Editor’s note: Innovative technology can help simplify the home-buying process, eliminating unnecessary paper and making the transaction less cumbersome and easier for everyone involved. In this three-part series, we spotlight progress in the trek towards a paperless real estate transaction, and talk to early adopters, technology developers and standards gurus about how far we’ve come and how far we still have to go. (Read Part 1, “Case studies of paperless success,” and Part 2, “The new page-turner: Paperless real estate technology.”)
Technology and e-commerce standards are the surest way to lower costs and increase innovation in the real estate and mortgage lending industries, experts say. But standards, or a lack of standards, also have put up hurdles on the way to the paperless real estate transaction.
For several years, two major industry efforts have been underway to tackle the issue of technology standards in real estate and mortgages: RETS and MISMO, which stand for the Real Estate Transaction Standard group and the Mortgage Industry Standards Maintenance Organization, respectively.
MISMO’s work has led to major breakthroughs on the road to electronic mortgages, which have the potential to transform mortgage lending from a paper-laden process to a more efficient electronic one. Broad adoption of MISMO standards can directly lower costs by as much as $249 per loan, according to an MBA-commissioned study released last year.
At the end of October, mortgage professionals will catch their first glimpse of the industry’s first e-mortgage guide during the Mortgage Bankers Association’s annual convention in Orlando, Fla., according to Harry Gardner, senior director of industry technology at the mortgage trade group. The guide, released by MISMO, is an executive-level guide to all aspects of e-mortgage implementations, including key concepts, benefits, return on investment, legal background and industry processes for the various steps of implementation, he said.
MISMO was formed in 2000 as an independent affiliate of the MBA, and develops, promotes and maintains e-commerce standards for the mortgage industry.
Standards efforts in the mortgage industry have always focused on the paperless mortgage as the main goal, said Chip Register, chief technology executive for NetBank. But the reality is that there are multiple partners involved in the process, he said.
“We’re starting to see velocity now in things we’re doing. It takes awhile,” said Register, who chairs MISMO’s e-mortgage workgroup.
In addition to the upcoming e-mortgage guide, another major milestone for MISMO has been the publication of a SMART document specification guide. SMART docs are the MISMO version of a document formatted in XML, and have been noted as the key to unlocking savings in electronic mortgages.
SMART stands for Secure, Manageable, Archivable, Retrievable and Transferable. These documents capture, store and record data in an electronic format and reduce manual processes involved in loan origination and closing.
“Sometimes people mistakenly say, ‘Well, it’s just paper, so let’s just convert the paper to electronic,'” Register said. “But you learn very quickly that is not the case.” And that’s why the SMART doc specifications were created.
Register thinks adoption of e-mortgage processes will happen rather quickly once the large lenders convert because about five lenders originate about 60 percent of the real estate loan business, he said, and “Adoption always follows the money.”
Another milestone this year occurred when MISMO partnered with the Appraisal Institute to develop common data standards that bridge the valuation and mortgage-lending industries. And the group is working with other critical industry participants such as notary organizations and county recorder groups to establish data standards.
In addition, electronic notes have played a huge part in pushing the e-mortgage initiative forward, Register said. E-Notes officially represent the collateral on the loan and are what is bought and sold in the secondary market, he explained. To facilitate a working system for e-Notes, the MERS eRegistry was created by the mortgage industry specifically to handle the buying and selling of e-Notes so that more paper could be eliminated from the home loan process.
Secondary mortgage giant Fannie Mae has been accepting electronic notes, or e-Notes, for the last two years, and Freddie Mac is working on accepting the e-Note very soon, according to Gardner of MISMO.
RETS meanwhile, has worked more on the real estate transaction and multiple listing data side. The group has been focused on getting the systems involved in transferring real estate data to speak the same language, but it shares the same goals as MISMO: to cut costs and inefficiencies from the real estate and mortgage industries.
The RETS working group consists of technology developers, MLSs and real estate brokers who share an interest in drafting and adopting technology standards so vendors eventually will all create products that are compatible with one another.The group is self-directed and is open to anyone who wants to participate.
“Hopefully this will result in lower costs and also generate innovation in the real estate business,” said Paul Stusiak, co-chair of the RETS technical workgroup and president of Falcon Technologies, just outside of Vancouver, British Columbia.
An example of how RETS can help industry participants is a real estate brokerage that works in more than one MLS market, Stusiak said. If each of those markets uses a different way to manipulate the data – RETS in one, and some proprietary method in another – the brokerage must build or purchase different systems to retrieve the MLS data. RETS enables brokerages in this scenario to create a common system and reduce costs, he said.
In the last year, RETS participants have been working to establish the next generation of standards, called RETS 2, which will build upon previous work, Stusiak said. The industry currently has RETS 1, which he anticipates will continue to be useful going forward.
“As we move forward, one of the goals for RETS 2 is to improve security,” he said. Other goals of version 2 are to use widely supported standards to prepare the industry for the digital transaction and reduce barriers to entry for vendors.
The initial RETS 2 document will be released during the first quarter of 2006, Stusiak said. The RETS community will review it and provide comments that eventually will lead to a standard. “I fully expect that it will take all of 2006 to come to the official RETS 2 specification,” he said.
The next RETS meeting is slated for December 6-8, in Las Vegas. In addition, there will be a few panel discussions about RETS during the National Association of Realtors’ convention Oct. 28-30, in San Francisco, Stusiak said.
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