LaSalle Bank has created an electronic vault for mortgage documents, which it says will speed the sale of mortgage-backed securities.
Harry Cicchetti, LaSalle's senior vice president of collateral services, said the vault should let Wall Street clients sell mortgage-backed securities "probably 24 hours" after they have assembled the loans.
Usually it takes three to five business days to ship the necessary documents, such as the promissory note signed by the borrower, to the custodian. The cycle time can get stretched to as much as 15 days, because paper documents have to be verified manually. With an electronic vault, documents are created, uploaded, and transmitted instantaneously in encrypted form.
Now that it has the infrastructure, LaSalle's next step will be to get Wall Street firms to buy electronic notes, Cichetti said.
"There are a lot of major Wall Street firms that are looking at this," he said. "The buzz is out there." He would not say how much LaSalle is investing, but he said it will take "a few years" for the investment to pay off.
LaSalle is the second custodial bank to create such a vault using technology developed by the Houston vendor Encomia. GMAC Bank, which stores securitization documents for General Motors Corp.'s home lending subsidiaries and other companies, adopted Encomia's technology in April.
Barbara Krawczun, the vice president of the document custody division at GMAC Bank's trust operation, said that with the technology, "as soon as a note is funded, it can be moved directly to an electronic vault on the same day, and there is no cost or risk associated with it, as there is for a paper note, so that note becomes available for sale the same day it is funded."
Andrew Dubinsky, the president and chief executive of Encomia, said the biggest benefit of electronic vaults is that they eliminate the need to "stare and compare" documents. With "so many eyes looking at loan documents," the process can be time-consuming and expensive.
"An electronic vault compresses the time for the investor to make a decision," he said.
Electronic notes can let a lender turn over its warehouse line five to seven times a month, versus 2.5 times a month with paper documents, Dubinsky said. "The warehouse durations are cut dramatically, so the interest expense is cut dramatically."
Fannie Mae and Freddie Mac were early adopters of e-notes, and Dubinsky said he expects private investors to begin accepting them next year.
Fremont Bank in California began using Encomia's technology in June. Tami Fuller, the bank's manager of system development and administration, said it expects to sell 80% of its first liens electronically to Fannie by mid-2007.
Scott Cooley, a consultant in Los Gatos, Calif., said electronic vaults are just starting to go mainstream.
"Return on investment is still a little tough to justify right now, because the systems are fairly expensive," he said. "The real challenge and frustration for vendors is getting more companies to adopt it."
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