Automating MISMO Processes

Web services bring new advantages

Implementing industry standards for business processes can do far more than provide a common protocol for operations. Once commodity information or documents are standardized, it makes sense to look at what common actions need to be taken on that data or document - and standardize those as well. From the technology industry's RosettaNet standards for supply chain interaction, to the Automotive Industry Action Group's interoperability initiative for inventory visibility, industries are advancing on standards for implementing business actions and for executing business processes.

The advantage of standardized process lies in the types of business automation it makes possible. With document and communications standards that are relatively mature, and a number of tasks - from credit requests to title, mortgages, and flood insurance checks - that are common to every lender, the mortgage industry is one in which automation is an attractive option with benefits ranging from time and costs saved to more secure transactions.

We're helping mortgage banking customers use Web services to do more than automate simple message exchange, and speed and streamline their operations. From our experience, we anticipate interest in MISMO standards-based interoperability will quicken deployment of Web services over the next 12-18 months. This article explains how Web services can be used to facilitate standards-based operation, using MISMO guidelines as examples.

What Is MISMO?
According to Fannie Mae, the nation's largest source of financing for home mortgages, in 2002 secondary market investors purchased about 73% of all mortgage loans made in the United States. That year, Fannie Mae also issued its first requirements for the electronic creation, sale, and delivery of mortgages, based on the Mortgage Banking Association's (MBA) Securable, Manageable, Archivable, Retrievable, and Transferable (SMART) document data format standard. The SMART Doc standard was designed to bind together data, page view, and signature(s) into a single electronic file.

The Mortgage Industry Standards Maintenance Organization (MISMO) has taken the SMART Doc standard a step further, toward standard transactions. The loan origination and management process is a complex one, and MISMO standards for data format are intended to make it easier for banks to interoperate with customers and partners, and enforce regulatory requirements such as encryption and storage of mortgage data.

Adoption Drivers
MISMO standards are conducive to the use of technology to automate processes, but they don't specify which technology to use or how to deploy it. Why would or should a lender consider adopting MISMO standards? There are several very compelling business and technological benefits.

When a mortgage is made in the primary market, the lender can hold the new loan, sell the loan to the "secondary mortgage market," or package the loan with other loans and exchange them for securities such as Fannie Mae Mortgage-Backed Securities (MBS). Fannie Mae and other investors, including other banks, make up the "secondary mortgage market." The Electronic Signatures in Global and National Commerce Act, or ESign Act, signed into law in October 2000, helped increase the industry's interest in paperless transactions and in MISMO standards. The secondary market has come to accept image documents in lieu of paper as well.

Market events reveal some of the business benefits of adopting MISMO standards. In recent years low interest rates caused the volume of applications to skyrocket. Electronic processing seemed like a good idea to customers in the secondary market, who understood faster, accurate loan processing would help with the spike in volume - and generate more revenue. Freddie Mac and Fannie Mae, the largest U.S. home financing organizations and the biggest purchasers of loans on the secondary market, began encouraging lenders to adopt these standards.

Electronic processing also promises long-term benefits of efficiency, security and flexibility. Manual underwriting is time-consuming, and so reduces profit per loan. It also increases risk for errors and even lost documentation, as well as creating opportunities for fraud. Automation of manual activities contributes to faster, more accurate processing. Some forms of fraud are eliminated by the replacement of physical handling of documents with secure transmission over public networks. Electronic processing also establishes a common set of functions that afford flexibility, in that they can be used again for other tasks.

These benefits underscore the attractiveness of automation as a long-term strategy. Whether consumer demand swells or shrinks, participants in the secondary market benefit from processing turn time and a secure environment - the faster they can sell the loan and the less risky the process, the better their profits.

Where Do Web Services Fit In?
Web services seem like a logical way to harness MISMO-standard data and documents to complete transactions. First, though, it's helpful to understand what standards are contained in MISMO.

MISMO specifications encompass two categories: documents and data sets. The SMART Doc standard referenced earlier pertains to specific records that are expected to be kept on file, whether that file is paper or electronic. For example, property title proves ownership. Just as there are rules that specify margins and the location of text for a paper title document, the SMART Doc standard is meant to provide assurance that any electronic documents and action taken on them - signature, for instance - adhere to an industry-accepted standard.

The MISMO data set standards are, in essence, XML-based data format protocols, and they include:

  1. An XML architecture encompassing data origination, secondary market, and servicing data.
  2. A data dictionary including business definitions and corresponding architecture data element tag names.
  3. A data model to serve as a reference tool for the development of XML document type definitions (DTDs), by illustrating the relationship between data elements in the logical data dictionary. (Note: The data model is not an XML implementation of the MISMO specification; however, an XML schema is forthcoming in the third version of the MISMO standards.)
The data set standards and the tasks they serve comprise the origination, approval, and secondary sale, recording and secure storage of loan-related documentation. MISMO standards address:
  • Origination activity: Automated underwriting request, mortgage application, and closing
  • Loan servicing (e.g., collecting monthly payments): Servicing setup and transfer
  • Related services: Request for credit, flood, title, and mortgage insurance
  • Infrastructure for paperless transactions or "eMortgages": Data elements and electronic signature capabilities
There are other aspects of mortgage banking for which MISMO standards do not yet exist but that are in development, for investor accounting, appraisal, and directory tools to locate eMortgages.

