Data Standards are Critical for the Mortgage Industry’s Digital Future

It is widely acknowledged that consumers have become accustomed to digital experiences provided by companies like Amazon and Apple and expect similar interactions in other aspects of their life. It is no surprise then that borrowers are looking for a modern digital experience in pursuing mortgages. Our industry has not been at the forefront of digitization, but the increasing pressure points on the industry mean holding back is no longer an option.

The recent growth of financial technology (fintech) firms means greater competition from businesses that offer customers a better user experience and increased transparency. To remain competitive, the rest of the industry needs to digitize from the ground up — and that starts by embracing data standards.

Legacy lenders in a fintech world

It's been nearly a decade since fintech companies began showing up with technologies that simplified processes and integrations. More recently, new companies have come into the mortgage technology market, taking business away from the traditional players. In fact, due to diminished returns and increased uncertainty, some lenders and service providers have exited the industry completely.

The current mortgage origination processes used by traditional lenders require a lot of manual effort and often lack transparency for borrowers. As the market works to catch up to the demand of digitization, fintech firms are gaining an increasing share of the market — in 2017, four of the top 20 mortgage originators were fintech lenders.¹ Their success is due at least in part to providing solutions that often result in a better, faster customer experience.

Data standards matter

The thought of innovating may seem daunting to traditional lenders dealing with margin compression, a shrinking talent pool, and process inflexibility. However, lenders that want to stay alive and competitive in the industry must face the challenge to digitize their processes. Basing digitization on industry-wide data standards improves functionality and communication across systems and organizations, and can help enable replicable, scalable solutions to achieve business objectives.

Data standards aren't foreign to the industry: The Mortgage Industry Standards Maintenance Organization (MISMO^®) has been around since 1999. MISMO standards provide a common language for industry participants, improving consistency, quality, and interoperability within the industry. For example, the MISMO-based Uniform Appraisal Dataset enabled digitization of appraisal reports, which in turn significantly strengthened industry management of collateral risk.

Moving forward

The mortgage industry is also exploring additional connections made possible by data standards, such as using them across the broader financial system to help lenders and investors share information to help them make more informed decisions. This approach can reduce both loan risk and the work required for a borrower to share financial documents, which ultimately could result in a better customer experience.

To learn more about the importance of data standards in the mortgage digitization journey, read our white paper.

Prabhakar Bhogaraju
Vice President, Digital Shared Services

October 15, 2019

¹ Mortgage Bankers Association analysis using 2017 Home Mortgage Disclosure Act (HMDA) data.