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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   June 2005

Get to know MISMO

c_2005-06_Szparaga_spotA new word is about to enter the lexicon of commercial-real-estate finance, joining terms such as mezzanine financing, defeasement and conduit. MISMO is a word that describes a major technological revolution in the way the industry operates. In the future, originators, lenders, servicers and third parties will use it throughout all phases of their operations.

What is it?

MISMO actually has two definitions. At its literal level, MISMO is an acronym for Mortgage Industry Standards Maintenance Organization, a nonprofit subsidiary of the Mortgage Bankers Association (MBA). It establishes data standards for firms to use when sending information to each other. More than 1,500 employees from nearly 200 firms helped create data-transfer protocols under MISMO’s umbrella. Encompassing the residential and commercial industries, MISMO uses the broad reach of the MBA, a trade group, to touch all sectors of both markets.

The second meaning of the word MISMO is as an adjective. It describes the standards that the organization maintains and the way that they are created. MISMO is a brand that describes the open method in which the content of the standards is constructed. It is synonymous with “input from everyone in the commercial and residential industries.”

Why now?

Technology plays an increasingly large role in the mortgage industry. On the residential side, firms have used technology to connect themselves into large networks that have accelerated the entire lending process. The vast majority of brokers, originators and lenders now use loan-origination systems. These systems not only analyze potential loans automatically but also streamline the manual processes of ordering credit reports, gaining appraisals and other details needed to turn a loan from an application into a done deal.

Data movement is the lifeblood of these networks, but there are many potential inefficiencies, such as inconsistent data formats and proprietary system structure. MISMO provides a powerful and flexible format for moving data efficiently through these networks. Think of it as oil for the vast machines that make residential loans.

On the commercial side, the complexity and variations of typical commercial mortgages historically have defied standardization. Technology, however, has played a greater role in accelerating the analysis part of the lending process. The degree of technical interdependency between commercial firms is far less than in the residential industry. Firms have found it easier to deliver paper to their trading partners than to develop systems to sling bits of data between them reliably.

MISMO’s data standards, however, are changing this. The standards will bring efficiency to the operational aspects of commercial lending.

What exactly does it do?

MISMO doesn’t write software or build programs. It does establish common data formats that all firms can use when sending and receiving information electronically. These common formats are known as data standards. While MISMO has issued more than 30 of them for use throughout the residential industry, MISMO’s first commercial standards are planned for release this fall.

Data standards are a set framework by which firms agree to exchange data. There are three components to data standards:

  • Specification: A set of protocols for specifically sending or receiving data.
  • Architecture: The technical framework for building these protocols. 
  • Data dictionary: The comprehensive listing of the specific data points used by all the protocols.

MISMO’s data standards are available to the industry on its Web site at Firms that wish to use the standards access them from the “current specifications” page and download a free copy. They integrate the standards into their various systems and applications.

This isn’t plug-and-play technology — firms need to do some engineering to embed the standards into their applications and databases. But because MISMO standards are written in a data format known as XML — Extensible Markup Language — they can be used with virtually any system or database, and even with Microsoft Excel and Word.

You don’t need a computer-science degree to understand or use XML. Based on the same markup-language technology used throughout the Internet, it is similar to HTML, the language used to build Web pages. The difference is that XML formats data, whereas HTML formats data’s appearance. This is not new technology; data formats long have been at the core of information technology. Historical data formats have been rigidly structured and not easily modified. XML liberates data from the realm of the machine, which makes it flexible and human-readable.

What is next?

MISMO’s standards are developed by individual work groups that concentrate on individual aspects of the mortgage-lending process. They cover the commercial and residential industries. For example, MISMO has a Commercial Originations Work Group and a separate residential one. The commercial-data-standards effort operates side by side with the residential one. Both use common data structures where possible but focus on solving each industry’s data-transfer needs.

MISMO also is the forum in which the mortgage industry is working collectively on the next big technical advance — the electronic mortgage. Initially, it could seem like a bit of an oxymoron that the mortgage document itself can be transformed into an electronic file. After all, a borrower needs to sign a mortgage in ink. That mortgage needs to be recorded in the local government’s property-records office so it can be tracked by any interested party.

But there are tremendous costs in a paper-based industry. These costs can be seen as inescapable fixed costs, unless there is a compelling and realistic alternative: electronic mortgages, or eMortgages. Since the passage of federal legislation in 2000, hundreds of eMortgages have closed through experimental pilot programs nationwide. Last summer, a few lenders opened these pilot programs to the broader industry, and they closed the first mainstream eMortgages. The day is coming when the choice at closing will not be “paper or plastic” but rather “paper or electronic.”

•  •  •

Ultimately, MISMO reduces costs, streamlines processes, improves accuracy, increases data transparency and boosts investor confidence in mortgages as an asset class. The current state of business processes in the commercial industry — using paper and the manual entry of data into systems — is stable but inefficient and costly. Turning to a set of e-commerce applications based on a common data-interchange framework will significantly alter these structural features of the industry.

In the past decade, technology has played a major role in revolutionizing the way industries throughout the nation remain profitable. The mortgage industry is undergoing a similar revolution. The data-standardization effort known as MISMO is at its center.


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