The day is coming when every component of the home-buying transaction will be automated or enhanced through the use of Internet technology. Personal computers, user-interface software applications, and automated underwriting services (AUS) have become mortgage industry mainstays as the Internet increasingly becomes a channel for conducting business-to-business and business-to-consumer transactions.
Electrsonic commerce offers no geographic limits when compared to the way businesses have traditionally operated. Neither businesses nor consumers are constrained by geography or bricks-and-mortar retail locations. The availability of on-line, real-time information has empowered consumers by allowing them to analyze real estate and home finance options as part of their comparison shopping. This empowerment has raised consumers' expectations for quick, reliable and customized service. And while most still shop for a home and complete the real estate transaction in the traditional way, the growing Web-based culture is changing traditional roles and business models.
Processes must be further streamlined to reduce transaction time and expense. To succeed, all industry participants must use technology to better serve their customers and meet their business objectives. Mortgage lenders and service providers may find that they need to offer both traditional and Internet-based services to be competitive in the future.
Freddie Mac's Approach
Freddie Mac leverages its risk management expertise by working with our mortgage industry partners to expand homeownership and lower the costs associated with the home-buying transaction.
Part of our approach has been to use technology to reengineer the mortgage origination process. To this end, Freddie Mac launched its Loan Prospector- AUS in 1995. Loan Prospector- has successfully wrung unnecessary costs and delays from the traditional manual loan evaluation process, thereby reducing the time it takes to underwrite a mortgage and deliver a credit decision from weeks to just minutes.
The service was recently made available on-line with the release of Loan Prospector- on the Internet in June 1999, enabling the broad use of automated underwriting at the point of sale. Using the Internet to deliver point-of-sale service provides homebuyers with the most convenient and cost-effective mortgage experience possible. Only through a lender's direct use of these services with the consumer can the mortgage industry approve a broader range of prospective borrowers, including those who may not otherwise be approved using traditional underwriting practices.
The Internet holds the promise of more powerful and far reaching services among trading partners, retailers, and consumers. And industries and companies that can offer low-cost, high-quality service will have a decisive competitive advantage in the future.
Even though the Internet's potential has been recognized, there are some hurdles to overcome in making the real estate and mortgage businesses ready for wide-spread e-business. Inconsistent technology usage among business partners has made integration difficult at times. In addition, electronic technologies with proprietary formats lacking consistent standards have restricted access to existing technologies while hindering the pace of innovation.
The industry, however, is successfully addressing many of these technology implementation and access hurdles. The Mortgage Bankers Association of America (MBA) has established an industry group charged with ensuring the rapid development and distribution of technology-enabling standards. The group, known as the Mortgage Industry Standards Maintenance Organization (MISMO), includes representation from the American Land Title Association and other lending, servicing, credit, title, mortgage insurance, and technology organizations.
MISMO is currently building a framework for providing and maintaining E-commerce standards for the mortgage industry. Recently, the group achieved one of its most important goals.
On March 23, 2000, MISMO approved an XML (extensible markup language) mortgage origination and underwriting data standard. XML is critical to simplifying and streamlining Internet-based transactions. The adoption of this particular XML standard solidifies the Internet as the mortgage industry's common platform for automated underwriting services. By using the standard, the industry will be able to reduce the time and costs of mortgage origination. These savings are made possible because the new XML standard simplifies the Internet-based technology integration process between lenders and loan origination software providers.
Next on tap for MISMO will be approving XML document type definitions (DTDs) for other parts of the lending transaction, such as credit, appraisal and mortgage insurance.
Also in the works is the development of a business data dictionary and DTD for the land title industry. ALTA®'s representative will attend a meeting of the Title Industry Work Group (a MISMO subgroup) this month in San Diego to discuss title services data needs in conjunction with the MBA's MISMO Work Group meetings, which will be held during the association's National Secondary Market Conference.
It is important to note that the underpinning of all of MISMO's initiatives relies on the successful promotion of digital signature standards that will further enable E-commerce within the mortgage finance and real estate industries. The ongoing development of digital signatures, and the level of security they provide, is key to allaying legal and regulatory concerns standing in the way of on-line listing-to-closing real estate transactions.
And, while the on-line closing process still has a way to go, the corresponding possibilities and necessities are being addressed by groups such as MISMO. It is these sorts of working groups that will provide industry players with an opportunity to define their roles and create new business partnerships.
Shaping the Future
The home-buying transaction is undergoing revolutionary change, driven largely by advances in technology and the proliferation of E-commerce. E-commerce is introducing new business models, expanding growth opportunities, and leading to new roles for industry participants to play.
As the dot-com age continues to shape the industry's future, business partners will increasingly demand and require the added benefits that innovative technologies and products can bring. And, as the ultimate beneficiaries of these technology advances, consumers will not settle for anything less than the most convenient and affordable mortgage experience available.
To meet these emerging challenges, Freddie Mac will continue to work with its mortgage and real estate industry partners. We will seek to streamline business processes by identifying best practices and utilizing best-of-breed technologies. As part of these efforts, we are looking forward to discussions with organizations such as the American Land Title Association® so that we may identify the best ways to work together to streamline mortgage processing and closing procedures.
For its part, Freddie Mac will remain visible and active at ALTA® conferences and seminars. We look forward to learning more about the issues and challenges facing ALTA®'s members. Through our mutual cooperation, we can ensure that all parties who currently have a hand in the mortgage transaction will have a way to use technology to improve their competitive position in the future.
Elizabeth Rohn is Director of Third Party Relationship Management for Freddie Mac. Elizabeth spoke to the ALTA® membership during the Tech Forum in February. She can be reached at firstname.lastname@example.org .
David Barkley is Director of Industry Support at Freddie Mac. David spoke to the ALTA® membership during the 2000 Federal Conference in March. He can be reached at email@example.com .