July 29, 2020
Topics: KC's Column
There is an old saying that has particular relevance to the focus of this week’s WIN, and it is: “There is a time and a place for everything.”
This week in the midst of the COVID-19 pandemic with a second wave of business shutdowns playing out from California to Florida in response to new record daily cases (surpassing 70,000 daily cases a week ago), Congressional debate over a fifth round of fiscal stimulus to sustain an increasingly strained economy, and increasing deterioration in commercial real estate credit metrics such as loan delinquencies that now exceed 10% and rival the 2009 Great Recession, the MBA and MISMO Monday released for a 60-day public comment period ending September 21, 2020, proposing new data standards for commercial property appraisals. These new data standards have been in the works going back to 2018 and are significant. The question that immediately occurred to me and so many appraisal and mortgage industry colleagues was: Why now?
The concern is not that these data standards have merit or can enhance appraisal information collection and use; rather, the concern is one of timing. Now is not the time to burden an already strained mortgage and appraisal industry with a public-comment period on a material change to data standards that will be disruptive. These new data standards are not a minor tweaking of what is in existence; rather they are quite material. Regardless, appraisers, banks, users of appraisal services, mortgage settlement service providers and an overburdened Freddie Mac and Fannie Mae dealing with record volumes of loan forbearance requests need to add yet another to-do item to their top-priority list and respond during this 60-day public comment period. Not responding could have material unintended consequences causing appraisal disruption later this year and next when mortgage credit metrics worsen further as stimulus and forbearance intervention abate. Deteriorating existing mortgage credit metrics will trigger updated appraisal requirements by bank regulators, mortgage services and FHFA at a time when appraisers will have to revisit report and data transmission systems to comply with these newly adopted data standards. What was MISMO thinking with regard to the timing release of these new appraisal data standards and request for public comment in the midst of a pandemic?
Who is MISMO?
Those familiar with the Mortgage Bankers Association (MBA), the mortgage lending process interfacing with Fannie Mae or Freddie Mac, or the Consumer Finance Protection Bureau created in the wake of the Dodd-Frank legislation are probably familiar with the MISMO acronym. MISMO stands for the Mortgage Industry Standards Maintenance Organization.It is a not-for-profit, wholly-owned subsidiary of the Mortgage Bankers Association (MBA) and is responsible for developing standards for exchanging information and conducting business in the U.S. mortgage finance industry. It is a big deal as the standards promulgated by this organization are the data protocol utilized by virtually every entity involved in originating, servicing, securitizing, or regulating mortgages in the United States. It impacts mortgage lending activity and reporting standards at banks, credit unions, mortgage lenders, Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing Administration and the Consumer Financial Protection Bureau – and it affects many commercial real estate professionals such as settlement services providers, real estate appraisers and other third parties such as mortgage servicers, rating agencies and the CMBS market. In all, approximately 175 member organizations representing a cross-section of the residential and commercial mortgage industries are impacted and actively engaged with MISMO. MISMO has grown to a large and complex organization with far-reaching influence to every tentacle of the real estate mortgage industry; therefore, when MISMO speaks, the industry listens (to borrow a mostly forgotten advertising slogan from E.F. Hutton brokerage in the 1970s).
What is the basis for MISMO?
MISMO states its mission is “to drive standardized data and information and improved business practices between all mortgage stakeholders through collaborative and innovative initiatives that improve efficiency, reduce costs and facilitate stakeholder success.” Both the MBA and MISMO promote its existence to the mortgage industry as “a basis to lower per-loan costs, improve profit margins, reduce errors and speed up the loan process by reducing manual, paper-based processes and creating cost savings for consumers.” And all that is good for our CRE finance industry. There is no objection in this WIN to the stated mission of MISMO or the MBA.
What is involved with the new MISMO appraisal data standards?
This past Monday, July 27, 2020, MISMO's press release on these new appraisal data standards initiated a 60-day period for public comment. Mike Fratantoni, President of MISMO and Chief Economist and Senior Vice President of Research and Industry Technology with the Mortgage Bankers Association characterized the proposed data standards release as follows:
"MISMO's new proposed commercial appraisal standards improve communication between lenders and commercial property owners through exchanging commercial data more efficiently,"
The press release went on to note some nuggets highlighted below that should give all appraisers and mortgage servicers some reason for concern as these new data standards will require time and effort to update/upgrade appraisal reporting and data transmission systems, as well as training of staff on new terminology.
“The Commercial MISMO workgroup brought together stakeholders starting in spring 2018 to create a better experience for conducting and exchanging appraisal information for commercial property. This release includes the stand-alone Commercial Appraisal Dataset specification, along with several additional resources to facilitate ease of use and adoption including an implementation guide; logical reference structure; logical data dictionary (LDD); documented use cases in Excel; as well as sample XML files for each use case. Note that legacy MISMO commercial specifications will be updated to include new and modified data points, enumerations and structures associated with the new Commercial Appraisal Dataset at a future date.”
The Appraisal Institute (AI) is a MISMO sponsor and participates in the Working Groups that promulgate items like these new appraisal data standards. The AI has some news postings as to these new proposed data standards, and it is largely supportive of them, although they too are concerned about implementation timing during COVID-19 for their appraisal members.
The concern for appraisers is not whether these new MISMO appraisal data standards are good or bad, but the timing of their release when all aspects of the appraisal and mortgage industries are under strain, and with a relatively short public comment period. If adopted after the comment period ends September 21, 2020, implementation timing is unknown. MISMO needs to appreciate these changes are material and will require the appraisal and mortgage industries time, resources and IT CapEx to update/upgrade reporting and data transmission systems and training for impacted appraisal, underwriting and servicing professional staff. At a minimum, this timing concern should be voiced to MISMO during this comment period.
NATIONAL NETWORK MEMBER NEWS
ACRE COVID-19 COVERAGE
LEGAL / RISK MANAGEMENT