UI Paper Makes Case for Uniform Mortgage Servicing Data Standards

A new paper from the Urban Institute, Washington, D.C., said uniform data standards for mortgage servicers would benefit consumers, increase data accuracy, lower risk of errors and offset “skyrocketing” servicing costs.

The paper, The Case for Uniform Mortgage Servicing Data Standards (https://www.urban.org/policy-centers/housing-finance-policy-center/projects/mortgage-servicing-collaborative), said standard data would also lay the foundation for “game-changing innovations down” the road.

The authors–Karan Kaul, Laurie Goodman, Alanna McCargo and Todd M. Hill–developed the paper, the fourth in a series, with support from the Mortgage Servicing Collaborative, an initiative of the Urban Institute’s Housing Finance Policy Center that seeks to improve access to credit by identifying and generating support for reforms that can address lender reluctance to originate and service mortgages. Mortgage Bankers Association Chief Economist Mike Fratatoni, MBA Associate Vice President and Managing Regulatory Counsel Justin Wiseman and MBA Associate Regulatory Counsel Sara Singhas are participants in the Collaborative, as is MBA Past Chairman Bill Cosgrove, CMB, Founder and CEO of Union Home Mortgage, Strongsville, Ohio.

“A cost-efficient and consumer-friendly mortgage finance system depends on the smooth and timely exchange of information across multiple stakeholders, such as lenders, servicers, borrowers, loan guarantors and insurers, consumer advocates and regulators,” the paper said. “Data exchanges require significant coordination between these institutions as the loan progresses from application to closing to post-closing and servicing. In today’s digital age, this exchange of data is carried out by information technology systems that communicate fluently between one another without compromising data quality.”

The paper notes and commends the work of MISMO, the Mortgage Industry Standards Maintenance Organization, created in 2000 by MBA to standardized mortgage data elements. However, the paper said availability of MISMO data standards “is a necessary first step toward adoption but is insufficient,” noting industry participants must implement MISMO standards, which requires significant planning, financial resources and operational bandwidth and typically takes years.

However, when the Federal Housing Finance Agency mandated Fannie Mae and Freddie Mac use MISMO standards through their Uniform Mortgage Data Program, it proved a “major catalyst for data standardization” because the GSEs required it as a prerequisite to loan delivery.

To extend the benefits of standardization to servicing, Fannie Mae and Freddie Mac announced an effort to implement uniform servicing data standards in 2012. Once fully implemented, these standards could cover various aspects of servicing, starting from post-closing to delinquency, to a potential loan modification, short sale, property preservation and foreclosure. But the paper noted servicing a loan can take multiple conditional paths depending upon whether the loan becomes delinquent, what assistance the borrower receives, how the loan is modified, whether it reperforms and whether it is resolved through a short sale or foreclosure. “There are dozens of additional variables for such items as property condition, property maintenance and escrows,” the paper said.

The lack of servicing data standards has meant that the names of servicing-related data fields and their usage, definitions and format can vary from one servicer to another, the paper said, resulting in redundant, overlapping systems and borrower harm caused data inconsistencies and ambiguities.

“Our main take-away is that adopting uniform servicing data standards must be viewed as a long-term investment rather than a near-term expense,” the paper said. “This investment, which will require strong stakeholder commitment, will go well beyond reducing costs and risks for servicers and improving customer satisfaction.”

Benefits of uniform mortgage servicing data standards include:

Improved Servicing Transfer and Subservicing Processes. “Standards can help minimize data inconsistencies and the expenses needed to mitigate them,” the paper said. “A uniform servicing data standard would establish a common language between industry stakeholders. With better rigor, the likelihood of errors and inaccuracies would be reduced, as would be the potential for borrower harm and poor customer service. The transfer process would become much simpler, faster, and less expensive, as there would be almost no need for extensive data processing and validation.”

Greater Innovation, Automation and Lower Costs. “Standard data would give technology innovators a baseline data model around which they could build more intelligent applications that produce better customer insight or enable efficient communication with delinquent borrowers,” the paper said. “Such innovation is nearly impossible in today’s world of custom data. A second crucial advantage of standards is that servicers could more easily switch technology vendors without the complexity and risk associated with migrating underlying data. Having this flexibility would free servicers from getting locked into one vendor, thus encouraging greater competition between vendors.”

Better, More Accurate Pricing for Mortgage Servicing Rights. The paper said error-free data transfer would result in additional cost savings when mortgage servicing rights are valued in the open market. “By investing in necessary changes today to effectively manage the next default cycle, the servicing market can reduce its long-term risks and costs and provide better customer service in good times and bad,” it said.

More Efficient Regulatory Reporting. “Moving to a common data standard would reduce the degree to which data elements have to be custom programmed to conform to each agency’s requirements,” the paper said. “This error-prone process increases the risk of noncompliance and can compromise the quality of regulatory reporting.”

Additionally, the paper called for a strong commitment from the industry, FHFA and the GSEs to complete this work. “We urge all stakeholders to resume this effort before the next downturn arrives,” it said.