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.

 

 

Dancing with Data

August 8^th & 9^th I had privilege of participating in an event entitled “Reengineering the Appraisal Process – A Return to Fundamentals”.  The conference, co-hosted by the Collateral Risk Network and the American Enterprise Institute in Washington DC, was attended by nearly 200 folks on-site as well as streamed live over the web.  The videos and presentations are available  at http://www.aei.org/events/2012/08/09/reengineering-the-appraisal-a-return-to-market-fundamentals/.  My comments were delivered as a part of Panel VI, “Reengineering Plan” as I am leading a subcommittee on data and technology for the CRN workgroup on appraisal reengineering.

A topic that received a lot of air play at the conference was the concept of confidence scoring of data.  In order for that idea to be feasible, the data to be scored must be unambiguous and the source of the data verifiable.  The MISMO version 3.2 Reference Model provides the necessary framework to bring an idea like that to life.

I feel strongly about the importance of open data standards and, many of you know me as “Ms. MISMO”. To that end,  I am happy to say that the MISMO Candidate Recommendation v3.2 Reference Model was posted August 8th to begin the obligatory 30-day Intellectual Property Rights (IPR) comment period.  This one has been a long time in the works!

Get it here:  http://www.mismo.org/Specifications/ResidentialSpecifications.htm - be
sure to scroll to the bottom of the page after selecting 3.2 in the table at the top of the page. 

New with this distribution is an official Release Notes document that highlights the enhancements and corrections in the new release of the Reference Model.  For the world of Property & Valuation Services Workgroup (PaVS), this release contains the final reconciliation of UAD items as well as several new data elements aimed to improve appraisal analysis and reporting.  The PaVS team has also added definitions across all of our interest areas.  And, since no moss gross under the feet of the PaVS!  We have a list of 75 new items that are being submitted to MISMO Core Data Structures committee later this month for approval and inclusion in the next release of the MISMO Reference Model, v 3.3 slated for the end of the year.

A new item on the horizon from the broader data standards community is the concept of a uniform property identifier.  This is an idea forged by the Electronic Commerce Code Management Association (ECCMA), an open standards group that has brought together thousands of experts from around the world and provides them a means of working together in the fair, open and extremely fast environment of the Internet to build and maintain the global, open standard dictionaries that are used to unambiguously label information.

The existence of these dictionaries of labels allows information to be passed from one computer system to another without losing meaning.  I am convinced that the on-going coordination and collaboration of open standards groups is vital to the long term growth of sustainable information exchange.

The ECCMA Natural Property ID (NPID) as applied to real property can truly be a galvanizing solution that can benefit all industry segments.  NPID would be generated from an algorithm built and maintained as a free, open standard.  Here are the highlights from my presentation:

• A federalized numbering system that could be adopted by all jurisdictions that eliminates the basic challenges in property identification.
• Use a spatially-aware, non-proprietary mechanism from a standards body like ECCMA International to provide a formula so that the number could be calculated and matched to GPS coordinates.
• Addresses both ground space and unit space.
• Objective of the number is to represent the actual location boundaries in any satellite image using GPS coordinates. 

What would this mean in the real world sense?  The ability to pinpoint a condominium unit on an interior floor of a high rise!  We could eliminate the reliance on the USPS as the only common, easily-accessible property location identification and end the tug-of-war calls between appraisers and clients over the “true” address of a property.   Seems like a no-brainer!

 

MISMO Preparing for the release of v3.2

I've been doing a lot of thinking about the next version of MISMO lately, partly because I chair a workgroup, but also because I just wrote a guest post about it for Tony Garritano’s Progress In Lending blog:  http://progressinlending.com/blog/2012/07/23/the-robustness-principal/#null

The main point of my post is about the power of a common reference for terms and definitions that can be used across the enterprise.   Its fairly well known that MISMO can improve communications between trading partners.  But, it can also be used internally to be the universal or master data layer between multiple systems and between departments.  Many organizations struggle with a lack of data quality and consistency. There's also usually minimal data governance and little collaboration between IT and business units. MISMO can provide a significant boost in designing and developing data strategies that stay pace with regulatory changes and technology modernization.  Why start from scratch when you can apply the benefits and strength of industry collaboration?

I'm always interested to hear what you have to say.  Please comment below.

RESPA & the Appraiser Full Fee Controversy

The news of the Supreme Court ruling yesterday in favor of Quicken in the case Freeman v. Quicken Loans is, I believe groundbreaking not only for the contentious topic of transaction fees for real estate agents and brokers.  But, it is also a precedence-setting decision relative to the topic of appraisal management fees.  Specifically, I feel it is yet another testament as to why appraisal management fees should be disclosed separately from the appraiser’s fee.  Two separate services, both provide legitimate consumer benefit and both should be paid in full to the provider of said service.  The CFPB apparently also sees merit in this concept and has indicated them separately on the samples of their two draft Good Faith Estimate Disclosure templates under consideration.  

