Some say the mortgage industry lost its way. Greed and the need for short-term profit was too much to pass up. Lenders took on too much risk. But why? And more importantly, how can these practices be changed so they don’t occur again? It comes down to standards.
What do I mean by standards? It’s twofold really. First, there’s a moral obligation associated with doing mortgages. Sure it’s a business, but it’s very emotional for the homebuyer. Owning a housing is a big step in a person’s life.
It may be tough to say, but not everyone can get there. Not everyone can own a house. And not everyone should own a house. Mortgage lenders are in business to make money, but that doesn’t mean they do it on the backs of people who it’s obvious cannot pay back the loan they’ve been given.
Investors loosened their standards and lender just fed that beast. It didn’t matter that the loan shouldn’t be done, it just mattered if an investor would buy it. In this process the mortgage industry lowered its standards and now is viewed as having been greedy and predatory.
So, how does the industry get back its moral standing? Again, through standards. This time I’m talking data standards. Washington thinks the answer is to disclose more information more frequently. That’s fine, but in most cases the information that lenders now have to disclose at the point-of-sale or before closing was always disclosed before, just not at critical times. Disclosing at the times mandated by MDIA will certainly eliminate surprises, but it won’t restore trust.
The way to restore trust is to be more transparent. How do you be more transparent? You grant all interested parties access to critical information on the loan. If I’m the borrower I can see where my loan is in processing. If I’m an investor I can see everything that went into and happened to the loan. If everyone can see it, they can trust it.
This is why both GSEs have now embraced MISMO Version 3.0. What’s the big deal about this new data standard? Version 3.0 offers end-to-end transparency from origination to secondary marketing and servicing. Version 3.0 reduces the overall costs of implementing e-mortgages. Version 3.0 also reduces the of costs to create MISMO compliant applications by increasing reusability. Version 3.0 bridges the information gap between origination, secondary and servicing by having a single reference model. Version 3.0 bridges the gap between Data and Documents by placing both in a single reference model.
And really, until the mortgage industry gets some standards, both of the moral/ethical and data variety, how can it ever expect to be trusted again anyway?
