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Cutting edge solutions.

On January 15, 1992, a small group of high-level agency officials met at the Mortgage Bankers Association of American (MBA) headquarters with MBA staff and members. The topic of discussion: a resolution passed by the MBA Board of Governors to aggressively pursue uniform standards for interaction with Fannie Mae, Freddie Mac, GNMA and others. During this meeting, a consensus was reached by the MBA Interagency Technology Liaison Group that the agencies and MBA would work toward this goal. Although reaching the agreement was a crucial step, perhaps the most telling aspect of this meeting was the emerging importance of technology in government agency relations.

The ways in which mortgage bankers interact with the agencies are changing. There is not one particular type of equipment or procedure that has brought about this transformation. The fact is, rather, that members of the mortgage banking industry have come to recognize that policy changes made by the agencies cause operational changes as well. By contemplating policy changes in advance and viewing their effect onthe "user" community, mortgage bankers can participate in a dialogue with the agencies at an earlier stage in the process. This helps ensure, early on, that the agencies' policies are sensible and usable.

The need for more data to be collected has brought various groups together to work closely with MBA's Technology Committee. The committee strongly believes in working to satisfy the agencies' demands for data, as long as there is a benefit for he industry in return.

This "payback" might simply be proceeds from a delivery one day earlier or the expedited handling of a claim for mortgage insurance. It might be as complicated as a change in the way mortgage bankers interact with the agencies so that operational efficiencies could be obtained. At its most sophisticated level, the payback could involve the turnaround of information that has been interpreted by the agencies in a format that helps mortgage bankers do business better.

Moving mountains of paper: HUD

Imagine walking into the office of the person at HUD responsible for coming up with ways to administer the $4.5 billion in claims filed last year. More than 13,000 individual claim forms amass to form a true mountain of paper. You would expect to see stacks of paper (like the ones that exist elsewhere within the organization), but what you would find is an individual surrounded by computers, his walls decorated with pastoral scenes from his beloved France. Rex Gavin, special assistant tot he director of information policies and systems at HUD, is the individual who occupies this office, and his work demonstrates the forward-thinking going on at HUD today.

Gavin's goal is to take the vast majority of the 13,000 or so claims forms that are expected to be filed this year and eliminate the paper from the process. Having claims filed and paid electronically would not only shorten the claims process for lenders but would allow HUD to better manage its assets and cut down on administrative costs connected with claims.

With MBA's help, HUD has recently submitted a project proposal to the American National Standards Institute (ANSI) for the development of an electronic claims process. By going to the official standards body, HUD ensures that all lenders with whom it deals will have access to the exact specifications of the format and will have the benefit of the ANSI's approval on the standard. Once HUD receives approval from ANSI, it will be free to develop a pilot project.

According to Gavin, the future of cooperative processing will start with that pilot. "The pilot project for automating the process of filing the six different types of mortgage insurance claims will be the precursor of many more transactions," said Gavin. Another likely candidate for automation according to Gavin is HUD's Single-Family Default Monitoring System. HUD also foresees bringing mortgagee record changes into the pilot at the earliest opportunity, Gavin said automating multifamily and public housing transactions is also being discussed.

Gavin is working to "develop an architecture that will satisfy claims as well as other departmental needs." HUD made a presentation oat MBA's electronic data interchange (EDI) conference and requested help from MBA in designing a proposal. Independently, a government contractor completed a feasibility study in January of the costs connected with the move to automation, and it appears that all systems are go.

The next step: a proposal by HUD that would incorporate all its needs from the existing paper format and procedures into an electronic claims file. The proposal would then be disseminated through MBA to many users who could comment on HUD's process as well as suggest additional requirements to the standard. Importantly, private mortgage insurance companies will also review the proposal at this stage. From MBA's stand-point, one of the key advantages of such an effort is the establishment of one uniform manner of dealing with all types of mortgage claims.

The benefits are clear. Simpler processing results in expedited payment. Uniformity of procedures (for filing claims with both private mortgage insurers and HUD) will yield operational efficiencies. Mortgage bankers will have the ability to have claims paid more quickly and with less dependence on the paperwork.

