New Mortgage Data Standards Could Transform Counseling for Homebuyers, Homeowners, Lenders and Investors

By Sarah Gerecke and Janneke Ratcliffe

This post was originally published on Urban Wire, the blog of the Urban Institute.

Each year, 4,000 certified housing counseling professionals provide free or low-cost guidance to around one million households, serving as bridges between families and the increasingly automated and impersonal financial system. These counselors teach people to navigate the purchase of their first home—perhaps the first one in generations—and help homeowners stay on track with payments and avoid foreclosure.

Unfortunately, the data systems housing counselors use don’t interface with those of lenders, state housing finance agencies, loan servicers, and others involved in the mortgage process. But new data standards and datasets from the Mortgage Industry Standards Maintenance Organization (MISMO) can change that and enable both counseling providers and lenders to serve more households more effectively.

Data standardization might not seem earth-shattering, but this new initiative could be transformational once it’s finalized, incorporated into the client management systems housing counselors use, and added to lending and servicing system upgrades.

What are the new data standards?
Founded by the Mortgage Bankers Association in 1999, MISMO seeks to standardize how the mortgage industry communicates and to accelerate a fully digital mortgage process. Since then, MISMO has promoted standards for mortgage applications, appraisals, closing, securitization, compliance, and more. MISMO working groups develop datasets and specifications that are approved by a vote among the 350 MISMO members from all corners of the mortgage industry. According to MISMO, the use of its standards lowers per loan costs, improves margins, reduces errors, and speeds up the loan process.

Recognizing the role of counseling in the mortgage lifecycle, a MISMO working group developed the Housing Counseling Dataset Specification initiative, which is undergoing review now. When finalized, these standards could improve the residential mortgage experience for homebuyers, homeowners, governments, lenders, and investors by making housing counseling a digitally seamless part of the homeownership experience.

What do housing counselors do, and what data challenges do they face?
Policymakers have relied on housing counselors to address or prevent housing instability under all kinds of circumstances, such as the 2008 financial crisis, the COVID-19 pandemic, and numerous natural disasters. According to MISMO, housing counselors are trained, certified professionals who provide services to help individuals and families achieve their housing goals in a way that meets their individual needs and financial circumstances. They help people improve their credit use, increase their savings, learn how to shop for a home and a loan, and understand how to prevent delinquency and foreclosure.

Research has found that housing counseling and education have positive outcomes for homebuyers, homeowners, and renters, helping them create customized solutions to address housing barriers and achieve their mortgage goals.

Still, these counselors face major data challenges that make it harder for them to effectively serve borrowers. Without common data definitions, specifications, and interfaces, counselors must solicit and manually enter household demographic data, property data, and financial and other critical information into their own files and accurately convey them to lenders. Similarly, evidence that the household has completed counseling or education—which is often required for down payment assistance—is too often sent manually, creating more work for the consumer, counselor, and lender.

Despite evidence showing that counseling can greatly reduce the risk of loss from delinquency and foreclosure, housing counselors’ systems aren’t connected with lenders’ systems. That means counselors have no way of knowing how borrowers are making progress or falling behind on their loans. In addition, lenders have no way to know that the client is working with a counselor who can help address issues the lender identifies. As a result, when counselors report outcomes of housing counseling to the U.S. Department of Housing and Urban Development, they can’t link those outcomes to loan performance—and an important resource for the borrower may be overlooked.

How could new housing counseling data standards improve the mortgage process?
The Housing Counseling Data Specification initiative would, for the first time, standardize and collect data points related to housing counseling so lenders and housing counselors can efficiently and securely access counseling information throughout the life of a mortgage loan. The standards and specifications will have three major benefits:

• Improved communication between counselors and lenders. Housing counselors, originators, and servicers will provide a better experience to the consumer by streamlining and automating communication between lenders and counselors. In turn, the cost of origination and servicing should decrease.

• A longer time frame for mortgage data tracking. For the first time, loan files can contain data about the borrower before loan application. Many borrowers consult with a housing counselor weeks or months before they submit a loan application. Similarly, counselors will have information about the borrower’s experience through the entire lifecycle of the mortgage and can intervene to help prevent delinquency and foreclosure.

• New ways to use research to confirm the efficiency, effectiveness, and value of housing counseling. For example, the new specifications will allow investors to measure the savings generated by counseled homebuyers compared with homebuyers who didn’t receive counseling or education.

Once the data standards are adopted and published by MISMO, lenders and housing counseling agencies, local governments, down payment assistance providers, investors, and loan servicers should adjust their systems to conform to the new standards. This will primarily take the form of software upgrades, without requiring changes to the counseling or lending process flow. Support for the MISMO efforts by counselors, lenders, government and investors will, in turn, improve the mortgage process for prospective homebuyers and current homeowners. The benefits will be significant—and measurable.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)