MISMO Fundamentals Webinar

I am looking forward to teaching Lesson 2 - Logical Data Dictionary (LDD) in next week's education series on MISMO fundamentals.  This is a great way to get  introduction to both the organization and the basics concepts used in the MISMO Standard Reference Model.

There is still time to REGISTER!

This course provides a solid foundation for both business and technical users of the MISMO standards.  View my press release.

Follow up your course by attending the upcoming MISMO Summit, September 23-27 at the Renaissance Arlington Capital View Hotel in Arlington, Virginia. Click here for more information.

Whether you are new to MISMO or have been wondering what its all about. These two events are worth your consideration.   Look me up and let's say hello.  I would be pleased to make your acquaintance!

GISMO

Did you catch the reference to MISMO (along with the Common Securitization Platform) in the Republican bill - PATH Act approved last week by the House Financial Services Sub-Committee? 

The bill is being hailed as the solution to wind-down of Fannie Mae and Freddie Mac, limit the government’s role in the mortgage market and bring private investors back into the mix.  There are similar tones in the bi-partisan Senate bill (Crocker-Warner) released 6/25.  The later however involves a specific plan for a government guarantee.

But what really has caught my attention is the mention of data standards.  And, I have to say that while I am delighted that MISMO was recognized, it is how MISMO is mentioned that I find troubling:

Page 174 - of the current draft of the bill states that the utility will consider our work:

(k) DATA STANDARDS; DISCLOSURE STANDARDS.—

(1) DATA STANDARDS.—The Utility shall develop, adopt, and publish standard data definitions for all aspects of loan origination, appraisals, and servicing. In developing such definitions, the Utility shall consider the data standard-setting work under taken by the Mortgage Industry Standards Maintenance Organization through the enterprises’ Uniform Mortgage Data Program announced by the Agency on May 24, 2010.

Two key things jump out to me.  First, that “the utility” shall develop, adopt and publish standard data definitions for all aspects…  And secondly, that the "MISMO work" is to be considered through the lens of the Uniform Mortgage Data Program (UMDP).

But the Mortgage Industry Standards Maintenance Organization (MISMO) is so much more than the limited subset of data that has been identified for use in UMDP! MISMO has been around since 2000 with a mission to promote and support the common business interests of the Commercial and Residential Mortgage Markets. Its mission is to benefit industry participants and consumers of mortgage and investment products and services by: 

• Fostering an open process to develop, promote, and maintain voluntary electronic commerce procedures and standards for the mortgage industry, and
• Enabling mortgage lenders, investors, servicers, vendors, borrowers, and other parties to exchange real estate finance-related information and electronic mortgages more securely, efficiently and economically. 

Open standards organizations operating with proper governance ensures that no one single entity can dominate or control how the standards are developed. By definition, open standards are democratic in nature and are powered by volunteers.  And, I believe open data standards are the key to creating and maintaining the transparency that is absolutely essential to the recovery of the housing industry and fundamental to restoring and improving the US economy as a whole.  

My feelings about MISMO come from first-hand experience as one of many hard-working volunteers who have contributed blood, sweat and tears to this important industry effort over the years.  Many of my friends and colleagues tease me about how passionate I am about open data standards and data in general.  I even have a nickname, Ms. MISMO.  But fun aside, I view this as very serious business. Data, and more precisely, open data standards drive transparency, accuracy and legitimacy through the use of a common language.  As an open data standard, MISMO represents tens of thousands of cross-industry man hours in the biggest, most comprehensive mortgage dictionary ever created and supports business definitions across loan origination, settlement services, secondary marketing and servicing.  We are so much more than just a single implementation, or business requirement like UMPD.

And that’s why the language in this new bill has me a bit…well, concerned.

In 2008, at the tipping point of the credit crisis, Fannie Mae and Freddie Mac were taken under government receivership.  Today they are earning record profits and now own or guarantee more than half of all outstanding residential mortgages in this country.  They are essentially the only game in town for securitization these days as private capital has yet to return to the mortgage game in any real way.  Kudos to these recent housing reform bills for attempting to fix this unintended monopoly.     

The other related draft legislation that mentions data standards is in the bi-partisan Senate bill (Crocker-Warner) released 6/25.  Unfortunately, no mention of MISMO specifically in that one, just UMDP.  See page 98 under the discussion about establishing a national mortgage database:

“(b) CONSIDERATIONS.—in establishing the database Required under subsection (a), the Corporation shall take Into consideration, build upon, and adopt to the extent the Corporation determines appropriate, the existing data Standards set forth under the Uniform Mortgage Data Program initiative established by the Federal Housing Finance Agency.” 