Focusing on EDI: Freddie Mac

EDI is simply the passage of information between two parties who have agreed upon the format for the exchange in advance. The tremendous operational efficiencies made possible by EDI have become a focal point for Freddie Mac. We spoke with Mark Fleming, vice president of Freddie Mac, who is responsible for the automated customer support and customer services, about the initiative.

According to Fleming, Freddie Mac began working on EDI in 1987. When MBA commissioned the Mortgage Data Standards Task Force (many subgroups of which are now part of the Technology Committee), Freddie Mac delegated several members of its staff to work closely with it. "This was part of our strategic plan," said Fleming. "We were looking for efficiencies for both our organization and our customers."

Fleming said these initiatives take a high priority at Freddie Mac. Currently, there is an overall move toward internal quality control at the agency. According to Fleming, Leland Brendsel, chief executive officer at Freddie Mac, calls this agency's relentless pursuit for quality." Fleming says, "This type of quality control involves looking at how Freddie does business and making those processes better. EDI fits well with this type of corporate philosophy."

Why is EDI such an important link to corporate efficiency? Primarily, EDI allows more information to be brought into a system, at less cost and with a higher degree of accuracy. Servicing and front-end records merge together effortlessly, and the electronic exchange of information removes some of the hassle of enhanced reporting.

Along with the MBA's InterAgency Technology Liaison Group, Fleming would like to see the agencies collectively adopt a standard program for the good of the industry as a whole, because "we do not need to compete on data collection," he said. By relieving the stress caused by having three different reporting formats and routines, it becomes easier to enhance the variety and quality of data taken in.

In recounting the EDI efforts that Freddie Mac has made, it is clear that the agency has been an essential part of many transaction development efforts. An EDI transaction is the actual layout and format for interaction for two trading partners for a specific purpose. These include things such as communications between tax service firms and their clients, mortgage insurance firms and originators and hazard insurers and servicers. By working toward developing all these transactions from a common dictionary of mortgage banking elements and terms, interaction can become standardized, at least as to how the data appears.

Managing the power of information:

Fannie Mae

Fannie Mae'x Project 2000 Group is clearly seeking ways to develop better information management. With the potential of enhanced data collection necessitated by the Home Mortgage Disclosure Act and by congressional inquiry into the fiscal soundness of the agencies, the need for more data has presented itself. Fannie Mae is looking into what specific data is required to accomplish this industry goal and is working with industry participants to locate where such data can be found.

One of the first steps was for Fannie Mae to survey a cross-section of the mortgage industry to determine how much and what type of information lenders store on their systems. Fannie Mae's purpose was to determine what data could be accessed by lenders of varying technological sophistication. According to Richard P. Amatucci, Fannie Mae's vice president for business and technology initiatives and leader of the Project 2000 initiatives. Fannie Mae is sensitive to different needs and availability of information. "We are hoping to hold down the costs connected with respect to delivery of the data, and ensuring that the reporting does not place a burden on our customers," stated Amatucci.

Amatucci and other key Fannie Mae officials have taken a leadership role in MBA's InterAgency Technology Liaison group. Amatucci believes that developing these uniforms standards in conjunction with MBA, GNMA and Freddie Mae will help keep the costs associated with enhanced delivery of information as low as possible. "By cutting down the amount of independent reporting routines, and the changes to these, mortgage bankers will be able to lower expenses connected with sharing and interpreting data, whether it be at the time of delivery or later on in the servicing data," Amatucci said.

Fannie Mae's efforts benefit its customers by going a step beyond just exchanging information. The agency will send analyzed information back to its customers and in addition, provide instructions and methods for using the information. By going beyond merely echoing what a mortgage banker has reported, Fannie Mae may be able to provide enhanced reference information with regard to a client's portfolio.

Developing central intelligence: GNMA

Under the direction of HUD Secretary Jack Kemp, former GNMA President Art Hill, and more recently, GNMA President Raoul Carroll, GNMA has not only changed the way it handles information flow, but the agency has also become proactive in its management style.

According to Guy Wilson, vice president of mortgage-backed securities at GNMA, prior to 1989, the agency did not even know how many loans in a given pool were FHA insured as opposed to VA guaranteed. The agency's lack of core information about loan portfolios for which it was the ultimate guarantor meant that there was not a close watch kept on the sanctity of its portfolio or the health of the underlying issuers that were involved in the program. By amassing a kernel of critical data on every pool, GNMA has gone from knowing very little to being able to rank issuers with its colleagues and predict problems before they occur. While this isn't the sole reason for improvements in the last two years, Wilson pointed out that since January 1990, no major issuer defaults have occurred.

