Data-Transfer Standards Are Key to Future Business

Among the technology trends of 2002, one of the most important in the commercial-mortgage industry is the movement toward a standardized format for the transfer of data among borrowers, originators, lenders, mortgage servicers, investors and service providers. This seemingly mundane process requires unprecedented cooperation between business partners, and once adopted they will be building blocks for a new generation of technology innovations that include Web services, industrial-strength e-commerce with secure digital identity and everyday use of electronic mortgages. Through the Mortgage Industry Standards Maintenance Organization, the Mortgage Bankers Association of America is providing the platform on which all this can occur and is working with its industry members and other trade groups to drive adoption and implementation.

Commercial lending is a set of highly complex processes. Moving information between these processes is the key to efficiency and productivity. Yet, streamlining data transfer has been elusive. There are so many entry points for a deal into the lending process that it is virtually impossible to mandate any standardized process across the industry. Compounding this is the diverse base behind mortgage capital: CMBS, financial institutions, GSEs and private funds, each with its own regulations, features and traditions. The result is that process standardization takes root only up to a certain point. Process standards frequently result in a standardized report that addresses a need to transfer specific information; an example is MBA’s Special Borrower Requests Checklist.

Since standardized reports are often in a format that limits the re-use of the information they contain, Mismo was developed with a focus on data standards. Rather than focusing on the “how” of a transaction, Mismo addresses the “what”–the data. By standardizing the naming, meaning and structure of the data, Mismo provides the basis by which that same data can be transferred with ease through XML–a commonly used computer language that labels data and facilitates its electronic transfer between firms. Since early 2000, Mismo has issued data-transfer specifications for many residential processes. In January 2002 it released a draft data dictionary for commercial and multifamily and plans to release several XML specifications in 2003.

The importance of developing data standards is demonstrated by their tremendous potential for reducing expenses. Mismo saves money. There are numerous examples where implementation of an XML specification for a single process (for example, relaying property-inspection information) between two trading partners had noticeable bottom-line impacts. Just think what would happen if the same specification could be reused with multiple trading partners, and that is the potential effect of an industry-wide standard.

It’s not just efficiency that drives the trend to develop and adopt data standards. By maintaining industry-wide and openly derived descriptions of data, Mismo is opening the door for numerous innovative products to be created. Web services–a way of overlaying different computer systems in a Web environment–becomes feasible for both individual firms and networks. Once again, just by providing a standardized method for naming, describing and transmitting data, Mismo enables the market to develop applications that can actually meet the real business needs of the industry.

At one level, data standards represent the separation of content from both the transport of content and the representation of content. By segmenting data this way, true e-commerce in commercial finance becomes possible. Think for a second of a commercial mortgage–as paper-based a product as you can find. Yet Mismo’s data standards convert this into electronic form. The data on the mortgage–such as property address, loan amount and legal description–all map onto Mismo data elements. Digital signature technology provides the way to establish a binding contract. Public Key Infrastructure and other variants of encryption technology allow the electronic file to be locked up, editable by some and viewable by others as necessary. Congress enabled such a transaction when it created the E-Sign legislation that gave electronic transactions legal parity with paper ones. Mismo has been in the forefront of the development of eMortgages: working with lenders, originators, service providers and trade groups that represent the nation’s local and county recorders.

Creating the infrastructure for an eMortgage must conform to some basic requirements if there is any hope of creating seamless e-commerce across trading partners. MBA is working with firms such as Verisign and Identrus/DST in this regard. Toward this end, on October 23, 2002 the MBA board of directors approved establishment of a wholly owned subsidiary–Secure Identity Services Accreditation Corp. Sisac will accredit third parties to create the necessary infrastructure for authenticating identities over unsecure networks and for developing related products and services.

Mismo’s commercial activities are led by Catherine Rodewald of Prudential Mortgage Capital Co., Ken Beyer of MortgageRamp and Joanne Denver of David L. Babson Co. Presently, more than 50 companies are participating in the collective work of Mismo, which is open to any firm in the industry, and can be done through www.mismo.org.

Daniel Szparaga [email protected] is a director in the commercial/multifamily business group of the Washington, DC-based Mortgage Bankers Association of America and staff representative to the Mismo commercial working group and MBA’s commercial technology committee.