But back to data! Thanks in part to the results of the Uniform Mortgage Data Program, mandated by their regulator, the Federal Housing Finance Agency, in May of 2010, the enterprises have gained enormous data stores as a result.  And, MISMO provided the baseline data structures to support their new data policies:  version 3.0 for loan delivery, version 2.6 for appraisal and the upcoming version 3.3 for mortgage servicing and loan disclosures.   In fact, in 2010 is when MISMO released its first consolidated dictionary under the version 3 series.  It represents a significant departure for single formats for individual requirements.  Version 3 and above represent a cumulative superset of data from which any type of data exchange requirement could be conceived and supported.

MISMO volunteers for the last three years have made significant contributions to the success of UMDP by providing the vehicle for the GSEs to bring their requirements forward for inclusion in the MISMO standard.  This means that MISMO volunteers have helped craft definitions, review submissions and include their business requirements along with the submissions of other businesses and requests well beyond just the realm of UMDP.

The question is: "What will the PATH Act and other housing reform legislation mean for MISMO if we are seen only as a UMPD vehicle?"  It could appear to the casual reader that MISMO could be swallowed up by the reincarnation of the GSEs as the Common Securitization Platform (CSP).  And if so, would we still have a viable open data standard that enables private enterprises and investors in the mortgage business outside of loans traded on the new CSP?   Maybe we just need a new name for the data standards referenced in the PATH Act: “GISMO”. 

The Inspection Debate - Part 1

I spend a lot of time working with data and services about real estate, valuation and collateral risk.   Current, accurate information about the property, particularly its condition has never been more important than in fledgling market recovery conditions, particularly with volume of distressed properties that are still looming in many markets.  I will be looking at some of the key topics related to property condition, valuation, data and technology for appraisers, lenders and consumers over the coming weeks and will share my findings and observations here.

To kick things off, let’s set the stage with two key components regarding property condition that were introduced as a result of the financial crisis and Dodd-Frank. 

Interagency Appraisal & Evaluation Guidelines – notes the need to document how  the condition of the property was determine, which is also a key criterion when an Evaluation is used in a lending context.

Federal Housing Finance Agency (FHFA) Uniform Mortgage Data Program/Uniform Appraisal Dataset, required by Fannie Mae and Freddie Mac, introduced standardized responses in the reporting of the appraisal including condition, quality of construction and status of remodeling or updating of the property.
 

The Uniform Appraisal Dataset (UAD) introduced standardized ratings for property condition that must be established by the Appraiser.  The standard ratings, C1 through C6, each contain a description of the criteria the Appraiser should consider.  And, the Appraiser is to establish the rating for both the Subject Property and the Comparable Properties in an absolute fashion (not relative).  If the appraiser then uses the rated properties in other assignments, the rating should not change.  At least not until there is another transaction on that property that “resets” the condition meter. 

This seems like a simple concept, condition affects value and marketability.  The process to assess condition, however, is increasingly being debated across the industry.  The controversy is top of mind for professional home inspectors.  The American Society of Home Inspectors are concerned that the UAD mandate for appraisers to assess condition but those appraiser in violation of state laws that govern what constitutes an inspection and who is qualified to conduct an inspection. 

Appraisers are bound by the Uniform Standards of Professional Appraisal Practice (USPAP).  In USPAP, Advisory Opinion 2 (AO-2) clarifies the purpose for inspecting property in the context of developing an appraisal as follows:  The primary reason for inspection of a property is to gather information about the characteristics of the property that are relevant to its value. 

According to Bill King, Director of Valuation Services at Veros, and a veteran appraiser out of Seattle, WA, the topic gets fuzzier because AO-2 use the expression “personal observations” of the appraiser in lieu of “ inspection”  in describing  the primary source of information regarding the subject property.   Bill has recently submitted a request to the Appraisal Foundation to amend USPAP to include a robust definition for inspection in the context of an appraisal assignment.

“There are many good reasons for defining “appraisal inspection” and a specific definition for “Appraisal Inspection” would serve appraisers and users of appraisal services alike by providing a meaningful distinction between what an appraiser does in the property visit and data gathering process compared with the more general definitions of inspection, as well as distinguish the appraiser’s inspection process from other specialized inspection types such as structural inspections, code compliance inspections, termite inspections and so forth” continued King.

Bravo Bill King for taking action on this topic and getting clarity regarding the appraiser’s role is an important first step in this multi-faceted and complex issue!   Later this year, the second wave of UAD “hard stop edits” on UCDP go in to effect and include:

• Condition rating (subject and comparable properties)

• Quality of construction rating (subject and comparable properties)

• Location rating (subject and comparable properties)

• View rating (subject and comparable properties)

• Subject and comparable address (including unit number for condominiums)

• Subject contract date and comparable property date of sale/time

In my next blog, I will explore inspection technology and data considerations, important for appraisers, lenders and consumers.