In addition to the systems in place, Wilson attributes this change to the GNMA Issuer Assistance Group that works closely with these systems. Acting as a central intelligence body within the agency, this group visits lenders before defaults, foreclosures or any other pipeline problems get out-of-hand. When representatives of this group visit a lender, they come prepared with specific recommendations based on the information they have gathered.

Proactive information management such as this has led to executive at GNMA, such as Wilson and Cornelius Shields, the special assistant to the president, to join the leadership of the MBA InterAgency Technology Liaison Group. These executives recognize the benefit of having a high volume of detailed, loan-by-loan information exchanged, and they believe this will afford GNMA the chance to be technologically "on par" with its competitors. The type of analysis produced by the InterAgency Group will most certainly benefit a lender-evaluation system as well-developed as GNMA's. GNMA officials proudly state that their work has yielded the best risked-based evaluation system in the federal government.

The mortgage banker's view

Gregory A. Samp, president of Sibley Mortgage Corporation, Rochester, New York and chairman of MBA's Technology Committee, clearly states the advantage of uniform standards: "If I can do something once for one person and [by doing so] already have it done for two others, I have achieved a very high level of efficiency. It is an issue of cost, stress and surety for mortgage bankers." It is easy to understand that combining three procedures into one creates operational efficiencies, such as ease in meeting deadlines and staff that is well equipped to deal with either Fannie Mae, Freddie Mac and/or GNMA.

From the mortgage banker's perspective, the formation of uniform standards and the interaction with the agencies is important for three reasons. First, if mortgage bankers need only to maintain one reporting routine, then less staff time and programming time is involved in the reporting function. Thus, monitoring these functions becomes a simpler matter, and priorities and deadlines can be motivated by the goal and not the task.

For example, by having one standardized set of delivery information, it is possible to do reporting with the touch of a button on an as-needed basis. Compare this with an investor-by-investor approach, especially when there are demands according to various deadlines. Those selling loans on a flow basis may find the standardization of such requirements allows them more freedom as to whom they choose to sell.

With the expense of programming and staff training limited by the establishment of interagency standards as well as other electronic transaction-based methods, mortgage bankers will also find excess capacity in their systems, which is an important benefit of any automation effort. In the example just mentioned, excess capacity could be devoted to increased originations. As subsequent transactions are developed such as investor reporting, excess capacity will cause the cost-per-loan serviced to drop as fewer people are involved in the typical reporting cycle.

Second, changes to electronic-transaction sets would be made on a fixed timetable and would represent one change for all those using the format, as opposed to two or perhaps three alterations. By limiting both the amount and frequency of change, lenders can save implementation costs and training time. People's attitudes about change may alter as well, perhaps favoring new systems in which one touch of a button yields a new format in addition to the previous function. That is, updates in the system will be understood by computers and those who control them, whereas delivery, and analysis of information for that delivery, need not affect those who are preparing reports.

Finally, a common development body for technological issues will provide an excellent means by which mortgage bankers may converse with secondary market players, mortgage insurers, credit bureaus and others. Considering policy issues from a technological standpoint forces the industry to examine how these changes will actually affect a firm, because technology is so closely related to operations. By saying what can or cannot be done from an automation standpoint, we have taken the time to focus on operational capacity and have dealt practically with the issue of how mortgage bankers can comply with new rules and procedures.

As technological issues enhance interaction with all the trading partners with whom mortgage bankers have to deal, government agency relations will take a key focus. By working closely with the agency representatives, MBA will ensure that the industry's needs are considered. It is important that all these elements be present: operational efficiencies, expedited processing and payments and the return of information. With the agencies and other key industry players focused on the exchange of data, these advantages cannot be far behind.

Brian Hershkowitz is an associate director of government agency relations at the Mortgage Bankers Association of America in Washington, D.C.
COPYRIGHT 1992 Mortgage Bankers Association of America
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Hershkowitz, Brian
Publication:Mortgage Banking
Article Type:Cover Story
Date:Mar 1, 1992
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