Fannie Mae: Without Data Standards (and MISMO), Mortgage Industry Doesn’t Go Digital

In a new white paper, Fannie Mae, Washington, D.C., has a simple message for mortgage lenders: go digital–or go out of business.

The paper, Without Data Standards, Mortgage Industry Doesn’t Go Digital (, authors Prabhakar Bhogaraju, Sandro Barchitta, John Burgess and Noah Israel note while the mortgage industry has been slow to adopt digitization, the imperative has become a “crescendo.”

“Digital disrupters have raised the bar so high that mortgage borrowers expect the same level of online experience that they get when shopping for consumer goods and services,” the paper said. “The rise of financial technology (fintech) companies means increased competition from a consumer business sector that is adopting emerging innovations to increase efficiency while reducing costs and enabling a better customer experience.”

The authors say while the mortgage industry is finally accepting the challenge to digitize and innovate, they still have a long road ahead.

“As they continue on that journey, they must keep in mind the often-overlooked importance of data standards to support replicable and sustainable solutions,” the paper said. “Data standards are the foundation for the new digital model, providing benefits across the board–from a common vocabulary and taxonomy to reducing inconsistencies, simplifying processes and improving interoperability. Without this foundation, the mortgage industry does not successfully go digital.”

Fannie Mae has been a long-time supporter of MISMO, the mortgage industry standards organization created by the Mortgage Bankers Association to develop a common data language for the mortgage finance industry ( Not surprisingly, the paper stresses the importance of MISMO’s role and its foundational work in bringing standardization to the industry and promoting the push toward digital mortgages.

“MISMO data standards are the foundation for the digital revolution in the mortgage industry,” the paper says. “Creating and adopting the MISMO data standards required an investment by the industry. Going forward, the combination of these data standards and new interfaces, APIs, and emerging technologies will drive loan processing efficiencies and streamline operations that can mitigate the pain of adoption.”

The authors said multiple pressure points in the industry are forcing companies to realign priorities and to change their approach to doing business. “Mortgage lenders are facing increased competition from financial technology (fintech) companies as well as other market forces,” the paper said. “Due to the online experience that consumers have become accustomed to from companies like Netflix and Apple, mortgage borrowers have higher expectations for a better digital experience in home buying. A call to digitize the industry is loud and clear. At the same time, lenders are facing thinning margins and a shrinking talent pool. Industry participants who want to survive and ultimately to thrive must rethink their approach.”

The prospect of making wholesale changes is daunting, the authors state–but an even worse scenario for legacy lenders is to ignore or underestimate the digital revolution. “In the short term, many lenders will continue to avoid large systems overhaul projects, they said. “Legacy lenders tend to rely on the same human-based processes that have served them well over the past decade–or longer. These processes allowed them to survive the default crises and to handle the ensuing new regulatory compliance hurdles. The legacy model has a high fixed-cost profile and is not agile. As competitors move to a much nimbler approach based on leveraging standards and emerging technologies, the legacy lenders will eventually reach a point where they cannot cut variable costs any more and ultimately may be forced to exit the industry.”

Fannie Mae said the movement to a more borrower-centric model is not only gaining momentum, “but will become predominant as we move into the next decade. We may see a convergence of the borrower interaction with both real estate professionals and lenders, resulting in a more seamless experience in purchasing and financing a home. Many of the current interactions with the real estate agents and lenders will be complemented and enriched by technology solutions on both traditional and more modern platforms, including desktop, web, chat, telephony, tablet and mobile. Many applications will have backend integrations to data suppliers and analytical models supporting property valuation, income and asset verification, and borrower credit. This will increase both certainty and transparency throughout the home-buying process. The use of standard application programming interfaces will facilitate the use of multiple channels, allowing borrowers to manage their experiences and lenders to manage risk.”

The paper notes fintech and other lenders are adopting emerging technologies to increase efficiency, reduce costs, improve data quality and enable a better customer experience. These technologies include Robotic Process Automation; Machine Learning and Artificial Intelligence; Blockchain; and Application Programming Interfaces and Microservices.

Additionally, the paper cites new pressures on the mortgage industry, including margin compression; a shrinking talent pool; and process inflexibility. “We are at a crossroads between the traditional or legacy mortgage processes and the digital one that both borrowers and lenders want,” it said.

Lenders are facing many challenges, the paper notes: fluctuating origination volumes, increasing costs, higher expectations from borrowers and increasing competition from new, technology-savvy entrants.

“To compete in this environment–to even expect to stay in business–legacy lenders must be willing to abandon rigid and inefficient platforms and processes in favor of cutting-edge automation and digitization,” the paper said. “Data standards, including MISMO, are the common language that drives data consistency and quality and enables efficiency in the transfer of data across and within the industry. In the long term, data standards lower the cost of developing new solutions and maintaining existing ones. Data standards are the foundation for a fully digital mortgage ecosystem, from initial borrower contact to loan funding and servicing, resulting in a better customer experience and more efficient business model.”