With the imminent transition to a new unified home loan application comes the leakage of a data file that, according to the Mortgage Industry Maintenance Standards Organization, can lead to processing problems later if not addressed.
Between the soaring loan volume and March 1 for the government-sponsored companies' lengthy URLA transition, MISMO executives said some mortgage-related companies are unaware that a component of Fannie Mae's desktop underwriter program, the 3.2 DU file, will become no longer supported. That's a problem.
“You all know that URLA is coming. What they may not know is that the 3.2 file is no longer showing and they need to replace this record. This is important because it is being used for all of these different purposes that it was not originally designed for, ”Jonathan Kearns, MISMO's vice president, said in a recent interview.
In particular, the 3.2 file has historically been used as the de facto standard for records transmitted to many counterparties that mortgage lenders outside of Fannie Mae work with, including loan buyers and sellers, mortgage insurers and servicers.
As a result, this file is embedded in many industry processes and systems and has been updated with enhancements over time. If support for the file ends in March, those updates will no longer be performed, which creates the risk of mortgage lenders transferring incomplete records. Often times, when systems detect incomplete information, they automatically prevent loans from being routed down the pipeline.
The MISMO community has developed an alternative to the 3.2 file specifically designed as the standard for various information exchanges in the mortgage industry.
MISMO developed this alternative, the data set for industry loan applications, to exchange loan application and subscription data more efficiently and to reduce processing times. The volunteer organization, which is a not-for-profit branch of the Mortgage Bankers Association, consists of industry professionals who come together to agree standards.
“The 3.2 file transfers the entire data record of the loan application, regardless of whether it is needed or not. With ILAD, they can only get what they want and clearly define it, ”said Kearns.
Since its launch in September 2019, ILAD has been adopted by a few lenders, but it hasn't gained as much acceptance as MISMO would ideally like to see, he added.
“Some of the lending systems now have it, and allow lenders to export files in either 3.2 format or ILAD format. Most of the vendors have created the export and some of the import functionality, but it's not fully implemented, ”he said. "However, there are probably more companies than not that don't know this is happening and that don't know that the 3.2 file is being used outside of submission to DU."
Replacing the 3.2 file in wider systems doesn't have to be immediate, and there may well be other projects like the URLA implementation itself that have higher priorities. However, companies should ideally have a plan for figuring out where in their operations the file will be needed. Kearns suggested it be replaced by the second half of this year.
"It should definitely be a project on your roadmap," he said. "It's not something that will stop working on March 1st, but I think a car analogy is great." In this case, the car is at the end of its life and parts are no longer available. So if it breaks you will have to get a new car. "