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The mortgage industry has united behind a group trying to set uniform standards for sending data back and forth over the Internet. MISMO, as it's called, stands for the Mortgage Industry Standards Maintenance Organization. Two key players in the effort offer their views on MISMO's importance to the industry.

ON JANUARY 18, 2000, THE MORTGAGE BANKERS ASSOCIATION OF AMERICA (MBA) officially kicked off its initiative for the planning and construction of an XML (extensible markup language) data interchange for the industry.

Led by the MBA's assistant director, industry technology, David Williams, the Mortgage Industry Standards Maintenance Organization (MISMO) was launched late last year--but not without some skepticism.

Exactly what is all the XML controversy about? Who's causing it? What will become of this new technology and how will it affect the mortgage industry? This article may answer many of the questions but let's first back up and look at how the industry got to this point with XML.

Shortly before MISMO was formed, several key mortgage technology providers and lenders set up another data standards--setting group, called XML Mortgage Partners (XML-MP). According to its proponents, the XML-MP organization's governing structure would enable it to act more quickly and effectively with regard to the establishment of XML data standards.

Because of its flexibility and ease of use as a data interchange, the implementation of XML continues to rise in both popularity and controversy within the mortgage industry. Mortgage lenders and vendors have had difficulties with XML's alternative, HTML (hypertext markup language), because of its tendency to contain inco mpatible data elements that are expensive and time consuming to fix. According to XML proponents, the simplicity of setting data elements via XML makes it much easier for everyone involved in the loan process to share information.

One of the founding companies of XML-MP was Fort Wayne, Indiana--based Waterfield Mortgage. A chief representative at XML-MP for Waterfield was Len Tichy, senior vice president of business development.

By December 1999, MISMO had gained significant support and momentum within the industry. As a result, many XML-MP members, including Tichy and Waterfield, now support MISMO. In fact, Waterfield is currently one of the three lenders elected to MISMO's Governance Committee. However, the alliance of MISMO and XML-MP does not necessarily mean the two groups have come to a meeting of the minds.

Both Tichy and Williams recently were interviewed by Kelly Williams of the William Mills Agency, Atlanta, regarding the state of XML.


Q: How will XML change the mortgage industry?

A: We believe that XML will provide seamless Web-based integration of mortgage-related transactions for large, medium and small players in the mortgage industry. It allows data to be transferred in bulk or loan by loan, with a browser as the interface. Any size company can develop trading agreements with other companies without really having to worry too much about the back-end technology being compatible. The question of how to transfer the data will be answered by XML.

Q: What do you hope MISMO can accomplish?

A: We hope that MISMO can set up baseline standards for data exchange. We want to leverage the work that was done in the X-12 world and float that business data into some XML standards. We want to provide a common ground from which trading partners can begin to build their portfolios and build their agreements. By providing a common format for Web-based data trading, we can catapult into a new era of growth for the industry.

Q: As you know, there has been some discord throughout the industry from the previous experience with setting the standards for EDI X-12, so what did MISMO learn from the whole EDI X-12 2 standard--setting experience?

A: That is a very good question. The X-12 process was a monumental process, and without it we wouldn't be where we are today in the standards world. The X-12 process blazed new trails and taught us a lot about managing and developing standards, and we want to leverage that knowledge as we move forward with MISMO. Two important areas we will focus on are timeliness and organizing a unified effort. We are going to deliver a quality specification in a timely fashion. We are also going to coordinate the supporting work groups with some common goals and shared deliverables. We want to disclose as much information as possible across the work groups so we can learn from the efforts of others.

Q: MISMO recently established a governance committee. Can you tell me how you feel the first meeting went?

A: Our governance committee kickoff meeting was held in Las Vegas in January. Since then, we have had two conference calls [as of the time of this interview]. The first meeting went better than I had anticipated. We covered most of the general administration issues on the agenda without any major disagreements. The group tackled some tough policy issues without any trouble. Comprised of a cross section of our industry, the governance committee has not only experience, but expertise in a number of areas central to standards development.

