API Standards: The Mortgage Industry’s Next Big Challenge
Bill Klumper; Christopher Stookey
Christopher Stookey is a 23-year veteran of the home lending industry, specializing in lending data and data standards. He has been active with MISMO since 2013. He currently serves as co-chair of MISMO’s Architecture Workgroup and is leading the effort to create the first MISMO API Toolkit. Hecan be reached at christopher.stookey@wellsfargo.com.
Bill Klumper is a consultant for FirstStep Software Systems and advisory board member for FundingShield, a provider of wire fraud prevention technology. With 20+ years of experience in the mortgage industry he is a member of the MISMO Residential Standards Governance Committee and serves as co-chair of MISMO’s Architecture Workgroup and Secondary Community of Practice. He can be reached at bklumper@4businessonly.net.
While relatively new to the mortgage industry, Interest in application programming interfaces and microservices is soaring. These system-to-system technologies have the potential to tremendously enhance communications between lenders, technology vendors and service providers, much better than the traditional, large-scale integrations to exchange data between monolithic systems that are in use today.
Sadly, however, most systems now being connected through APIs and microservices today aren’t speaking the same data language. As a result, they’re often making communication worse, creating unpredictable timing, complicated processes, additional validation steps and lower data quality. In fact, most API integrations are contributing to record high loan production costs—costs that are ultimately passed on to the consumer.
The best and most obvious way to correct this issue is to apply existing common data standards toward APIs and microservices. The good news is that MISMO has already created a common data language that is used by practically every entity in the mortgage industry. Leveraging existing MISMO standards towards APIs and microservices would not only make mortgage lending most cost-efficient, it would improve the consumer experience as well. But to get there, MISMO needs help.
APIs: A Promise Unfulfilled
While APIs have been used throughout the business world for some time, they are still somewhat new to mortgage lending, due in part to the complex nature and numerous parties involved in producing mortgages.
For those not familiar with how they work, an API is a design that allows the exchange of information between systems. Ideally, they provide clear specifications for data requirements that enable data to be sent and authenticated securely between different parties. Similarly, microservices are more specific, self-contained applications for exchanging data that are used for single tasks, such as returning a borrower’s bank account information or property tax data. One application could use multiple microservices to perform a complex task, with each microservice having its own API that defines the data that is being exchanged.
When they are designed well, APIs and microservices improve the speed and accuracy of information shared between different parties in the mortgage process. They also help lower the time and cost of transactions and can be adapted for different uses and tasks. Ideally, they also improve the borrower experience by allowing information to be requested and retrieved in almost an instant, regardless of the device being used. And they are very flexible—using APIs, a loan origination system (LOS) could integrate with an unlimited number of third-party service providers, from mortgage insurance companies, appraisal providers, title companies and more.
The primary goal of all APIs and microservices is interoperability—or the ability to share information in a uniform manner while removing friction from the process. Yet for this goal to be realized, different systems must be able to speak the same language. And this can only happen through standards.
API and microservices standards can be found in other technologies, such as smartphones, which use standard data and Internet protocols to exchange information consistently, regardless of whether you’re using an iPhone or an Android device. But there are no such standards when it comes to APIs and microservices in the mortgage industry.
One of the reasons for this is that many new technologies and software applications are running on proprietary systems, all with different means for communicating information. The providers of these systems are increasingly using APIs and microservices. Because there are no API standards, most are communicating information differently, which increases the time and cost to implement and slows down efficiency.
Frequently, this situation manifests itself when a lender is working with several different service providers. For example, many lenders work with multiple mortgage insurers, hazard and flood insurers and title companies. A lender could work with any combination of these providers on a particular loan. If it is possible, they may want to swap out one provider in favor of another as needed. But because the systems used by these providers all communicate differently, it’s not easy to do. Often it creates more legwork behind the scenes, such as the need to manually retype or reenter information in the LOS, which slows down the process and increases the risk of errors on the loan file.
The absence of API standards has created a lack of standardized interoperability between different systems throughout the mortgage industry. This in turn is contributing to an increase in new mortgage origination costs have never been higher than they are today. Recently, the Mortgage Bankers Association found that it costs the average retail lender more than $10,000 to originate a first mortgage loan. These costs are not only too high, they are completely unsustainable. Our industry has been built on technologies that were supposed to cut costs and “streamline” mortgage lending. In reality, we’re moving backwards from this goal.
Benefits of Speaking the Same Language
Without API standards, the mortgage process will continue to become harder, not easier, and ultimately hurts the consumer experience. This is not unlike the mortgage industry’s struggles 20 years ago, before the advent of a common data language, when software companies were all developing their own proprietary languages and protocols. While the Internet has opened up enormous opportunities for APIs, it has also led to wildly different ways of sharing data which makes communication harder and adds costs to a lender’s overhead.
Ultimately, it hurts consumers too. Younger generations of homebuyers are increasingly demanding a faster, easier and more consistent customer experience similar to what they receive from Amazon, Uber and other types of consumer services. Without a common data language for APIs and microservices, mortgage industry participants will continue struggling to provide the type of experience consumers demand and expect.
As APIs have grown, a growing number of mortgage executives, business leaders and even software vendors have all said they want these systems to “talk MISMO.” Creating API standards that work for all parties would improve the consumer experience, reduce costs and fully realize the benefits of current and future API technologies. When accompanied by guidelines and technical components, such standards would ensure interoperability between the increasing number of systems being deployed in the mortgage process today.
Standards would also enable interactions for the same service from different partners, such as mortgage insurance, appraisals, title insurance and more. In the case of mortgage insurance, for example, API standards would ensure that if one mortgage insurance provider doesn’t have the right product, the lender can easily switch to another provider without having to use a different system while still getting information back in the same data format.
How You Can Help
Recognizing the need for API and microservices standards, a growing number of mortgage industry participants are coming to MISMO looking for help. Fortunately, MISMO is already working to define what MISMO data looks like in an API environment.
There are good reasons why MISMO is the ideal place for the industry to collaborate on API standards. MISMO’s current products have given the organization a head-start in standardizing APIs for common business processes. For example, there are MISMO’s Logical Data Model, Logical Data Dictionary and Business Reference Model, which can be leveraged to create API standards for common business processes. MISMO’s JSON Development workgroup is creating standards for all types of API for microservices, including handheld devices. MISMO’s Decision Model and Notation models could be adapted for microservice APIs as well.
MISMO also has a 20-year history of industry collaboration under its belt and of creating unique environments where business executives and technology experts can meet and work together on a level playing field to solve common challenges. As the industry’s standards organization, MISMO has been the source of dozens of lending, servicing and appraisal standards and best practices that companies of all types of been able to agree on. And MISMO is capable of providing a level of expertise, connections and resources that is unequaled in the industry.
Between the standards MISMO has already created or is in the process of developing and the collective wisdom and expertise of MISMO members, MISMO is primed and ready to tackle this issue. But MISMO needs your help. It’s critical to get as many different voices participating as possible to make sure the standards created for APIs and microservices work for everyone.
To complete its work, MISMO now needs to hear from mortgage executives and business leaders to better understand their business challenges and issues they are seeing with APIs. And because APIs are growing a rapid rate, time is of the essence.
To add your voice to the mix and ensure your concerns are heard, we urge you and your organization to collaborate with MISMO today. To learn more, visit MISMO’s JSON Workgroup page at http://www.mismo.org/get-started/participate-in-a-mismo-workgroup/json-dwg- or contact MISMO at info@mismo.org.
