REPORTER'S NOTEBOOK: Mortgage Lenders Searching for Ways to Streamline

SAN DIEGO - Moderator Charles R. Elgin asked the panelists at the annual convention of the Mortgage Bankers Association what they think of new technologies.

Are they ways to gain competitive advantage? asked the senior vice president of Chemical Residential Mortgage Corp., a unit of Chemical Banking Corp. Or are new technologies just another necessary evil?

"If it's the latter," he said, "I think you're in the wrong room."

The mortgage industry in general is struggling with ways to streamline the operations-heavy processing of mortgages. Many of the sessions at this year's conference were aimed at helping members of the industry to accomplish this.

Credit agencies, insurance companies, title companies, legal firms, and ultimately servicers, wholesalers, and secondary market investors are all involved at various times in the life of a mortgage, and each of these players complicates the process of handling a mortgage.

Participants need to access and exchange large volumes of data as quickly as possible to perform their specific functions.

Experts at the conference noted that gathering and tracking mortgage- related information is tough. The job gets even harder when small bits of the information within a loan file change, because such changes usually have a ripple effect on other portions of the loan.

Given this, the mortgage industry's challenge is to integrate and link the operations of the many participants in the life of a loan.

Though some institutions have progressed with the use of automated origination systems, document imaging, and electronic data interchange, many have not.

***

One technology that holds promise for the mortgage industry is electronic data interchange, the electronic exchange of formatted business information.

Exchanges of business documents through EDI networks are becoming increasingly common among cash management banks and their customers. Typically, large manufacturing companies use EDI services to transmit purchase orders, funds, and invoices to their suppliers and to banks.

Mortgage banks have only recently awakened to the benefits EDI could bring to their businesses. They are beginning to take the first tentative steps toward using the technology, said Brenda Wilson, a senior vice president with Crestar Mortgage Corp., a unit of Crestar Financial Corp., Richmond, Va.

"What we are mainly looking for from EDI is a way to seamlessly deal with our many trading partners," she said at the MBA panel session, "Technology Initiatives."

William Manasco, senior vice president at Source One Mortgage Services Corp., Farmington Hills, Mich., said: "Seamless EDI is very important to allow me to access all of my trading partners with one logical gateway at my end."

Source One recently invested in EDI technology, which has already begun to pay off by reducing paper flows and associated labor costs, Mr. Manasco said, addding: "For large vendors, there's no reason in the world why we shouldn't be using EDI."

High costs are the main barrier keeping many mortgage bankers from adopting EDI - the same as the situation in the banking industry in general. Yet despite those costs, many at the conference said the mortgage industry increasingly will seek to become EDI-capable - and not only for competitive reasons.

"There are going to be some trading partners that we do business with that are going to refuse to do business in any way other than EDI," said Mr. Manasco.

***

In a special session on electronic data interchange, mortgage bankers tackled the issue developing a standard that would help those in the industry using EDI.

Scott Cooley, president of Contour Software, a Campbell, Calif.-based software developer, said the current widely used format, known as X.12, has many "possible shortcomings" that many organizations - including the Mortgage Bankers Association - "have failed to see."

The X.12 format, a uniform standard developed by the American National Standards Institute for trade-related business transactions, "has proven itself" in other industries, Mr. Cooley said.

But its limitations will "likely cause it to fall short" of the mortgage industry's expectations, he said.

"The data within a mortgage-transaction set 'is the product' in many instances," he said. Companies that want to differentiate themselves may do so by manipulating the way data is sent and received. This works against what having a single standard hopes to achieve, Mr. Cooley asserted.

In that regard, standardization only "complicates the process," he said.

He proposes a new standard - essentially a simple flat file, like those generally used in the banking industry. The benefit of a flat file, besides simplicity, is that many applications from any number of software vendors can use the data.

"Credit reporting, mortgage insurance, and other interfaces are seamlessly integrated to the file instead of converting the file to fit the particular file format," Mr. Cooley said.

His assessment was backed by several mortgage officials, including Jim Lesher, vice president of Chase Credit Research Corp.; Chet Seligman, vice president of information services at Headlands Mortgage Corp.; and Tony Skipper, a manager of systems development at United Guarantee Corp.

Mr. Cooley even related an incident where he asked members of the MBA Technology Committee if they had ever considered whether the X.12 format made "sense" for mortgage companies.

Their response, he said, only left him with the impression that the MBA was a "major proponent of X.12," with no "consideration for real-life EDI issues."

But MBA officials didn't see it that way.

"We at the MBA have never said that X.12 is the only way to do business," said Daniel R. McLaughlin, MBA's director of technology initiatives.

Not only does the MBA support X.12, but so does the Federal Housing Association, Fannie Mae, Freddie Mac, America's community bankers, and the associated credit bureaus, Mr. McLaughlin said

Every company should be able to "access goods and services on a given day at the best price - it's that simple," he declared.

"Every trade association in this industry is active in X.12 development," he added. "Why? because they are non-proprietary data standards."

"Now if you are a service provider who enjoys a large market share in a particular niche, whether it be providing software to brokers, or being a service bureau vendor, you may make some strategic decisions to say, 'in this particular channel, I am going to vigorously oppose X.12 because it threatens my market-share.'"

Kirk Hoiberg, an assistant vice president with Mixstar Inc., Newport Beach, Calif., was more sympathetic to Mr. Cooley's concerns, and noted that the market will ultimately decide.

The industry "is at a crossroads" as it hammers out future standards for EDI transactions, said Mr. Hoiberg, whose company is a mortgage information service that operates through America Online.

"I'm not sure (what the standard) is going to be," but "I think that it doesn't hurt to try and put your foot forward on something and try to move the industry in that direction," he declared, adding:

"People like Scott Cooley are trying to push the industry forward, and one of the ways to do that is to take a stand."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER