Daily Briefing Weekend Edition

Report Suggests Data Management Is Key to Mitigating Risk

By Anthony Garritano

WASHINGTON--As the mortgage industry moves to a more transparent process to increase efficiency, reduce cost and hopefully restore confidence, the need to embrace a data-driven process becomes paramount. However, if that data isn’t managed properly the industry could be moving from one crisis to yet another.

The MBA ResTech Software Providers Forum at the MBA annual will report on the status of a white paper in the works at present designed to help lenders better mitigate risk. "Their objective is to build awareness of data quality issues. They are looking at a subset of critical data points and tracking them throughout the loan process to identify how many times a particular data point comes into play, where and by whom," said Roger Gudobba, chief strategy officer at compliance and dynamic document vendor Compliance Systems Inc.

"The goal is to develop a data quality risk score that will provide some measure of confidence in that data value. The current status of that project will be presented at the MBA annual in October. The important concept for all of this is to have assurance in the accuracy of the data at the point of the loan approval and at the point the loan is closed and delivered to a third party.

"As data is accumulated you need to validate that it is correct, have the capability to lock down the value and build an audit trail of how, when and why that information is changed throughout the process. Just because the information changes during the process does not make it a riskier loan. The risk comes when you don’t know if the information is valid," asserted Mr. Gudobba.

Realizing this high-wire balancing act that lenders will be doing as the industry morphs toward embracing more actual data over forms, prior to this new report the MBA released a white paper prior compiled by the MBA Residential Technology Steering Committee entitled "Data Management: Best Practices." The main objective of that white paper was "to share fundamental strategies and best practices for assessing and improving data management practices.

It provides a high-level overview that drills down to the key elements of data management while also offering specific references for further insight and clarification. "The goal of this paper is to give the reader a basic understanding of how they can improve the way their company manages its data. It will review the basics of data management by touching on the salient points of such a program. It will also provide a means for the reader to benchmark their firm’s maturity in the data management space and give references to where to find additional information on the various topics presented."

According to Robert E. Story Jr., vice chairman of the board of directors at the MBA, the intended audience for this paper is C-level executives. "It seeks to provide them with the information as to why they should be interested in improving their data management," he said. "One reason can be seen by looking at examples in other industries where data has been utilized as a competitive weapon. In retail Wal-Mart has outpaced its competition by creating a renowned data management program. However, Wal-Mart and other retailers have a business model that involves the manufacture, shipment and exchange of goods. The mortgage industry has a distinct advantage over retail in that it does not have to deal with hard goods. The mortgage business deals with the exchange of property titles for promissory notes."

But does the report truly cover all the bases needed for a lender to perfect their data management policies? "There are areas within the report that could be further clarified. However, nothing specific has been identified right now," answered Mr. Story. "I think people have been preoccupied. What we’re doing is building a library of white papers to address key issues in mortgage today. From a tactical standpoint, we’ll continue producing the white papers to provide the industry with a library of resources."

The white paper breaks data management into six components, data governance, data stewardship, data quality, data architecture, data standards and data security. In addition, it provides some guidance on how lenders can test current data management process. Specifically, the white paper suggests that "launching a data management program inside the company will involve driving changes in processes, technology and culture. Business, operations and IT must all play a role in realizing the changes required to manage data as a company asset. An important step in the data management program is base lining the current maturity level of the organization."

"Lenders should get tips from this white paper on how to look at their existing process and what they’re doing with data," emphasized Harry Gardner, senior director, industry technology at the MBA. "Lenders need to isolated where the data may be getting muddied because there are several hand-offs during the mortgage process. I would be remiss in not putting on my e-mortgage hat and noting that if we had e-mortgages at post closing there would be more clarity.

"The one thing lenders should take away from this white paper is that data management is important. The higher-level executive should be interested and proactive in improving data management across the enterprise. It not only saves money, but it makes you more agile and ready to respond to the secondary market."

In fact, Mr. Gardner suggests that "one reason the industry is in this crisis is because loan data is so hard to track and manage through to closing, the secondary market and securitization. What we’re finding is the data needed to sort through these securities to ascertain value just isn’t there so it’s hard to unravel."