Q: Is that how it will work from now on?

A: The governance committee will convene five times throughout the year. It will convene at each of the MBA technology work group sessions, which occur in January, May and September. In addition to that, it will also meet at two other MBA-sponsored conferences. These include the MBA National Technology Conference in New Orleans [in March] and the MBA Annual Conference, which is in San Francisco in the fall.

Q: Are you happy with the group of members elected to the governance committee?

A: Yes, we are very happy with the people who were elected. Many of them have been working in X-12 or XML or both for quite some time, and we have a lot of experience on the [board]--a good mix of business and technical folks, so that we can address all the particular issues with standards development and implementation.

Q: What changes have occurred that will make the establishment of XML more feasible than EDI X-12?

A: I think that XML will not necessarily be more feasible than X-12. It's important to know that the two won't really compete in that particular sense. They are probably going to complement each other. The companies that are developing in X-12 will probably continue to use X-12 and maintain their legacy systems. XML is different, however; it is a browser-based system. It's a lot less expensive to get involved with XML standards, which gives it the potential to provide automated transactions to a wider audience.

Q: What is the most important issue affecting implementation of XML by the mortgage industry?

A: The most important issue is probably going to be industry acceptance. In order to have a standard, it really has to be accepted by members of the industry, and it has to work for the folks in the industry. We believe we have a great product here. So far, XML has been pretty widely accepted; but to really address this issue, we decided to freely distribute the standard to anybody who wants it. This is for all of the work groups that are actually going to be deciding on the data and plugging it into these particular transactions, as well as anyone else in the mortgage industry that wishes to put their two cents in for moving the standard forward.

Q: Do you think that once the initial base of data standards are set and solidified, you will face further resistance from mortgage lenders and from vendors?

A: No, I think a lot of folks are actually going to see the value that these standards will provide: the ability to make a deal with a trading partner and then come back and have your [information technology] staff implement this quickly, easily and very effectively. We're hoping to make the technology aspect of this business a lot easier for everyone by making this a free standard that anyone can pick up off the Web at any time. We're also providing a point-and-click interface with full documentation, data definitions and a data model. Essentially, it's everything an organization would need to get started in e-commerce.

Q: As a governing body, what does the MBA bring to the setting of the XML data standards that is stronger than the independent groups that were trying to set these standards?

A: We provide an open group and a neutral status. Setting XML standards is certainly an area where having too much influence over the standards can be a competitive advantage for any one organization. The MBA's neutrality levels the playing field and has everyone playing by the same rules. This ensures that all organizations have an opportunity to have their proposed data elements reviewed by the appropriate group and potentially included in the standard.

Q: What are some of the risks that are faced by the mortgage industry in implementing XML?

A: There are actually a couple of risks that are pretty important. First, we have to make sure that all companies are represented. We want to make sure that we have a good cross section of the industry that's driving this effort forward. If we leave out certain market segments or groups in the industry, then it's going to be a detriment to the overall standard. So again, that's part of our open and inclusive policy here at the MBA.

The second one is to make sure the system of analyzing these proposed data elements works. There must be a series of checks and balances in place that will ensure that when a new standard is proposed or a standard is modified, it's adequately reviewed by the right people and they've had an opportunity to put that change out in front of the industry to get some detailed comments as well. Another risk is waiting too long to deliver the actual specification. XML is the type of technology that can be learned very quickly. Many organizations may develop quick fixes for their current business needs. This could further complicate the adoption of the MBA standard.

Q: What needs to be included in XML standards that will make it easier for both lenders and vendors to adapt?

A: I think most of what needs to be included in the standards is documentation. We need to provide the industry's [information technology] people with actual XML implementation guides containing best practices and lessons learned that will help our members to create and implement systems to manage this particular standard. For many companies, there is going to be another layer that will require education and training. These will be the folks who have heard of XML but have no idea what it is and don't exactly know what it can do for their company. We're not going to just post a few DTDs [document type definitions] and expect people to understand what to do with them. We are providing extensive definitions, mapping and relationships for and between the elements in the DTDs. Anyone with an IT background or mortgage-related experience should be able to understand what we have done and how it can help their business.

