Use Data Standards as Building Blocks for Maximum Effect
Recent advances in technology, and increasing regulatory pressure on the industry to adopt digital strategies, have put data standardization in the spotlight for mortgage lenders. The third, and later, versions of MISMO standards ensure compliance with recent regulatory changes from the Consumer Financial Protection Bureau and prepare lenders for upcoming data initiatives from the government-sponsored enterprises. In other words, adoption — while not explicitly mandated by any one regulation — is no longer optional. Now is the time for lenders to convert their systems and data to adhere to the MISMO version three standards.
Though adoption of MISMO standards is voluntary, lenders have much to gain from implementing them. Before the introduction of version three, lenders dealt with data standardization on a process-by-process basis. Each step in the life of a loan had its own data standard, and at times these standards overlapped, producing contradictory data field names. It bears noting that, while earlier MISMO versions certainly had their shortcomings, these previous applications were also highly successful in bringing a basic level of standardization to the mortgage process and enlightened early adopters to MISMO's transformative potential.
MISMO 3.3 addresses the data overlap issues of previous versions by creating an overarching standard for the classification of all elements of a loan, from single-entry data fields to loan documents to the final document package. Having a single data reference model for all loan data throughout a loan's lifecycle not only improves back office efficiency, but also facilitates a more seamless exchange of documents and data between systems.
Smoother data exchange is particularly critical in the post-TRID environment, which requires greater collaboration between lender and settlement service provider than ever before. In fact, many TRID errors are attributable to the collaboration missteps that occur when one or both parties are working manually instead of leveraging a standard. MISMO 3 helps cure these issues and even provides standards for metadata, audit trails and the use of e-signatures on loan documents.
Lenders will also need MISMO 3 or better to deliver the Uniform Closing Dataset. UCD, which is based specifically on MISMO 3.3, is a great example of how MISMO standards can solve the communication issues that can occur between disparate systems. Designed to reduce errors in the Closing Disclosure, the UCD is one of a series of data standardization initiatives announced by Fannie Mae and Freddie Mac under the umbrella of the Uniform Mortgage Data Program.
What distinguishes the UCD from other delivery requirements is that it represents the first attempt by the government-sponsored enterprises to leverage MISMO 3 as a retrievable SMART Doc. As such, UCD sets the stage for all eClosing documents. All data submitted to the GSEs through the UCD portal must meet MISMO 3.3 standards. Both GSEs are expected to make UCD submission mandatory in the third quarter of 2017. Already, the GSEs require lenders to use MISMO 3 to deliver the Uniform Loan Delivery Data, and, in the future, the GSEs' revised loan application, will also require lenders to use advanced MISMO standards.
If those reasons aren't compelling enough to make lenders get with the MISMO program, the Home Mortgage Disclosure Act also based their lender reporting requirements on MISMO version three. Adopting a more modern MISMO standard now is an important incremental step in preparing for the HMDA reporting that goes into effect in 2018.
The CFPB, Federal Housing Finance Agency and other regulators continue to encourage lenders to adopt digital mortgage strategies, with the end goal of executing a fully electronic mortgage from application to note. These regulators, as well as the GSEs, increasingly recognize the link between data, loan quality, regulatory compliance and consumer satisfaction. With transparency being the new rallying cry amongst regulators, proprietary formats must be a thing of the past and MISMO standards the future.
Nancy Alley is vice president of strategic planning for Simplifile, an online service that connects lenders, settlement agents and counties.