Magazine article Mortgage Banking

EDI: Setting the Record Straight

Magazine article Mortgage Banking

EDI: Setting the Record Straight

Article excerpt

After several years of cooperative effort, the mortgage industry has begun to seriously embrace the American National Standards Institute (ANSI) X12 data standards. The X12 standards provide the basis for electronic transmission of data between the different industry organizations. Widespread adoption of X12 is also a prerequisite for any form of electronic commerce.

Recently, however, software vendors who vigorously oppose ANSI X12 have published many articles. This publicity is mostly due to a misguided effort to protect their proprietary data format on which they have built dominance in a niche market. The rhetoric has swayed many customers from demanding ANSI X12 compliance in the products they use. Although this may seem like the easy way out, it basically means that customers are giving up their freedom of choice in selecting software products based on price and functionality.

This month we will examine several claims made by ANSI X12 opponents and set the record straight so that mortgage banking managers and executives can make a more informed decision about buying or building X12-compliant software.

CLAIM 1 -- ANSI X12 standards have been promoted mainly by the Mortgage Bankers Association.

In fact, the standards in the real estate finance industry have been developed, and are supported, by the following organizations: American Land Title Association, America's Community Bankers, American Bankers Association, Associated Credit Bureaus, Appraisal Institute, Fannie Mae, Freddie Mac, GNMA, Department of Housing and Urban Development, many of the mortgage insurance companies, credit reporting companies and most of the larger mortgage banking firms. In addition, many representatives of vendor firms have participated throughout the development effort. Those that do not support the effort should not imply that there is a narrow base of support.

CLAIM 2 -- If X12 were so great, customers would demand it in their products. The fact that they're not means they are happy with proprietary data formats.

Change has many enemies; the status quo has few. It may appear very easy to simply let things stay as they are. However, buying into a proprietary standard ultimate gives a company little choice in selection of vendors, since the cost of converting to the new format is a barrier. Vendors know this fact and exploit it to their advantage. Mortgage banking managers have to ask what advantage they gain.

Indeed, often overlooked in technology budgets are the hidden costs of building and maintaining interfaces between incompatible products. To use a real-world example, assume a large lender is using two different credit bureaus. In today's loan processing systems, the demand is to allow for credit report orders from directly inside the application. This requires that an interface be built between the loan processing software and each credit bureau's software.

Now assume the lender is considering a third credit bureau, either because of price or functionality. The systems cost of building yet another interface can play a role in limiting choice. How much better to have one interface built on the X12 standards than a number of custom jobs. Moreover, if the loan processing software program changes, the interfaces may have to be updated or at least retested. …

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