Q: You mentioned that you were going to make this available, once the standards are set, to all members of the MBA. How will you distribute this information?

A: It will actually be available on the MISMO Web site, which is The site will serve as a repository for data standards, and it will house a tool where people can generate the actual DTD for the particular transactions that they choose.

Q: I know that setting a timeline for XML data standards is an area of concern for many people in the industry. What is a reasonable timeline for getting XML data standards set?

A: The XML data standards are actually going to be an evolving standard as business needs change over the years and as different business elements may be added or taken away. The standard is going to change. MISMO has adopted a submission procedure that will allow the standard to evolve. We are going to have subsequent versions of it coming out, probably on a 45-to 90-day basis. Essentially, we'll have a version 1.0 that is based on the data dictionary. The data dictionary is the key to the whole process, and the first version of this was done in March. Right now we are plugging data into a database that is housing all the particular data elements necessary for each transaction. Once that is completed, it will probably need some review time, and we assume the DTD, the actual standards used in the transmission, should be available in April.

Q: What other issues concern you about overseeing MISMO and the entire organization in regard to XML?

A: Alignment with other industries comes to mind when I hear this question. X-12 is aligned with many other industries, and not all are interrelated with financial services. The MISMO Governance Committee will decide with whom and to what degree we will integrate with other organizations out there. Strategic alliances are probably going to be key in developing the future of this standard, so we want to make sure that we are developing under the same guidelines as many other standards organizations.

Q: In your opinion, what is [MISMO's] greatest challenge?

A: Our greatest challenge will be deciding what becomes part of the standard and ensuring that it is a democratic process. We want to be sure that everyone is represented and that everyone has a chance to either add to or comment on the standards. To address this issue, MISMO has developed an online ballot system. This system allows organizations that are subscribers to MISMO to vote during every change cycle on proposed data elements to be included or removed from the standard. We feel that providing this online system will enable each member to have an opportunity to vote on what will best represent the needs of their organization.


Q: In your opinion, how will XML change the industry?

A: XML will allow vendors to better integrate electronic data interchange [EDI] into their products, and it will enable lenders of all sizes to benefit from the advantages of electronic commerce.

The heart and soul of the XML standard is data modeling. The need is to have a common language with which to describe the data that we all--as lenders, vendors and agencies--exchange as trading partners. What XML can do is capitalize on the competitive pressure of e-commerce to communicate effectively in the Internet environment among many trading partners. That pressure can help accelerate the pace of adopting a standard. A published and managed setup convention is needed to talk about and to organize the data. That convention must be as global as possible. Any entity within the mortgage transaction--be it some small part of the mortgage transaction, or a large portion of it such as point of sale or processing a loan from end to end or servicing a loan from end to end--must be included.

What XML can do is increase companies' ability to talk to each other and solve a business problem through the exchange of data in a way that is expeditious and rational, whereas today it is irrational because there is no good model. There is no common convention to discuss the data [so that] technical people can get together and understand what it all is. There are only transaction sets like MI [mortgage insurance], credit and so forth, that look at a subset of the data and sometimes use conflicting names and conflicting conventions to describe it and exchange it. Common language will give the technical person a rational and global perspective of what the problem really is.

Q: From Waterfield's perspective, how is XML going to change or improve the company's processes?

A: Two perspectives. One is business-to-consumer and the other is business-to-business. In the business-to-consumer environment, we expect to deploy a second tier or second evolution of our Internet strategy. XML will help us move data from our internal systems out to the Web environment through utilization of XML tools and the XML data model. We expect to use work that was done by XML-MP and is now adopted by MISMO to shape our development efforts. We know some other players like Chase and Countrywide are using the same data models. So we expect to do all the things I just said [to] accelerate our own developments because our own teams will have the ability to do that kind of thing more effectively.