Since the promulgation of the Interim Final Rule, and perhaps to please a few national lenders, a few more AMCs have jumped on the band-wagon of a cost-plus (appraisal fee plus management fee) business model.  This fits the potential new disclosure requirements of the new GFEs under consideration.  But unfortunately, many AMCs still cling to limited, self-serving interpretations relative to unearned fees and controlled business arrangements which have origins that predate Dodd-Frank.  While these concepts, although clarified and expanded are in the latest Interagency Appraisal Guidelines, the original mindset still persist.  Further adding to this debate are the RESPA 2010 rules that add capped tolerance provisions for fee changes between initial disclosure and settlement.   And, the less publicized permissibility of an Average Fee for certain third party provided settlement services.  

Timely to the topic is a new white paper, "AMC Full Fee Hypothesis" by Jeff Schurman and Rick Grant also released yesterday, which explores the AMC fee controversy in a well-written and reasonable way.  Ironically, the industry's use the term “full-fee” seems to imply that those AMCs that pay the appraiser only a portion of the appraisal charge passed on to the consumer would be in violation of RESPA.  In fact, when the appraiser accepts an assignment, he is also accepting the fee offered.  Whatever that agreed to fee is, would actually be considered a “full-fee” for that portion of the process.  This is what fuels the debates around Customary and Reasonable Fee language implemented by the Interim Final Rule into TILA.

Some would say the real nature of the controversy is that disclosing AMC fees separately would expose business models and competitive details that most AMCs would prefer to keep private.  However, without such transparency, appraisers are being pushed by a new kind of pressure:  not the kind that attempts to influence the appraiser to deliver a value that meets the “target”, but rather, to deliver a high-quality appraisal report for a fee that is ridiculously low and unfair.  This is driving a mass exodus of qualified and competent appraisers out of the profession.  Appraisers are experts trained to measure value, including the value of their own services.  A lack of competency in the ranks not only harms the public trust but, it severely cripples the profession further by not being able to sustain apprenticeships for incoming candidates attempting to meet licensure requirements.

The appraiser is a critical, independent third party in the health and well-being of the real estate economy.  We cannot afford to allow them to become extinct.

QM & Reporting Availability of Financing

There is a lot of talk about the Consumer Finance Protection Bureau’s (CFPB) upcoming rules on the Qualified Mortgage or “QM”.  Most recently, a group of 33 trade groups from the financial services and housing industry sectors penned a joint letter to the CFPB.  They are advocating for a rule structure that includes a broad definition of QM and safe harbor language. 

"Our purpose is to reiterate our very strongly held view that the QM should be structured as a legal safe harbor with clear, well-defined standards," the trade groups wrote. "The standards must embody requirements for safe mortgages for consumers and specify the grounds on which there can be litigation or enforcement action as to whether those requirements have been met.” 

As I have read through the various news bulletins on this topic, I started thinking about what the QM would mean in the Appraisal Process.  Specifically, the appraiser’s ability and prowess in reporting the availability of financing and what the possible implications will be.

The QM Skinny

Dodd-Frank defined QM under “Ability to Repay”  which prohibits mortgage lenders from making residential mortgage loans without regard to a borrower’s ability to repay the loan.  Failure to comply would carry significant penalties to lenders that could last the life of the loan. The final QM rule from the CFPB is expected this summer and it is anticipated to clarify both the QM qualification requirements and the presumption of compliance details.  There are two hot button topics in the pending QM definition that are of interest to both consumer advocates and the lending industry: fee caps and down payment minimums.   

Down with Down Payments?              

On the surface, the argument seems fair and balanced. Mandatory rules for "high" down payment requirements would arguably cut-out a good number of credit-worthy home-buyers.  But, isn’t a lack of “skin in the game” a hallmark symptom of the borrowers who found themselves in distress as the markets turned downward?  Its also interesting that a 20 % down payment was considered an underwriting basic.

Snowy Fee Caps on the Horizon

Secondly, and perhaps a more worrisome detail to certain members of the industry is the cap on fees.  The new standard mandates that a mortgage cannot have points and fees that are more than 3% of the loan amount.  However, the trade groups argue that the 3% limit would restrict the availability of affordable mortgage credit as the fees are too low and would eliminate incentives to lend. Especially disconcerting to certain parties is the loss of revenues associated with “high cost/ high risk” loans where higher fees and rates are charged to compensate for potential losses since the borrower may default as he is “higher risk”. 

Double Bubble

On the other hand, defining QM too narrowly would have a whipsaw effect and throw many of today's loans and borrowers into the non-QM markets, putting lenders and investors at a high risk of an “Ability to Pay” violation.  As a result, it is unlikely that these loans would even be made and if they are they will be far costlier, burdening those families least able to bear the expense.  In addition, these higher priced loans would NOT be exempt from including important protections against the very practices and loan features that drove the highest failures in the mortgage boom, features that are defined by the QM. Which of course would add more cost.

Availability of Financing

But back to my original thought, the impact of QM to the residential real estate appraiser in the field.  The appraiser is supposed to report on the availability of financing in the market for the subject property as a factor which may indicate the reasonableness of buyer/seller activity.  Will QM have the protective features its authors hope and thereby be a stabilizing force?  Or, will QM be as illusive of a factor in reporting present market conditions as equity-takeout refinances were during the boom?  And, even if it reported by the appraiser, will the underwriter recognize the merit or relevance of the QM market activity to the transaction being adjudicated?