If the Mortgage Bankers Association can pull it off, the information flows of the mortgage industry will never be the same. But there is a long way to go before the MBA can declare success in its bid to coordinate the information demands of Fannie Mae, Freddie Mac and Ginnie Mae.
At the MBA annual convention last week, its Inter Agency Technology Committee announced the intention to consolidate the information forms of the three agencies, and, working through the MBA, coordinate all changes to future information demands, particularly the pending dramatic expansion of information requests.
The announcement comes just one year after the MBA Board of Governors established the committee and directed it to standardize the delivery and reporting of loan information to the secondary market, with the ultimate objective the expanded use of electronic data interchange.
The ambitious project is expected to have wide-ranging impact on the industry:
* Originators and servicers will no longer need to maintain multiple data files for the agencies. The result will be a dramatic savings in back-office costs.
* The volume and detail of information that could flow out of the industry will have a salutary effect on managing portfolios. One hitch, though, is the expanded information could be troublesome if politicians hammer the industry with the new information.
* The MBA, faced with the diminished importance of its lobbying to the less important federal agencies, will thrust itself into the center of day-to-day information flows for everyone in the market--not just members.
* Software vendors will sell fewer updates but will be able to focus on new applications. The result is likely to be a consolidation of a business where no single vendor has a dominant market share.
* Far down the line, if everything works, the improved quality of information should even make the secondary market more efficient.
First Steps
The first task is fairly modest and, therefore, should be doable. The interagency committee is now working on merging the data fields from all three agencies on one superset form.
If, for example, Fannie, Freddie and Ginnie are each looking for 40 different pieces of information, a new data form could have as many as 120 fields. Only 40 will be filled out for data going to one agency, but by creating a single form, the data bases can be consistent. It is certain that the superset form will reduce the fields somewhat.
Real gains will be had when the interagency committee can agree on definitions for common fields and the data set can be made more consistent across agencies. The trickiest area is likely to be product definitions. Fannie has some 1,000 definitions, Freddie probably the same. Each is just slightly different. The list grows with each new brainstorm by the marketing department or new desire by a customer.
An MBA official on the interagency committee observed that while there may be some consolidations of definitions, reducing the flexibility of the agencies to create new products is not the point of the exercise. Rather, the interagency committee will seek to create a common language.
Beyond the increased information, the most to be gained is a sharp improvement in the quality of information. Getting it all done will be complex and costly.
Common language aside, the agencies are still fierce competitors, especially Fannie and Freddie. According to Laurence Burden, Freddie Mac's senior vice president/information systems and services, the coordination of information flows will not change the basic nature of the competition between Fannie and Freddie.
"We compete on technology," Burden said. The new data won't change that.
The agreement marks an important transition for the role of the MBA in the marketplace. In the past decade, Wall Street has surpassed Washington as the center of developments in the mortgage market. "Housing policy" is no longer a dominant theme on the political landscape (affordable housing issues aside). Even if Bill Clinton is president, that is unlikely to change. As a result, the MBA's role in keeping members abreast of developments in Washington and lobbying for favored policies at HUD, etc., has become less vital.
By spearheading the technology interagency committee, MBA has thrust itself back into one of the most important issues in the mortgage market by becoming a key component in the day-to-day operations of all players, regardless of whether they are members of the association.
One of the most important of the interagency committee's promises is the coordination of changes in information requirements. Whenever an agency wants to make a change in response to a new idea or in reaction to a new regulation, its representatives will discuss it with the interagency committee.
Then, only twice a year--the MBA is very insistent on consolidating the changes--the groups will announce the changes and coordinate their communications. Asked if the MBA will take the lead in communicating change, officials said the details were far from concluded. However, the interagency committee informally agreed last week that all parties would have to be involved in communicating changes. The interagency committee's job would be to ensure that communications were consistent and complementary.
Vendor Consolidation To Come
Standardization and coordination will be a bittersweet development for software vendors. On one side, there is the inevitable fact that software companies profit well by selling solutions to chaos. Frequent changes and multiple information formats require frequent updates. And many small companies have been able to find a niche by offering solutions to a subset of the current multiple formats.
"Updates keep the money coming in, and changes help us build an ongoing relationship with customers because they rely on us to keep them up to date," said one vendor on the convention floor.
But standardized information, and perhaps more importantly, coordinated changes to the current information flows, will lessen the demand for the role vendors play in keeping everything straight for their beleaguered customers. The result will be a greater focus on developing more sophisticated software.
If the MBA interagency committee can simplify formats and coordinate changes--and actually keep changes to twice a year--vendors will have the opportunity to focus on development. The result will be a new, currently elusive opportunity--seeking to build a dominant package that could capture a significant market share if sufficient capital can be applied to the task. No single vendor dominates the market, a situation which is very likely to change.