In the business-to-business category, we expect that, in the exchange of data in transactions like credit and MI [mortgage insurance] we will continue to leverage our existing EDI [electronic data interchange] infrastructure--which is considerable--without penalty. We can continue to use EDI instead of XML and the X-12 standard without loss. In other words, we can continue to use them as we develop new methods of exchanging data over an e-commerce environment instead of a point-to-point data exchange with one member, which we now do with EDI. The other thing we do with EDI is a lot of batch-mode transactions, which is what EDI was designed [for]. All that will stay the same.

As new transactions or exchanges emerge in an e-commerce or Web environment, we expect to leverage the standards that are now being managed by MISMO to govern our planning discussion and implementation efforts with our trading partners. So the first place we will go is to the MISMO standards [to] look at what is available under XML and see how we can use this environment to expedite the process. Emerging exchanges of data would include things like single-order entry, for instance, with some of the players that are out there who offer multiple services ordered from a single set of data in processing a loan. We are exploring that right now. Another thing that is very important to Waterfield is the fulfillment business. One of the first major projects with the XML standards is to create a generic mapping to send point-of-sale data from our systems to other companies' Web-based presentation systems.

Right now, I believe that the standards groups have focused their attention on well-defined transaction steps that were driven by forms that had to be filled out or required requesting a subset of data. This is because those transaction sets have been built around a fairly small set of hard data. An example is if I needed to send you an MI request and get a verification fax, or if I were going to ask for a credit report and get some hard data back on credit. This has been the focus for the EDI groups.

In the point-of-sale arena, it is much sloppier. There is a wide variety of ways that various company systems keep track of how they contact the customer. Some examples include what the source of business is, what kind of a price quote they may have given that customer or what kind of status on the processing of a loan they might report to that customer. All those pieces of information have escaped the attention of the traditional EDI workshop or work groups. We are interested in developing that component of the standard--or at least exploring it, putting it together and offering it to MISMO. We want to provide a way for people to communicate around a set of more loosely defined point-of-sale data. We like the idea of having a model that others can look at and consider for their use as well. If they want to use it, then great; if not, then that's fine too--but we intend to use XML to do that.

Q: Is Waterfield satisfied with MBA's commitment to XML?

A: Right now, yes. The creation of MISMO is a well-balanced solution that took advantage of some accelerated work by a lot of people. It really was a great exercise in reconciling the interests of all parties by getting the focus away from the issues of authority and changing it to issues of content and usability. MISMO is now in a position, I think, to [support] a maintained standard. It isn't just volunteer groups; it is actually a financially supported solution that the MBA is backing. It is supported by real people who are on salary and who will maintain standards and keep them alive.

Q: What does the MBA bring to the setting of XML data standards that is stronger than what could be done by independent groups?

A: The MBA provides a forum that enables more involvement by the industry at large, and, therefore, greater acceptance of the standard--but it can also slow down the process of producing an actual deliverable. It is critical that the MISMO Governance [Committee] establish the right balance of industry input versus standards delivery.

Q: What do you hope MISMO can accomplish?

A: Our hope is that MISMO can provide the opportunity for industry input in the XML standards--setting process so a single standard will emerge, while allowing the original architecture of XML Mortgage Partners to grow and flourish. It is especially vital that the various industry transactions share a common interchange vocabulary and structure. This would also permit the reuse of the same business-to-business programs for internal purposes and enable the easy creation of transactions not yet defined.

Our hope is that it will be a smaller and more active group. My understanding is [that] MISMO and the MBA are outsourcing the day-to-day management of the group to a professional body. Waterfield and the other members of MISMO are not just volunteers. We pay fees to belong, and we have made a commitment of time. I'm expecting that MISMO participants will treat this organization as an important investment by remaining very active. I also hope that the organization will remain open--that is, if somebody wants to sit on the sidelines and wait to see if some smaller group can put together something useful, then they can go see what is useful about it. If they want to embrace it and adopt it, they can.

