The mortgage industry has been far from standardized throughout history. Before the government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—and the Federal Housing Administration (FHA) there were no true standards. The industry evolved from a paper and forms-based business transaction process to an electronic version. Processes began to mature, however, organizations were still required to have an in-depth and specific knowledge of each investor/insurers policies to conduct business. Smaller lenders and servicers would choose one investor or maybe a handful. Doing business with many investors was simply too expensive in terms of manpower, training, education and technology solutions given the differences in processes and systems. Within the agencies, the standards have not been aligned, but things are shifting due to industry demands and regulations. The Federal Housing Finance Agency (FHFA), in coordination with the GSEs, has made advances to standardize practices, contract language, and associated data and systems required to perform the transactions existing in the life of a loan. One key decision was the choice to use Mortgage Industry Standards Maintenance Organization (MISMO) standards, its XML schema, and logical data dictionary, often referred to as the MISMO Reference Model, as the basis for the Uniform Mortgage Data Program (UMDP).
MISMO has been in existence for years, and is mostly a volunteer organization instrumental in creating a robust and data schema covering the mortgage industry from application through securitization. Volunteers worked tirelessly to advance the cause, but MISMO did not have any real power to make people use the standards. Because of this, adoption was slow and only a few companies truly embraced the usage of the MISMO Reference Model.
With the introduction of the UMDP, the landscape changed forever. FHFA, Fannie Mae and Freddie Mac decided that it was their mission to standardize data transfers among the primary markets and the GSEs. The theory was that this standardization would lead to process efficiency and data quality, reduced barriers to entry and lower switching costs. Enhanced usage of MISMO and a gaining of greater knowledge continues to evolve and be proven through the implementation of the Uniform Loan Delivery Dataset (ULDD) and the Uniform Appraisal Dataset (UAD). More UMDP standard data sets are expected to enter the market related to servicing and closing later this year.
While the UMDP began moving the industry forward, MISMO remains a volunteer army exposing a big problem. Few outside of a core set of volunteers really understands the MISMO Reference Model. Think about that for a moment. The industry is being directed to use a standard that many are still working to understand. MISMO acknowledges this shortfall and has put several efforts in motion. MISMO is attempting to promote the use a single common language across the industry, and that MISMO is that language. Not only are they working to develop the standards and to train industry, they are working closely with the government housing agencies (FHA, VA, USDA, and Ginnie Mae) as well as the regulatory community to educate them about the benefits of using the common MISMO standards. During 2012 and 2013, MISMO launched several efforts focused on increasing the number of subscribers (members) by nearly 50 percent. This first step brought some new resources to the volunteer groups and provided some additional band width to the key contributors who have been involved for years. The rest of this article will focus on two areas currently underway with MISMO that bridges the knowledge gap; educational training and certification.
Why is training and certification so important? Look at the landscape. Currently there are thousands of lenders and servicers, title companies and mortgage insurers. Additionally, there are well over 100 software companies supporting the mortgage industry. These organizations will need to understand MISMO or rely on vendors who do in order to conduct business. There is no way around it. The GSEs are moving to a standard for transactions based on the MISMO Reference Model, and Ginnie Mae is not far behind. Work has also been done at the FHA as part of their transformation efforts. The industry needs education and training on the MISMO standards. Being MISMO-certified will be a differentiator to conduct business in the mortgage industry going forward.
Let’s review a scenario that will play out over the next year or two. The agencies expect to have valid XML transactions from their counterparties based on the MISMO Reference Model. With the Uniform Collateral Data Portal (UCDP) the GSEs currently control the outcome; resulting with a single platform that all organizations use for appraisal information. With ULDD, most companies rely on their LOS vendors to create a valid XML file. As an organization using these vendors, how do you know if the vendor is really exchanging data properly using the MISMO standards? The enterprises do publish a list of providers who assert that their tools comply with the MISMO standards. That does not necessarily mean that the vendors are well-versed in MISMO and it does not mean that they will be able to keep up with new releases of the Reference Model. The faster UMDP rolls out new data sets, the more pressure vendors experience.
MISMO announced at their Spring Summit in the June 2013 that they are considering implementation of a software certification program. The work is ongoing, but we expect more information will be released during the upcoming MISMO Fall Summit. The certification will render service marks or a seals of approval that indicate that the vendor and software are worthy of the MISMO Compliance designation. It is anticipated that the program includes certification of company practices and evidence of the ability to store and generate MISMO based data sets. This is colossal, because going forward, the results of the MISMO Compliance Certification will provide transparency into which vendors ARE or ARE NOT equipped to support the data exchange files using the MISMO Reference Model. Feedback from lenders shows that the certification will be a differentiator going forward. Jan Davis, director of industry standards at the Mortgage Bankers Association (MBA) and the vice president of MISMO recently said, “Certification will be one of the pillars for the future of MISMO. We are currently working to develop a software compliance program. We are also beginning to lay the groundwork towards a professional certification for individuals as the MISMO education program matures. As these programs evolve, a full company certification will also be a consideration.”
MISMO recently concluded the first wave of on-line training for individuals. The three-day course focused on MISMO Concepts and Fundamentals; the training sold out. Kyle Bensen, CMB from MGIC, who leads the MISMO Education Committee, said, “We are at a critical juncture in the adoption of the MISMO standard in the industry, and an unprecedented amount of change is being introduced to the standard to accommodate GSE and regulatory reporting requirements. Therefore, it is necessary that we 'raise the MISMO IQ' throughout the industry by educating and developing leaders for the standard setting effort. We recently launched Course I—MISMO Fundamentals, the first of our three-course instructor guided online MISMO implementation series. We had over 55 registrants for the six-hour training session, and the feedback has been very positive."
The intent of the MISMO organization is to continue to increase the education offerings. Eventually, there are plans for a full curriculum, starting with the fundamentals and moving to more in-depth and targeted courses from a business and technical perspective. Courses are expected to target multiple audience levels to ensure understanding of the purpose, use, and benefits that span from executives to technologists, analysts, developers and business experts.
Following the education, online Webinars will be a certification program for individuals that achieve a designation that the individual has a certain level of training and MISMO knowledge. The individual certification program is anticipated to be somewhat similar to the Certified Mortgage Banker (CMB) designation within the MBA’s education area. Although nowhere near final, one would expect some type of continuing education requirement to retain the designation.
A possible future is a world where MISMO is fully-integrated into the fabric of mortgage data, encompassing the entire mortgage lifecycle. Vendors will be certified and their associated employees who build and maintain their software and tools will also possess a level of certification enhancing the knowledge base, as well as the products supporting the data exchange throughout the mortgage industry. The mortgage industry organizations will have employees with MISMO certifications to ensure working with the vendors is more productive and ensure accuracy with the electronic transfer of data to support the lifecycle of a mortgage. This process and training may not happen overnight, but the industry demands it and the need to start soon is evident based on feedback from across the industry.
Matt Seu is a partner and owner of Actualize Consulting and is a member of the MISMO Strategic Planning Committee. Heather Kerns is a senior manager at Actualize, managing all MISMO offerings for the firm. Matt may be reached by e-mail at [email protected]
and Heather may be reached by e-mail at [email protected]