Investors See Cost Savings, Transparency Opportunities in Data

MBA (3/21/2008 ) Sorohan, Mike
DALLAS—For industry investors—the government-sponsored enterprises and Wall Street—technology represents an element that not only requires adoption, but leadership as well.
“We’ve talked about the need to really improve data quality and efficiency,” said Ted Adams, director of technology standards at Freddie Mac, McLean, Va., speaking here at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo. “It has an impact on our bottom line—every improvement we can eke out is important.”

During 2007, Freddie Mac focused on three key areas: cost, transparency and missed opportunities. “We recognized that we had rising costs and missed opportunities associated with bad data,” Adams said. “We recognized that transparency is critical and we are working on programs that not only ensure that our data are accurate, but transparent.

In taking a renewed approach, Adams said Freddie Mac reached a recognition that data quality is not a technology issue, but a business issue. “We have all the technology support we need, yet we’re still having a data-quality issue—it’s a business issue, not a technology issue,” he said.

As a result, Freddie Mac developed an enterprise data quality program that identifies more than 800 critical data elements and metrics. “One of the things we realized was that to get a better hold of that data, we installed metrics that enabled us to measure the data elements,” Adams said. “As a result, we’ve seen a significant decrease in corrections of data elements, and it’s helped us to manage the entire data set much better.”

Second, Freddie Mac improved its relationship with its seller-delivered data analytics. “We had the same or similar data sets in different areas of the organization,” Adams said. “We expanded our dialogue with our sellers to improve communication.”

Third, in measurement, Freddie Mac kicked off a Six Sigma-like process re-engineering. “We expect that this will reduce and streamline our processes and improve efficiencies,” Adams said.

Additionally, Adams said Freddie Mac has reached out to other industry players, such as MBA, to examine larger-scale initiatives. “Right now, we’re focusing on what we already have and how we can improve those processes,” he said. Adams, a member of the MISMO Governance Committee, said Freddie Mac has had “significant successes” in implementing MISMO standards.

“It’s become a cornerstone of our current environment,” Adams said. “The use of MISMO data set helps us to solve problems and eliminate redundant and contradictory data so that we can use it appropriately and consistently. We’ve reaped benefits of adopting MISMO in Loan Prospector [Freddie Mac’s automated underwriting system]. It’s allowed us to aggregate data and perform functions in-house, which allows us to use data the way we want to use it. We can also change our businesses and terms without it impacting our partners.”

Adams said he expects the GSE to approve more eMortgages this year. “They’re starting to come on pretty strong,” he said. “The numbers are still pretty low, but the growth is pretty dramatic. It looks like we’re going to see a geometric progression. And we’re hearing from our trading partners that the see the cost-savings benefits. One of our customers reports a $75-$100 reduction in closing costs. And it’s being driven by our smaller partners, who are more nimble. And there are a variety of closing solutions out there now that are cost-effective.”

Deborah Holmes, vice president and CIO at Ginnie Mae, Washington, D.C., said her agency has a mandate to expanding eGovernment as part of the President’s Management Agenda, aimed at reducing costs and improving services. Ginnie Mae recently announced an Enterprise Portal, a single-point access point to all of Ginnie Mae’s business applications. The initial phase provides secure, user sign-on and ability to access reporting and feedback services. The first phase expects to implement in November.

“In the future, any business being done by Ginnie Mae will come through the portal,” Holmes said. “We plan for it to be a very simple process.”

Additionally, on April 1 Ginnie Mae will implement unique loan identification numbers for each loan within a pool. “This will improve risk analysis associated with data disclosure,” Holmes said.

Luiz de Toledo, senior vice president and chief administrative officer of technology with Fannie Mae, Washington, D.C., said current market volatility has put pressure on IT initiatives, from both budget and reaction time.

“Lower earnings are causing capital scarcity,” de Toledo said. “At the same time, there is pressure to operate in real time with better analytics. We see three IT priorities: improving credit risk enhancement; providing productivity and infrastructure improvements; and enabling business growth. That requires higher allocations of IT resources.”

Fannie Mae is working on replacing archaic systems with new systems, de Toledo said. Later this year, Fannie Mae will implement a new 10-digit case file system, as well as a new version 7.0 of the GSE’s automated underwriting system, Desktop Underwriter. Other new systems target servicing operations and credit loss management enhancements.

eMortgages continue to be a key strategic initiative for Fannie Mae as well, de Toledo said. Fannie Mae and MBA recently contributed a new Smart Doc® validation method patent to MISMO for broad general use.

The SMART Doc® specification was originally licensed by Fannie Mae to MISMO in 2002, and then developed and released as an open industry standard for electronic documents. The new patent, which was granted to Fannie Mae this past November, defines processes for validating the VIEW and DATA sections of a SMART® document with automated systems. Additionally, the processes can enable "lights-out" post-closing and certification.

“We are committed to seeing eMortgages grow in volume,” he said.