Banking and Finance Law Daily Wrap Up, MORTGAGES—“Universal mortgage loan identifier” needed, OFR paper says, (Dec 6, 2013)
Organizations Mentioned:Office of financial research
By Thomas G. Wolfe, J.D.
The Treasury’s Office of Financial Research (OFR) has issued a working paper urging the establishment of a “universal mortgage loan identifier” not only to better assist government regulators and researchers in interpreting data produced by the U.S. mortgage finance system, but also to benefit private market participants while protecting individual privacy. The Dec. 5, 2013, OFR working paper, entitled Common Ground: The Need for a Universal Mortgage Loan Identifier, was authored by Matthew McCormick and Lynn Calahan.
Backdrop. The authors note that the recent housing crisis exposed a number of data gaps, risk-management failures, and shortcomings in operational controls throughout the mortgage finance system. For example, the OFR paper points to problems with: connecting loan origination data to loan performance data; tracking loan modifications; verifying loan underwriting practices; and the overall “fragmented data” produced by the system.
The working paper asserts that an important step toward returning the system to a healthy state includes “the universal adoption of a single mortgage identification standard.” Establishing this “single, cradle-to-grave, universal mortgage identifier” would greatly help participants, regulators, and researchers understand a complex mortgage finance system that reflects about 70 percent of U.S. household liabilities and approximately $9.4 trillion outstanding (through the first quarter of 2013). The paper further observes that both the government and the mortgage industry have been exploring the topic of unique loan identification. For instance, in addition to the efforts by the federal Office of Management and Budget concerning “voluntary consensus standards,” the Mortgage Industry Standards Maintenance Organization has recognized and researched “the utility of a unique loan identifier from the perspective of industry.”
Objectives of identifier. After providing an overview of the residential mortgage life cycle and the intricacies involved in ascertaining mortgage data, the OFR paper articulates the main objectives and benefits of establishing a universal mortgage loan identifier. Accordingly, the authors assert that a universal mortgage loan identifier would:
enable more effective supervision, regulation and policy research by regulators—prudential, consumer protection, and financial stability—through reliable dataset matching;
assist market participants with an industry-wide basis for workflow and document management and for data transfers between firms, which could help improve risk-management practices; and
improve information flows to the investing public while protecting privacy.
Best practices. According to the paper, setting up a universal mortgage loan identifier should include the best properties and practices “that have been developed in the establishment of other identifier systems.” Consequently, in creating the universal mortgage loan identifier, attention should be given to: (i) the scope of coverage; (ii) the structure of the identifier; (iii) the free and public use of the identifier system; (iv) the protection of privacy in the system; (v) ensuring an incentive for market participants to benefit from the system; (vi) establishing a registration process; and (vii) maintaining “quality control” of the system.
Conclusions. The “establishment of a single, cradle-to-grave, universal mortgage identifier designed to prevent identification of individuals would significantly benefit regulators and researchers,” the paper concludes. Further, the identifier “could also serve as the foundation of a system that could benefit private market participants, as long as such a system protected individual privacy.” While acknowledging the challenges associated with establishing a universal mortgage loan identifier system, such as balancing competing demands for protecting individual privacy while facilitating better management of data and documents without generating unnecessary costs and burdens, the authors conclude that it still is “a challenge worth meeting.”
IndustryNews: FinancialStability Loans Mortgages Privacy