Freddie Mac and its larger cousin, Fannie Mae, are fierce competitors in the secondary mortgage market. But the two companies could make paperless real estate purchases a reality, thanks to their support for Web-based mortgage transactions.
Both organizations have agreed to support eXtensible Markup Language (XML) standards established by the Mortgage Industry Standards Maintenance Organization.
That support will likely mean dramatic changes for hundreds of companies, from lenders to vendors, that participate in the domestic housing market. That market is expected to generate roughly $1.52 trillion worth of new mortgages this year. But the mortgage process is slowed and made more expensive by the reams of paper needed for loan applications, credit reports, surveys and other documents.
"Going to XML will reduce paper, increase speed, increase accuracy and lower costs," said David Barkley, director of e-commerce relations at Freddie Mac.
Freddie Mac estimates that moving to the MISMO standard could reduce origination costs for each loan by up to $700 — savings that would be passed on to consumers.
With 2000 revenue of $30 billion and $44 billion, respectively, Freddie Mac and Fannie Mae are the monsters of the mortgage business. Together, they buy about two-thirds of all conventional single-family home mortgages. The two companies are government-sponsored enterprises created by Congress — and given access to federally backed lines of credit — to help promote home ownership. They buy mortgages from lenders, package them as securities and resell them on the open market to investors.
For big banks and small niche players alike, the adoption of the MISMO standard leaves little room for the old ways of doing business. "If you want to sell loans to Fannie [Mae] and Freddie [Mac], youll use those standards — end of discussion," said Richard Lewis, chief information officer at ClosingGuard, a Web-based real estate transaction closing service.
Like many other companies, Freddie Mac and Fannie Mae want to minimize the amount of paper they handle. The MISMO was created in January 2000 to create an XML format that could be used from the initial loan application through the "securitization" of that loan on Wall Street and the servicing of the loan by vendors. "The obstacle is getting consensus across the industry for what we call data, " said Gabe Minton, senior director, industry technology, at the Mortgage Bankers Association of America, which oversees the MISMO.
The current version of the MISMO standard enables the translation of 2,000 terms, including the borrowers name and address. But as the standard evolves and more paper-based elements of the mortgage process are converted into XML, the number of terms that the standard will define will likely exceed 4,000, Minton said.
Although the move toward the MISMO standards has begun, most observers believe it will be two to three years before consumers will see paper-free home purchases.
Jamie Gorelick, Fannie Maes vice chair, announced last month that her company would support the MISMO standard. Freddie Mac declared its support for the MISMO standard in March 2000.