MISMO dinner: Talking about tipping points

I attended a dinner last week with the joint leadership of the Mortgage Industry Standards Maintenance Organization (MISMO). Attendees came from the residential mortgage business, the commercial mortgage business and the Mortgage Bankers Association (MBA, which owns and manages MISMO). I was invited because I serve as co-chair of the board for the Commercial Mortgage Industry Standards Maintenance Organization (known as cMISMO).

About 30 people attended the dinner, with two of us representing cMISMO and about eight representing the MBA. The rest of the attendees are leaders in the creation and use of MISMO standards in the home loan business. This group’s three-day conference on how to implement MISMO standards was attended by almost 200 people. While a conference that “only” attracts 200 people might not sound big, compared with the two of us from the commercial side, it sure felt impressive.

My end of the table had a senior person from Freddie Mac and an executive from Ellie Mae, as well as folks from a title company, a document management company and a consultancy. A few guys were involved with MISMO from the beginning, so they were able to describe the evolution from MISMO’s inception, through the time they split cMISMO from the residential business, to where MISMO is today as the premier standards body for such a big and visible asset class.

I was hoping to pick up some wisdom on how standards actually get adopted, so we talked about various success stories (document standards for example) and what “tipping points” happened to drive adoption. We also talked about challenges such as elusive and non-existent data elements (universal loan number, for example) and how those frustrations are best dealt with.

I asked the experts why they thought MISMO has been so much more successful than cMISMO. They said: When MISMO first started, most people from the commercial side believed commercial deals were too complicated to be standardized. Therefore, they never made commercial standards creation a priority.

The residential side had the opposite belief (at least somewhat) and took the position that the product and business could indeed be standardized. Since the residential and commercial businesses really are separate industries with different companies, management teams and vendors, leadership decided to split out the less-than-serious cMISMO effort and focus efforts on solving their own problems. Residential standards have developed as far as they have because enough people in the industry created tipping points by working together. The result is several operable industry standards. On the commercial side, this has not happened.

By the end of the night, most agreed the anticipated Dodd-Frank financial regulations and securitization reform will be a major tipping point for both the residential and commercial mortgage businesses. After spending time with these folks, it’s clear residential is a lot more ready than commercial.

Ready or not, here it comes.

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Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.