The advent of the truly electronic mortgage transaction took a major step forward last week with the announcement that Fannie Mae and the Mortgage Bankers Association have entered into a "milestone" agreement to develop and adopt neutral, industry-wide technology standards and guidelines.

"If two years from now there really is such a thing as a paperless mortgage, this is the day they will point to," said MBA Senior Staff Vice President Howard Glaser. Under the pact, the MBA and Fannie Mae will cooperate in the creation of the common interface that is necessary if electronic documents are ever to replace printed forms on a widespread basis.

The agreement also signals a new spirit of cooperation between the trade association and the beleaguered government-chartered company, which has been criticized widely for over-stepping its bounds, especially in the area of technology.

"This is the right way to resolve issues involving new technologies," said MBA President Andrew Woodward, who held up the agreement as a "blueprint" for how the industry and (government sponsored enterprises) can work together to create a level playing."

Both Fannie Mae and its chief rival, Freddie Mac, are giant "government sponsored enterprises" that buy loans from local lenders -- if the loans meet certain standards. They operate in the so-called "secondary mortgage market," where they purchase loans from local lenders and package them into securities for sale to investors throughout the world.

Because they help lenders keep their vaults filled with cash, the two companies are vital to the efficient operation of the mortgage business. Without them, lenders would run out of money and would not be able to make new loans until their old ones are paid off. As a result, they exert of strong influence -- some would say stranglehold -- on the market.

Of late, both Fannie Mae and Freddie Mac have been called on the carpet by many within the housing finance sector for racing to develop their own brands of proprietary underwriting technology and then imposing them on lenders, mortgage insurers, title firms and other vendors -- some of whom spent millions to develop their own electronic platforms.

That, "more than anything else, is what has created a lot of the tension" between the GSEs and the industry, said Glaser, who views the agreement as Fannie Mae's pledge not to do business that way in the future. "We are going to work together with no one player in a dominant role," he said. "That's a very different approach."

Under the three-part pact, the MBA and Fannie will develop a common "interface" between trading partners and a security system for web-based mortgage transactions. An "interface" is a common platform open to all users.

Electronic transaction standards will allow "e-mortgages to cut costs and streamline the process," said Fannie Mae Vice Chair Jamie Gorelick. The standards will "save time and money by allowing lenders a quicker time to market with interfaces between trading partners," Woodward added.

Freddie Mac announced its commitment to MISMO more than a year ago but has yet to sign a definitive agreement with the MBA. However, Glaser said he "fully expects" the two organizations to come to similar terms shortly.

Fannie also has agreed to publish its e-mortgage guidelines exclusively through the Mortgage Industry Standards and Maintenance Organization, a group created by the MBA just over a year ago to make sure electronic mortgage transactions are transparent and uniform.

For more articles by Lew Sichelman, please press here.

Published: May 14, 2001

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.