Governing AI in mortgage lending

Tom W (00:06)
Welcome to The Link Up. My name is Tom Westover. I’m a senior product marketing manager here for Mortgage at MeridianLink. Today I’m sitting down with Brooke Lapides who is the director of partnerships for Mortgage, as well as Brian Vieaux.

So let’s actually just

Jump right into the introduction of who you are, what you do for MISMO.

Brian Vieaux, CMB (00:23)
Yeah, perfect. So I’m coming up on my one year anniversary joining MISMO as president. And prior to MISMO, I’ve spent 35 years in and around the mortgage ecosystem. 30 of those years as a lender, mostly with large regulated financial institutions. Most recently I ran the third-party origination business for Flagstar Bank. And then

Following Flagstar and before I joined MISMO, I was the president of a fintech called FinLocker, where we focused on helping lenders help consumers, specifically early journey first-time homebuyers, become mortgage ready. And you know, I kind of been all around this industry as a lender, as a vendor. And when the opportunity was in front of me to join MISMO, I just really thought about

Kind of the the last chapter, if you will. And it’s pretty cool to be in a place where I literally every day I work for all of you, like Brooke and Tom and your clients. I work for the industry and it’s a rewarding, fun way to kind of think about, you know, the work that we do every day.

Brooke Lapides (01:30)
Thank you so much for joining us here on The Link Up. This is MeridianLink’s first mortgage podcast. And we couldn’t think of anyone better to kick start it than Brian Vieaux the standards guy. So when people hear MISMO, they think data standards, but what do you wish people knew instead?

Brian Vieaux, CMB (01:47)
Yeah, you know, standards is at the core of what we do. it’s literally the middle S in our name, MISMO is standards.

Brooke Lapides (01:54)
Mm-hmm.

Brian Vieaux, CMB (01:55)
But we do so much more than that. One of the things that we talk about is we want people to think about MISMO as the place where the next thing is getting worked on for industry. The place to come together and build the next best thing in industry.

And

No better way to share an example of that is around AI, right? We’re all inundated with AI tooling. And in the mortgage industry, AI governance has now become kind of the topic du jour. So AI governance is not necessarily a standard. We’re not creating a data standard, but MISMO has been asked by industry to help create

Framework, if you will, for lenders to manage the AI that they use in their business and really to govern that AI. And so we became the place where industry could come together and the industry is lenders, vendors, technologists, regulators, GSEs, etc., could come together and create a set of tools that lenders could adopt

To prove their responsible use of AI from a governance perspective. And we’re proud of how quickly we took an idea which came to MISMO almost a year ago at MBA Annual in Las Vegas. And by March of this year, we had already produced V1 of Frame, which is the framework for a responsible use of AI in the mortgage ecosystem. And so, you know, we’re trying to

Get people to think broader and bigger around what MISMO can do for industry. We’re still gonna, execute on data specifications and data standards, but there’s much more that can be done to ultimately help industry lower the cost to produce while maintaining a high quality and then ultimately deliver a better, cheaper, faster experience for the consumers we all serve.

Tom W (03:39)
You launched immediately into Frame and we definitely want to talk about that. could you walk through the toolkit of what frame

Brian Vieaux, CMB (03:45)
Yeah.

Tom W (03:45)
Offers? If there’s a new lender that has no idea what to do, but they know they need to get into AI, like what does it look like? Where do they start?

Brian Vieaux, CMB (03:51)
Yeah, I’ll say things like DIY and I’m not saying them to signal that it’s that easy because anytime you’re gonna build a risk governance process as a company of any type, especially a mortgage lender, there’s a lot to it. But we essentially created frame and and frame today is version one. Version one is three artifacts.

There’s actually five, but two of them are one’s like an implementation guide and one’s a quick start guide. The three artifacts that are most meaningful in frame are number one, a templated policy and procedure document. This is a 10, 12, 13 page template that lenders can download and edit, modify to make it make sense for their particular business model, their business structure, right?

Do

I think some are gonna download it insert name, post, and publish and say they have a policy? Maybe. But it was

Brooke Lapides (04:42)
Yeah.

Brian Vieaux, CMB (04:43)
Built with so much detail that if a lender did that and they followed what they published, then they would have a framework, if you will, for governance. So first thing is this published policy document that references things like Fannie and Freddie’s

Guidance and guidelines and requirements, the NIST and ISO guidelines that already exist globally for AI. So there’s a lot of reference to those things. It also speaks to the cross governance or compliance aspect of governance around fair lending and ECOA and all the stuff that lenders have to comply with. The second artifact, I actually think it’s

Most critical for that small lender that is just starting from zero. It’s an AI use case inventory. It’s essentially a spreadsheet that has well-defined column headers and the implementation guide has kind of a paint by numbers approach like how do I go about populating this inventory? And so what the inventory is meant to do is kind of what it sounds like.

For a lender to be able to produce when asked, not if, but when they’re asked by their regulator, by Fannie, Freddie, or maybe an investor who’s buying loans from them. When they’re asked where are you using AI in your business? They’ll be able to produce this inventory document, right? And so the inventory is meant to capture the direct use of AI.

So lenders may have enterprise versions of Claude or Chat GPT or Copilot or other AI tooling they’re a direct consumer of. But more often than not, the AI that lenders consume, they’re consuming from folks like MeridianLink right? That’s part of the tech stack that they have with their technology and platform providers. And so part of the inventory is helping the lender go through.