Q: There was some discord throughout the industry from the previous experience with setting the standards for EDI X-12. What do you think MISMO learned from the whole EDIX-12 standard--setting experience?

A: The greatest lesson learned is that transactions should be defined from a common core of well-defined data elements rather than built independently in a stovepipe fashion. The need for a common data dictionary to which any modeling or interchange technology could be applied was also made apparent.

Q: With regard to XML, what skepticism do you have based on Waterfield's experience with EDI X-12?

A: I think the main concern is that it [could] turn out to be a waste of time. The mortgage industry has been such a fragmented industry that trying to get a work group together to tackle a very big job like setting XML data standards is like herding cats. It is very hard to reconcile the various interests of the parties. They are not always in conflict, but they are often not aligned. So I think skepticism may loom in the back of many minds that nothing useful will come of it. This has driven lenders away from participating actively in large numbers in the EDI process. They go to the meetings and see a lot of hard-working, dedicated, intelligent people, but they are not seeing useful output at a fast-enough pace.

Q: Is that what you learned from the whole X-12 experience?

A: Pretty much. We believed in it, and we participated in it. We still believe in X-12, and we take advantage of it, but we could never understand why it should take so long and why so few lenders participated in the process.

Q: What differences have you seen so far with MISMO that are going to make the establishment of XML more feasible than X-12?

A: Pace and quality. We have been able to work together with the MBA, DISA and MISMO. This time the entire industry is involved, and we've seen movement--and in a fairly short time, with a quality result. Now the proof is in the pudding. I hope that people will actually use it. I hope that we will start to see transactions being driven across this standard and people come to use MISMO when they are looking for resources and have it be a more active exchange of information. [The Data Interchange Standards Association (DISA) facilitates the development and promotion of cross-industry specifications to help organizations achieve their e-business objectives using the latest Internet technologies. Organizations other than MISMO that use DISA include the Interactive Financial Exchange (IFX) Forum, the XMLedi Group and the Hotel Electronic Distribution Network Association (HEDNA).]

I also believe that XML implementations should be less expensive--both in terms of initial cost and continued maintenance--enabling all companies to participate in the electronic interchange of data. In addition, the MISMO XML standard is based on a modeled view of the common data elements, so it will allow for the programming of reusable components that will make it easier to set up exchanges with new companies and implement new transactions. This is not meant to downplay the advantages of X-12. While X-12 may be more expensive than XML, it brought tremendous advantages to our company and the mortgage industry as a whole.

Q: Do you think the pace of XML development is the most important issue affecting its success in the mortgage industry?

A: The establishment of one common industry standard is the single most important issue facing the mortgage industry, as it is for any industry looking to adopt XML. Furthermore, the architecture currently being developed--which provides a core set of common data elements from which any transaction can be derived--is so useful, I feel it must be kept intact in order to capitalize on all of the benefits of XML.

Pace cannot be considered without quality, which I translate into usefulness. The problem was that pace was not part of the equation in the past. The industry excused a slow pace because we just assumed that it was a reality--that it was one of those unmanageable things. We have introduced the expectation that pace is an important part of the equation, and it cannot be ignored. Obviously, another key issue is usability. If it is not useful to people, they will abandon it.

There are other dimensions that I am sure people will consider, like conflict of interest or cost. For instance, if a company has just completed development and put millions of dollars into a system and it is totally different from the standard that MISMO is managing, how will others use it?

Q: What does Waterfield bring to MISMO's governance panel?

A: Waterfield has a global perspective on data. We deal with almost all the data involved in lending in our shop. We provide the perspective of a medium to large-sized lender that is highly automated with a tremendous amount of system integration. That is very important, because scale is a big issue to us. Waterfield is large enough that we must build scalable solutions, ones that are repeatable across thousands of transactions that are not manual. We want to build technology infrastructures that will enable us to make our systems' capacities 10 times bigger.

Unlike vendors, Waterfield isn't trying to promote a particular product. We are trying to make use of the standard in our daily business trading or exchanging data with trading partners. We expect to be one of the intensive users of the standard.

