Both Fannie Mae and Freddie Mac have answered the Federal Housing Finance Agency's call for a more transparent process by standardizing around datasets developed by the Mortgage Industry Standards Maintenance Organization and mandating that loan data and appraisal data be delivered to them using MISMO Version 3.0, a move that technology experts say will broaden the required use of the standards and help return more liquidity to the mortgage market.
Tim Anderson, president of SigniaDocs and a former member of the MISMO governance committee, characterizes this move by the GSEs as a "key step" toward mortgage market recovery.
"The only way we're going to get adoption of standards is when you have major players see the advantage and use them. GSE sponsorship is key. This means the major investors see advantages to creating data standards. Another important element is that they have endorsed Version 3.0. Why is that important? That will speed up adoption of the new standard faster then in the past. Look how long it took for SMART Doc Version 1.0 to get adoption. It was just a standard without the incentive to adopt. The incentive here is that the GSEs have both published an open directive and it's mandated. "There's a date out there and when that date passes they won't accept the old ways," he continued. "As a result of all this, the lender is going to mandate that their vendors be compliant by that date. So, you'll see more vendors and lenders involved in MISMO because they have to be."
The new initiative is aimed at improving the consistency and quality of data for appraisals and other loan information, said the government entity on its website. It is designed to improve the depth of collateral, borrower and loan data submitted to the enterprises. The Uniform Mortgage Data Program is a long-term, joint effort to create improved and uniform data standards and collection processes. The GSEs have worked with industry participants to develop the uniform standards.
"FHFA directed the enterprises to undertake the development of the standards to provide greater uniformity in the data they collect," said FHFA acting director Edward DeMarco.
"This initiative is a major step toward meeting industry requests for uniformity in appraisal and loan data. Improvements in data quality will benefit all mortgage market participants and strengthen the housing finance system."
The GSEs have now gone forward to standardize mortgage lending using MISMO as the backbone of all loan delivery to both GSEs. Specifically, Freddie Mac and Fannie Mae have developed the Uniform Loan Delivery Data Specification, which defines the Uniform Loan Delivery Dataset and the common GSE approach to single-family loan delivery data requirements for all mortgages that will be delivered to either GSE on or after Sept. 1, 2011.
Publishing the delivery specification is the first key milestone of the Uniform Mortgage Data Program that was set in motion in May. The delivery specification provides the necessary details for industry participants to understand the scope of the loan delivery data requirements and to begin assessing their implementation needs and resources.
A common framework will increase efficiency for lenders while enabling the GSEs to manage risk more effectively. The common data standards will provide uniformity for appraisers, mortgage lenders, servicers and other information providers in their data submissions to the GSEs. This data standards program will be deployed by the GSEs in phases, through a common platform, and provides for continued stakeholder input.
Fannie Mae spokesperson Janis Smith and Freddie Mac spokesperson Brad German said, "These joint delivery specifications-and their use of MISMO Version 3.0-represent a big step forward for the industry and for achieving the goals of the Uniform Mortgage Data Program. We believe this collaboration will help reduce the time and cost of preparing and submitting loan delivery data to the GSEs."
Both GSEs say this will both "increase market confidence" and "enable the industry to respond more quickly to changes in the market."
In FAQs released to the mortgage industry by both GSEs, the industry value of standardizing around MISMO Version 3.0 was justified by Fannie and Freddie in that both entities believe a commonly understood dataset and format will reduce ambiguities in the type and definition of data points required for selling loans to the GSEs. By collecting additional data at a more granular level, market participants will have an increased, common understanding of loan data. Also, over time, lenders will be able to move away from providing proprietary processing codes that can be misinterpreted or incorrectly mapped to delivering root data that can be accepted by both GSEs.
Anderson said the benefit of Version 3.0 "is that once you go to this specification it's easily adaptable to any mortgage transaction. It's not just a standard for an e-note. Version 3.0 is flexible. It can handle all the document types and formats."
Both GSEs explain that they have chosen MISMO Version 3.0 to standardize around because the MISMO XML format provides greater flexibility than the existing formats that either GSE has in place today (Fannie Mae's 2000-Character Loan Delivery File Format and Freddie Mac's Form 11, Mortgage Submission Schedule, and Form 13SF, Mortgage Submission Voucher).
Using MISMO as the basis for the ULDD allows for easier collection of new data in the future, and supports current technology that is widely used in the mortgage industry. Use of MISMO Version 3.0 will also allow a greater level of specificity in the data that lenders provide to Fannie Mae or Freddie Mac, and that can be easily used by lenders for other purposes throughout the loan life cycle, according to the GSEs.
An additional future benefit to lenders will be a reduced dependency on special codes. The new dataset will capture the root data underlying these codes offering lenders greater efficiencies because many already use the root data in their systems. Roger Gudobba, chief strategy officer at Compliance Systems Inc. and current member of the MISMO governance committee, says, "The joint move by Fannie Mae and Freddie Mac to structure the Uniform Loan Delivery Data Specifications around the MISMO Version 3.0 architecture is noteworthy for two major reasons. First, the collaborative effort of the GSEs establishes a standard for all future loan delivery to investors. Second, it justifies the long-time vision of a number of MISMO volunteers. Together, it represents one of the most significant standards initiatives for any industry. This is a truly momentous occasion."
"This is an amazing tipping point," added Mark Linne, executive vice president at AppraisalWorld, a software developer and valuation services portal. "I think that what's going to happen is we've been working for years now to get the MISMO standard accepted and with Fannie and Freddie both onboard now, I think that will move us as an industry towards greater industry acceptance and ultimately that will permeate through the entire residential and commercial marketplace. It's also important to note that one of the reasons Fannie and Freddie are doing this is so they can drive the whole next generation of modeling, analytics and risk analysis."
In reference to how this will improve the appraisal process, Elizabeth Green, chair of the property and valuation services MISMO workgroup, noted, "Version 3.0 is schema based, which enables you to have a more common language to move data back and forth. Prior we were transporting files from system to system. I think this is vital to right-siding our economy. I believe that with open standards, it will not only lead us to a better outcome, but a whole new level of possibilities.
"Mortgage banking is no longer a local concern, it's a global concern. MISMO Version 3.0 represents a dramatic improvement in the ability to clearly communicate appraisal details, for one, from the professional appraiser in the field, to the mortgage data stream, which increases transparency and reduces risk."
It's important to note that this initiative includes both appraisal data delivery and loan data delivery. FHFA expects that by October 2010 there will be a joint system for the electronic delivery of appraisal data. By Jan. 1, 2011 new data standards for all single-family appraisal forms required on all loan applications will be required. By April 1, 2011 electronic delivery of appraisal data will be required. In terms of the new loan data delivery component of the initiative, by June 2010 new joint GSE data-set specifications through MISMO Version 3.0 will be available. By Sept. 1, 2011 it is likely to be required that all loans delivered to the GSEs comply with MISMO Version 3.0 standards.
But will this move really bring about transparency? "Freddie and Fannie being required by the trustee to do things together is an important precedent," said Greg Alvord, chair of the architecture committee of MISMO, which is the overriding committee over all of the MISMO workgroups.
"Now anyone delivering loans to Fannie or Freddie will have a single way to do it, which is very different as compared to what happens today. We expect that aggregators will shortly come out with requirements that correspondent lenders deliver loans to them in the MISMO Version 3.0 format so they can in turn deliver the loans to Fannie and Freddie. One of the advantages of having this MISMO reference model be the industry standard is that once it works for one application it'll work for all applications."