Most of the MISMO data sets imply a process, suggesting that Web services might be a good way to execute tasks using these MISMO standards. In addition, closer examination shows many of the document type definitions - and the processes they relate to - are interdependent. That interdependency suggests the same documents will be called for a variety of tasks, and that it would be efficient to establish a set of services - that is, repeatable processes independent of the data itself.

Using Web Services for MISMO: Compliant Credit Request and Response
Broadly speaking, MISMO standards for data sets stipulate the format for information that banks want to pass back and forth to complete a process or transaction. For example, data is required to initiate a credit request, but in and of itself the data does not represent a credit report (which would be a document). However, data sets in turn can be classed as information that is simply transferred, and as information that fulfills a request.

To execute a MISMO standard, a service description using WSDL would initiate the action that creates or consumes these data sets, automating the process of transacting various elements of a loan and contributing to the end result, a SMART Doc-formatted record.

The Best Approach
As stated, many of the standards for the mortgage process are document focused. For example, "transfer servicing" is defined in XML. But other standards imply process. Operations such as "credit request and response" and "title request and response" are good examples.

Closer examination of the characteristics of each standard - and what it's intended for - will provide clues to the best approach to a Web service. There are two options for designing a Web service to exchange data. The document-literal approach specifies the format and content of data and tends to be used for message-oriented exchange. The remote procedure call (RPC) approach invokes action on the data conveyed, and tends to be more stateful. Document-literal transactions have a smaller payload and are easier to implement, while RPC exchanges are more complex to orchestrate. Another benefit of message-oriented exchange is the flexibility to add and modify content without breaking the service contract.

Because so many MISMO specifications relate to documents, the document-literal approach makes sense for most data sets. We will use it here as a Web service implementation for a request/response data set, such as a credit query. Many other tasks involve request/response data sets, such as mortgage insurance and flood insurance. Not surprisingly, many (DTDs) within the MISMO standards are related.

There are three basic steps to implementing a MISMO standard as a Web service: creating the XML data set according to the standard's definition, organizing the XML data set so that it will be created or consumed consistently, and then writing the WSDL.

The code snippets in Listings 1-3 (these listings are online at illustrate the steps to an implementation of the MISMO Credit Request v2.3 document-type definition. Listing 1 shows the basic format of the request/response data sets, which comprises REQUEST_GROUP, REQUEST, REQUEST_DATA, and SUBMITTING_PARTING elements and attributes.

Next, this DTD must be organized, that is, converted to an XML schema definition (XSD). For this exercise, we converted the code using a Java-based utility called Trang, and Listing 2 shows the outcome. This conversion capability is slated to be built into the next major release of Microsoft Visual Studio .NET 2005. Nevertheless, the conversion from DTD to XSD takes just a few minutes.

The third and final step to creating a Web service is accomplished by using a current Java or Microsoft .NET development tool and this schema definition as the input parameter, to produce the document-literal Web service implementation (i.e., WSDL). The Web service in Listing 3 contains one method, ProcessCreditRequest(), which accepts as an input parameter XML that adheres to the defined schema, and returns a code indicating success or failure.

From DTD to WSDL, the development process can be completed in just a few hours using the current generation of Java or Microsoft .NET development tools. In response to the credit request Web service, a trading partner would direct either their Java or Microsoft .NET development tool at the WSDL file and generate the code necessary to consume the Web service. This capability underscores the ease with which MISMO standards can be implemented as Web services.

Best Practices
Ease aside, certain best practices can enhance collaboration with trading partners on a Web services project, and implementing MISMO standards is no exception. Agreement on several fundamental aspects of interaction will streamline the effort. These include what data will be exchanged and the extent to which MISMO standards will be used for that data.

Trading partners would do well to inventory each others' skills and even certain aspects of their infrastructure. This will reveal ahead of time any differences in staff availability, technical understanding, and familiarity with the MISMO standards, not to mention past experience with Web services and related technology.

Arranging for access to trading partners' infrastructure will help smooth the way for the project as well. We find it's advantageous for each team to include a member with access to the infrastructure. Web services implementation runs counter to conventional development wisdom, in that it requires development work to be exposed to the outside world. Any number of unforeseen access-related issues can be eliminated quickly by the team member with infrastructure responsibility, from changing firewall settings to administering network and machine configuration for a stable connection to partners in the outside world.

By implementing MISMO standards- based message exchange using Web services, banks can establish a platform for automation. And the advantages of automation are astounding - whether or not the method includes Web services. At an MBA conference in March, one financial institution estimated it now processes twice as many loans per underwriter at one-fifth the cost, is 30% more efficient in post-closing review, and cut processing costs by about 75%.

Web services make it easier to add incremental functions to automated processing as well. MISMO recognizes that banks may need some way to automate aspects of the mortgage process that do not yet have MISMO standards. Rather than develop a flavor for each process that involves a request/response transaction, such as credit, mortgage insurance, and homeowners' insurance, MISMO has developed the "enveloping" standard. It stipulates rules for the beginning, middle, and end of a data set, and makes it easy to develop WSDL that can be reused. We find most organizations choose to start with a credit request - a fundamental aspect of any lending transaction - and repurpose the WSDL for another type of request/response function, such as mortgage insurance.

Additional Resources
Organizations and tools abound to help companies build Web services to execute standards-based tasks. These are just a few:

  • Mortgage Industry Standards Maintenance Organization: For a complete definition of the credit request/ response standard, see for the credit request/response action.
  • Mortgage Bankers Association:
  • Association for Cooperative Operations Research and Development (ACORD):
  • Web Services-Interoperability Organization:
  • More information about Trang:
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    Tyson Hartman, Avanade Fellow
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