A controversy over communications standards in the mortgage industry may confuse, in the short term, discussions about the best way to exchange loan information electronically.

However, several industry observers said the heated dialogue that has developed between those who support proprietary communications and those who want a national standard should have a positive effect in the longer term.

The debate has "put the spotlight on the issue," said Tony Skipper, a manager of systems development at United Guaranty Corp., Greensboro, N.C. "I think its good for the industry."

At the heart of the discussion is whether the mortgage industry should adopt American National Standards Institute's X12 standard for automated computer exchanges of loan information among brokers, lenders, and others.

Many agree that a single standard for the electronic exchange of mortgage information makes sense. It would make processing loans quicker and cheaper for the industry as a whole.

However, not all support X12 as the best standard for the frequently changing classes of loan information.

Joseph Filoseta, a mortgage technology consultant at Resco Inc., San Diego, said the standard is used extensively and successfully in many industries.

However, noting the complexity of mortgage loan files, he questioned whether X12's acceptance in other industries is relevant to the needs of mortgage bankers. "Perhaps what we are doing is using the wrong tool for the job," he said.

Some supporters of proprietary communications, including Scott Cooley, president of Contour Software Inc., contend the standard has many drawbacks that "almost nobody addresses."

Mr. Cooley said highly complex mortgage loan data might not be suited to X12 because loans constantly undergo changes in many classes of information.

Supporters of X12, including Daniel R. McLaughlin of the Mortgage Bankers Association of America's technology committee, respond that proprietary standards "limit choices" and force customers to "bear the cost of mapping to each vendor's proprietary format."

For the most part, the debate has been stalled by the fact that many in the mortgage industry are reluctant or ill-qualified to participate in its resolution.

"The mortgage industry is unfortunately a bit behind," technologically speaking, said Mr. Filoseta.

William C. Manasco, a senior vice president at Source One Mortgage Services Corp., Farmington Hills, Mich., noted that, although the debate is illuminating for many, "the flip side is that a significant number of people are terribly confused to begin with. I'm just fearful that it might confuse them even more."

Barbara Smiley, a mortgage technology analyst at the Tower Group, Wellesley, Mass., said the wait-and-see approach many bankers have taken could result in even more confusion over what technology to embrace.

However, with many institutions eager to reap the benefits of a nationwide standard, mortgage bankers appear ready to play a stronger role in the debate.

They will inevitably determine whether the X12 standard, proprietary communications, or another standard wins out, observers said. More public dialogue that includes them could speed a decision.

"I think the X12 standard provides us with much more flexibility," said Mr. Skipper of United Guaranty, "but I think if the standard is not here today, then the (proprietary) flat file makes sense."

He added that, although standards will gradually evolve, "there are some people questioning whether there might be an easier way to get there."

Neither side of the debate is necessarily right or wrong, Resco's Mr. Filoseta added, but "a legitimate debate needs to be had to find out if in fact we are going down the wrong road."

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