EDI: The Future of Mortgage Banking Has Arrived!

Although many members within the mortgage industry are already communicating electronically, their attempts to move towards a paperless environment have been hampered by the absence of standard data formats. Until now, consistent, automated connections between lenders and service providers such as mortgage insurance companies, credit bureaus, appraisers, etc., have not existed. This has forced lenders to revert back to a time-consuming, paper-intensive flow, that requires constant re-entering and re-printing, not to mention re-validation, of similar data.

Efforts to improve the flow of mortgage information started in the 1970s with the approval of standard paper form layouts. With the advent of automation, the mortgage industry began to envision a "paperless" environment where data could be stored and transmitted electronically, at the touch of a keystroke.

The industry is now exploring ways to manage workflow and enhance productivity electronically through the implementation of EDI (Electronic Data Interchange). EDI is a form of electronic communication that allows two external organizations (or "trading partners") to exchange business transaction information in predefined, structured formats, replacing paper-based exchanges.

The goal of standardized EDI is to identify common mortgage information and define standards for exchanging that information electronically so that it can move smoothly and efficiently between different service providers regardless of what computer platform, operating system, or program is being used at either end of the exchange. Just as letters are used to form words and words are used to structure sentences, data elements are arranged into data segments, and data segments are arranged into electronic formats reflecting paper forms.

EDI has been used successfully in many industries to increase efficiency and productivity, reduce costs, shorten critical service windows, and improve customer service. It uses nationally approved and maintained standards designed by the American National Standards Institute's (ANSI) EDI committee, known as Accredited Standards Committee X12.

The X12 equivalent of a paper form is known as a transaction set . Transaction sets exist for invoices, financial information reporting, payments, tax information reporting and so on. The mortgage industry's first approved X12 mortgage transaction sets were the Mortgage Insurance Application (X12 #872) and the Mortgage Insurance Response (X12 #263).

From a broader perspective, the approval of the MI transaction sets also brings with it the approval of data segments that can be easily used in other mortgage transactions, such as the credit report, the appraisal, the mortgage loan application, and secondary market transactions.

Transaction sets for the most commonly used mortgage forms are currently under development and should be finalized and approved sometime in 1994. The Credit Report Order (X12 #833) is in final revision right now and the Credit Report itself is in draft format. Both should be approved in a matter of months. Once these transaction sets are approved, the mortgage industry will finally be able to move to a truly "paperless" environment and realize the numerous benefits (productivity gains and improved customer service to name a few) that technology can provide.

Copyright 1993 PMI Mortgage Insurance Co.