

eNote is generatedby the eVault/eClosingplatform

Borrower(s) electronically sign the eNote

Signed eNote is Tamper-sealed

eNote is stored inthe eVault

eNote is registered on the MERS® eRegistry

Copy of the eNote is sent to trading partner(s) via MERS® eDelivery

Authorized Rights Holder positions for the eNote Record are transferred on the MERS® eRegistry to applicable trading partners

PROPRIETARY

The Record at Registration

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Controller

• The party named on the MERS® eRegistry that has control of the authoritative copy of the eNote

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What Can They Do? Who Is Typically Named?

• Register an eNote• Initiate most Transfers (i.e. Control, Location,

All, etc.)• Report Assumptions and Modifications• Update data• Add a document• Deactivate an eNote• View an eNote Record

• Originator/Lender• Warehouse Lender• Investor• Servicer (or the party

foreclosing on a loan)

PROPRIETARY

Location

• The party named on the MERS® eRegistry that maintains the authoritative copy of the eNote and any electronic documents that modify the terms of the eNote

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What Can They Do? Who Is Typically Named?

• Confirm incoming Transfers of Location• View an eNote Record

• Originator/Lender• Warehouse Lender• Document Custodian• Investor

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Servicing Agent

• The party authorized by the Controller to perform certain MERS®

eRegistry transactions on the Controller’s behalf

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What Can They Do? Who Is Typically Named?

• Initiate and confirm Transfer of Servicing • Report Assumptions and Modifications• Update data • Add a document• Deactivate an eNote Record• View an eNote Record

• Servicer• Subservicer• Any authorized party

PROPRIETARY

Delegatee for Transfers

• A Participant that is authorized by the Controller to perform certain MERS® eRegistry transactions on the Controller’s behalf

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What Can They Do? Who Is Typically Named?

• Register an eNote• Initiate Transfer of Control• Initiate Transfer of Control and Location• View an eNote Record• Remove itself from an eNote record

• Investor• Custodian

PROPRIETARY

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Secured Party - Background

• Warehouse lenders and the Federal Home Loan Banks requested that their security interests in electronic promissory notes (eNotes) be distinguishable on the MERS® eRegistry from that of a loan originator or investor, and represented in a distinct field with supporting functionality.

• MERSCORP consulted with subject matter experts, including legal counsel in eCommerce laws, to review and evaluate the intended use of the Secured Party field.

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Secured Party - Definition

• Definition: “The Participant named on the MERS® eRegistry that has been sold, pledged, assigned, or granted a security interest in the eNote by the Controller.”

• Available for use in the MERS® eRegistry November 18, 2019

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Controller Names

Secured PartySecured Party

Controller Initiates Transfer of

Control/LocationTransfer Complete

The Secured Party can…• Receive notification of

eNote activity• Release its interests• Restrict eNote

deactivations until its interests are satisfied

How Does Secured Party Work?

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The Controller can…• Include the Secured Party

at time of eNote Registration

• Or, add the Secured Party post-Registration

The Secured Party can…• Also initiate of Transfer

of Control/Location to another participant or itself

The Secured Party…• Is cleared from the eNote

record once the transfer is complete

PROPRIETARY

Secured Party – Participant Considerations

• The Secured Party field is intended to be used as a part of a Participant’s legal and operational constructs to ensure that its interests in eNotes are protected

• Use of Secured Party field will be optional.

• Participants may use either the Secured Party or Controller fields, to reflect their interests in eNotes, as appropriate and in accordance with their counterparty agreements.

• Use of the field supports, but does not replace, external counterparty agreements or UCC-1 filings

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Getting StartedPerforming Research

and PlanningEvaluating Technology

Communicating with Trading Partners

Have you …• Obtained executive

sponsorship?• Created a business case?• Secured a budget?• Designated a project

manager/team?• Attended a webinar?

Have you …• Defined project scope

(hybrid or full eClosing)?• Estimated volume?• Identified internal

stakeholders?• Verified a target date?

Have you ...• Identified technology

resources needed (eVault, digital closing room, MERS® eRegistry)?

• Started the RFP process?• Identified internal

platform updates needed?

Have you …• Talked to your

warehouse lenders and aggregators?

• Discussed with servicer/subservicer?

• Held meetings with Fannie Mae/Freddie Mac?

Implementing the Digital Mortgage: Where Are You?

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Integrating with the MERS® eRegistry

• Once a MERS® System Member is able to answer of those questions, they can submit a MERS® eRegistry Addendum• Member executes the MERS® eRegistry Addendum, requesting to become a

MERS® eRegistry Participant (“Participant”)

• MERSCORP assigns a Business Integration Manager (MERS BIM) to work with the Participant

• The MERS BIM and Participant work closely through the first live transaction

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MERS® eRegistry Integration: Phase I

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Will the Participant:

Originate, sell, purchase, fund, or service?

Perform custodial duties for eNotes?

Use an eVault provider, vendor, or build their own vault?

Utilize MERS® eDelivery to send/receive copies of eNotes to and from trading partners?

Provide an overview of the integration

process

Explain eNote and MERS® eRegistry terminology and

concepts

Obtain key integration data

MERS BIM conducts a meeting to:

PROPRIETARY

MERS® eRegistry Integration: Phase II

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Review and finalize Procedures document

Set up and activate the MERS®

eRegistry profile

Perform practice transactions in the MERS® eRegistry

based on use cases

Complete and monitor the first

production transaction

MERS BIM and Participant will:

PROPRIETARY

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Resources For You

• MERS® Webinars with Evergreen Home Loans, Fannie Mae, GinnieMae, and the Federal Home Loan Banks!• November 12: Operational Stakeholders: Prepare People and Processes for

eNote Implementation

• November 14: eNote Updates from Ginnie Mae, the Federal Home Loans Banks, and MERS

• Visit mersinc.org/webinars to register

• eMortgage webpages• MERS website or contact your Regional Director (Bob Pathman, Ron Crowe,

or Laurinda Clemente)

• Fannie Mae

• Freddie Mac

27 PROPRIETARY