Q: You mentioned earlier that the stakes were high for Waterfield making a commitment to XML. What are some of the risks for lenders in making a commitment to XML?

A: The exchange of mortgage data over the public Internet is a new venue for the mortgage industry. The work being done by the Security Workgroup in establishing a public key infrastructure [PKI] for the mortgage banking industry will be of tremendous value to the XML effort. The Security Workgroup is a group of volunteers, chaired/co-chaired by volunteers, but recognized by the MBA as an official workgroup and given meeting space/time at the Technology Workgroup Meetings held three times per year. It will still be recognized under the MISMO structure, because of the importance to the industry and XML in particular.

The stakes are high that we invest in developing or working with standards that are usable. If you are highly automated and highly integrated, everything comes unglued if the backbone of your architecture fails. In this case, I am talking about the data model.

Another risk that some would perceive is, What's the next XML? What's the next best thing? And Waterfield's view on that is [that] we don't care.

Waterfield's biggest XML concern is that the standard be rational language with which to discuss the business and technical problems associated with exchanging data. Something better will come along later; that's inevitable. So let's talk about the value we get now and the common-sense value we get by bringing people together around the business problem and having a very rational, global perspective. Historically, the industry has addressed these problems with a fragmented, sketchy view of the issues, and the fragmentation gets expanded across all these efforts.

Q: What needs to be included in XML standards that will make it easier for both lenders and vendors to adapt?

A: Since a common usage of the standards by all parties is so critical, detailed usage guidelines--including business case examples--are necessary, especially for first-time adopters. The X-12 implementation guides are a good example of what could be provided.

Q: In your opinion, what is a reasonable timeline for XML data standards to be developed?

A: Because the development process is now open and the set of core data elements should be stable before initial release, the process could take some time to complete. Since the data-modeling process is so subjective and the amount of data included in our processes is so extensive, there will never be a standard that everyone agrees is perfect. The quicker everyone can add data to the existing structure and make it the standard, the quicker the industry will have a standard we can all begin implementing.

We think MISMO has considerable raw materials to work with now. Waterfield is already starting to embrace XML, and we are including it in development projects as we speak. In fact, I am going from here to a meeting specifically regarding point-of-sale issues and our Web site, where we intend to implement XML. Waterfield is exploring a whole list of possible implementations in XML, and we think we will immediately benefit.

Q: What other issues concern Waterfield with regard to XML?

A: While the development process of XML standards is now in process, many companies have a need for the standard to be delivered immediately. The opposing forces of timely delivery versus stability and backward compatibility must be kept under control.

I am also concerned that people will misunderstand where the value is in XML and will therefore not take the initiative to look at it for what it really is. In other words, if someone looks at XML and says they want to wait until it reaches maturity before even considering it, or until a couple dozen important lenders have committed to it and make some public statement about it, then I can't get any value from it.

To date, I think there has been a lot of quality work completed by a lot of talented people and that it's worth looking at. Any company [that] comes to this environment can learn from it, and anybody who is interested in e-commerce can benefit from picking up these materials and being involved.

Waterfield did not get on the XML bandwagon just to be on a bandwagon. We looked at the quality of what was there so we could make good use of this right now. As a lender, we hope to encourage other people to take the same point of view.

Q: In your opinion, what is MISMO's greatest challenge?

A: The greatest challenge, I believe, is keeping MISMO's work product the single standard that everyone is willing to use, and discouraging vertical industries and individual companies from creating their own competing standards. If the industry as a whole makes a commitment to focus [its] resources on completing the MISMO standard, a de facto standard can be completed very quickly and be made available for everyone eagerly awaiting its release.

David Williams is assistant director, industry technology, for the Mortgage Bankers Association of America (MBA) in Washington, D.C. Len Tichy is senior vice president of business development for Waterfield Mortgage Company, Fort Wayne, Indiana. Kelly Williams is group director of the William Mills Agency, Atlanta, a public relations agency serving the mortgage banking industry.
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Date:Apr 1, 2000
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