Implementing UCD? MISMO 3.4 is Less Disruptive Than You Think: Part 1

(Steve Acker is Owner/Consultant of Closergeist LLC, Roanoke, Va., which provides implementation guidance and services to clients in the mortgage and title industries. He can be reached at steve@closergeist.com.)

Now that implementations of the TILA-RESPA Integrated Disclosures and other Know Before You Owe components are firmly in place, lenders and their partner organizations have turned their attention to the next big requirement that will impact operations: The Uniform Closing Dataset.

The UCD is an electronic file that allows the information contained within the Consumer Financial Protection Bureau’s Closing Disclosure form to be captured and transmitted in a standard, machine-readable format. Fannie Mae and Freddie Mac (commonly referred to as the GSEs, or government-sponsored enterprises) will require a UCD file for all loans they acquire beginning in Q3 2017.

The UCD is part of an ongoing government-directed effort to improve the quality of loan data, enabling better large-scale analysis of data for ensuring that loans meet regulatory and GSE requirements. The UCD format is based upon the Mortgage Industry Standards Maintenance Organization data standards. MISMO-based files are built using Extensible Markup Language and represent a standard way of electronically representing and communicating mortgage transaction information. The MISMO standards were developed by representatives from throughout the industry and continue to evolve over time as needs change.

The GSEs will require that the UCD files they collect adhere to version 3.3 of the MISMO standards, which was published in 2014.

In January 2016, MISMO released version 3.4, which allows for electronically representing information for many new industry needs and standards, including the GSEs’ upcoming Uniform Loan Application Dataset and the CFPB’s Home Mortgage Disclosure Act requirements.

For those organizations that are either implementing MISMO for the first time or upgrading from older versions, there may be some concern around the need to support different versions of the MISMO standards for different sets of requirements.

Given that MISMO 3.4 is a major release and makes no guarantee of compatibility with prior versions, a forward-thinking organization must simultaneously deliver the UCD file in the MISMO 3.3 format while also planning for upcoming specifications, such as HMDA, that require MISMO 3.4.

Fortunately, most of the changes introduced in MISMO 3.4 or any other major release tend to be isolated to specific process areas and mostly consist of added support for new pieces of information, rather than changes to the existing file structure. For many existing data exchange requirements, including the UCD, a new major MISMO release is not as disruptive as some might fear.

When planning an implementation approach that supports multiple versions of MISMO, it is helpful to first examine any data specifications that must conform to earlier versions and determine what specific data requirements, if any, are invalided by later versions. This will help pinpoint specific areas of data or information that must be handled by systems in different ways, depending on the MISMO version. In many cases, the differences will be minor.

Determining how compatible an existing data specification is with a newer MISMO version consists of answering the following three questions about each required piece of data, or data point:

–Has the expected structure of the MISMO XML file changed? In more technical terms, does the specified XPath for the data point remain the same in the newer MISMO version?

–Does the data point, or placeholder for a particular piece of information, still exist in the expected place and with the expected name?

–Are all allowable enumerated values for the data point still supported? (Enumerated values are a choice of values, similar to a pick list or drop-down list in an application).

For the UCD specification, performing the analysis described above shows that the differences, or breaking changes, in MISMO 3.4 are minimal and isolated to a handful of seldom-used data values. In other words, MISMO files that contain information about a closing transaction will look nearly identical in either version 3.3 or 3.4.

The same analysis can be applied to other sets of data exchange requirements, whether they be other regulatory specifications or customized trading partner data exchanges. In many cases, minor incompatibilities can be worked around without much difficulty when adding support for a newer MISMO release.

Because the information requirements of the mortgage industry and the regulatory bodies that govern it continue to evolve, taking active steps to support new versions of the MISMO data standards will enable organizations to meet emerging reporting and data exchange requirements faster and at a lower cost.

Part 2 of this series (Thursday, Sept. 8) will be a deep-dive demonstrating how the analysis steps described within this article were applied to the UCD specification to determine its high level of compatibility with MISMO 3.4.

About MISMO
MISMO® is the voluntary standards development body for the mortgage industry. Voluntary use of MISMO standards reduces processing costs, increases transparency and boosts investor confidence in mortgages as an asset class, while creating cost savings for the consumer. For more information, visit www.mismo.org.