Why the UCD Is Good News for the Whole Industry
By Cathie Ericson | April 19, 2016
Android users usually discover something pretty quickly when they’re on a group chat initiated by iPhone users: Their messages are frequently dropped, and pictures often are not transmitted. The two languages just don’t talk to one another.
That’s much like the translation issues that government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac intend to fix by implementing the Uniform Closing Dataset (UCD). The standardized industry dataset will support the Consumer Financial Protection Bureau’s (CFPB’s) closing disclosure process.
No Longer Lost in Translation
“The UCD will lead to greater understanding of transactions,” says Lisa Mitiguy, product manager of strategic initiatives for Fannie Mae. “One lender will be calling a value the same thing as the next, and this consistency will create accuracy and reduce overall risk.”
The goal? Preventing another housing meltdown. Without a standard way to communicate values and other data, rampant miscommunication contributed to market distress during the housing downturn.
”The GSEs recognize the importance of a standardized data language to communicate closing disclosure information,” Mitiguy says. Using the UCD will eliminate the need for translation, which will streamline transactions and allow companies to devote resources to value-added activities.
The Time Is Right
Since October, firms have been consolidating their closing documents from two documents – the final Truth in Lending (TIL) disclosure and the HUD-1 Settlement Statement – into the new closing disclosure form. This is paving the way for switching over to UCD.
Some forward-thinking firms, like Sierra Pacific Mortgage, began changing their forms parallel with TILA-RESPA Integrated Disclosure (TRID).
“We knew the UCD was coming, so we took the plunge and mapped our data to the Mortgage Industry Standards Maintenance Organization (MISMO) 3.3 standards as part of our TRID preparations to produce the loan estimate and the closing document,” says Jim Connell, chief information officer of Sierra Pacific Mortgage. “There may be some reinterpretation of the MISMO structure along the way, but we have accomplished the heavy lifting.”
“Because firms have historically been slow to adapt, the key is not in defining the standard but driving its utilization,” says Nancy Alley, vice president of strategic planning at Simplifile™.
That’s why the GSEs have set 2017 as their definitive date for mandating the UCD on the loans they acquire, offering an ample planning shoulder.
“One of the lessons of Uniform Collateral Data Portal® (UCDP®) was that you have to give the industry time to adapt. They have to change the software by analyzing what’s needed, then write, develop, and test it,” says Connell.
Mitiguy acknowledges it won’t be easy. She has been partnering with lenders and technology solution providers on conducting advisory forums and webinars to make sure implementation goes as smoothly as possible.
Benefits to the Industry
While there may be short-term pain, the goal is long-term gain. “Once we get through the transition and implementation period, parties will no longer have to support multiple formats to communicate this information,” says Mitiguy.
She expects that removing the rote work of translation services will enable companies to focus on differentiating themselves to their customers through other services.
“Once they can agree that we’re all doing a handshake with the UCD, they have greatly reduced the effort both sides have to undertake to normalize how they communicate,” she says.
According to Alley, taking a paper process and making it electronic is a step in the right direction. But a standardized dataset will allow everyone to truly innovate. “When the data is the asset – rather than the document – and you trust the data like you do the document, then you can completely reengineer the mortgage process,” she says.
“We’re going to enter a world where you are considering how to build services based on trusted data, rather than the trusted document process. This mind shift will lead to a myriad of new analytical tools and software for servicers and investors.”
And, she adds, easy access to the data will create opportunities for automated quality control and due diligence activities. This will replace document-centric and labor-intensive processes such as visual comparison and re-keying.
Connell says UCD will help his firm handle loans from small correspondents. The partial data uploads the firm receives today may require manual review and corrections. “As all loan origination system (LOS) vendors update their software to export files in the standard UCD format, even smaller originators will be able to produce UCD-compliant files when selling their loans. And that will create a smoother process.”
He also sees more opportunity for data sharing. For example, when the closing agent gathers information for the seller side on their system, a common data format will allow easy integration for quickly populating the data in the lender’s LOS. These faster, more efficient transactions will also be more accurate. Which all translates into cost savings that can be passed on to the customer.
Finally, Connell believes that data from UCD will ultimately produce a beneficial product, much like Fannie Mae’s Collateral Underwriter™. It resulted from the standardization of appraisal protocols.
“After four years of collecting detailed information on appraisals of every housing transaction, Fannie Mae used its expertise to create this fantastic tool. It then offered it free to lenders – with the goal of driving quality in the marketplace by helping to prevent fraud and reduce risk through more accurate property evaluation.”
Fannie Mae will likely be able to apply that same concept to a rich closing dataset, he says. “It will be fascinating to see the type of reporting and data analytics that this can generate, allowing us to better serve our customers.”
Cathie Ericson is a freelance writer for online and print publications – such as The Oregonian, Learnvest.com, and Forbes.com – and has been writing for Housing Industry Forum since its launch.