And having a conversation with MeridianLink about what are the AI use cases that are touching the loan manufacturing process on behalf of the lender. And then the other area that we highly suggest lenders inventory is the shadow AI use cases, right? The humans, us employees of the companies that might be using personal type tools, and maybe.

Somehow using them in and around the work that we do for our firms, for our companies. And so we talk about this idea of offering an amnesty day and getting all those shadow use cases also on the inventory. if for no other reason as an enterprise, you may uncover some tools that a lot of your team is using. And maybe it’s better if you had an enterprise version of that tool. The third artifact in frame

Is a risk assessment tool. And the risk assessment is essentially to take each one of those use cases that we just identified, whether it’s five, ten, or fifty, and run it through a formal risk assessment process where the byproduct of that is going to tier the risk, medium, high, low. There’ll be some, mitigating factors and then in that risk assessment, it’ll start to cover how I as the lender manage that risk. So those are

The three tools that are are available in frame today. We’re working on versioning, and this will have multiple versions over time. we’re actually already updating some of the policy language and even the inventory tooling and the risk assessment, but there’ll be two additional artifacts that get added to the toolkit sometime later this year, maybe into Q1 of twenty seven. One of them is a

A monitoring tool, right? It’s one thing to inventory and then assess the risk of a use case, but then what does ongoing monitoring look like of that tool that impacts that use case? And then an incident reporting log. We’re gonna have incidents, guys, that come up from the tools we use, whether it’s AI or a non-AI tool, there’s things that happen. And so

The incident log is meant to identify and document those incidents as they occur, identify any changes that you might make in your process around that and also included in that how you govern it. and then collectively, the artifacts and the product of the artifacts is your evidence that you’ll be able to produce again, not if but when the GSCs are asking for it or your state regulators or

Again, your investors, the folks that you sell loans to, or any other interested party for that matter.

Brooke Lapides (08:49)
I love that MISMO has taken this on for the industry because you’re right, it’s definitely not if, it’s when these things are gonna come up and they’re gonna be asked for documentation and I love that you guys are behind the lenders and supporting them. So since Frame launched in June, how’s the reception been? What’s the feedback that you’ve gotten? Are lenders excited to have this in their toolkit?

Brian Vieaux, CMB (09:09)
Yeah, the feedback has been extremely positive. I can’t point to a single negative, like no one’s gonna say, MISMO that was the dumbest thing in the world to help us manage our AI,

Brooke Lapides (09:19)
Yeah.

Brian Vieaux, CMB (09:19)
Right? So

Tom W (09:20)
Yeah.

Brian Vieaux, CMB (09:20)
The feedback’s been largely positive. We had our Fall summit a few weeks back in Reston, Virginia, and we had a session during our summit with Fannie Mae and Freddie Mac

Moderated

By one of our board members, Jay Kingsley from Cotality. The two individuals from Fanny and Freddie are individuals who are responsible inside those shops for their own AI governance internally. And so a lot of the talk on the stage during that panel talked about how Fannie and Freddie look at AI governance and their responsibilities and some of the things they do, but like unsolicited

Each, Fannie and Freddie representatives talked about the quality of the frame artifacts. And one of them said, frankly, frame is table stakes for lenders, right? And so we’re getting even, feedback like that from Fannie and Freddie. And we have large national top ten lenders

Had already been well down the path of constructing their own AI governance.

Infrastructure and protocol. And once they saw frame was available, brought it in, did a stare and compare to what they were looking at. In some cases, frame was spot on with how they were thinking about their own framework internally. In other cases, frame was more specific to mortgage, which is the intent of of frame. And so we’re getting feedback from large lenders around that.

And then just in the last two weeks, a $2 billion a year distributed retail IMB, their CTO, CIO, who’s a friend of mine, had not yet accessed Frame. So they were not yet a MISMO member. They took care of that and then were able

Brooke Lapides (11:00)
Mm-hmm.

Brian Vieaux, CMB (11:00)
To access Frame through that membership. And he texted me. I remember this, he texted me on a Saturday.

And he said, Brian, what I just saw collectively across the frame artifacts, I had spent three plus months researching to start to build up our own, AI governance policies, procedures, and tooling. He’s like, every lender that hasn’t started this process needs to start with frame, because if it saved me three months, it’ll save them, six months or whatever. So

Feedback like that has been really encouraging. What I would add is this is like my little public call to action. Our North Star as it relates to frame from a MISMO perspective is to go beyond Fannie and Freddie kind of acknowledging the tools as A plus from a stage. And at some point we want them saying, Frame is the standard.

For

AI governance. And we believe that happens when Fannie and Freddie see Frame show up more often when they’re doing their audits and their moras and all the things that they’re going to do. And so this is where industry together can influence, a great result for us. So the more of our industry that is adopting frame, even if frame’s a component of your AI governance process,

The more often that Fannie Freddie the states, the regulators see it, it’s going to accelerate their acceptance, I’ll say, right? And maybe down the road they actually endorse it and that gets us as an industry to a great place because it proves to the regulators, to the GSEs and others that we don’t need any new regulations or rules. We can govern ourselves and

The industry through MISMO and this frame implementation is proof of that. And that’s really kind of the North Star that we’re pushing towards.

Tom W (12:43)
No, that that’s fantastic. And with for lack of a better term, the gold rush mentality of AI adoption that everyone is sprinting towards, regardless if they know how to or not. I love the idea of threading this through and baking it in from the ground level and saying, Okay, if you’re going to do this, here are the steps that you need to take. and even from a small, credit union that’s only doing 10, 20 loans a month,

If they’re gonna take on a tech stack like MeridianLink, they do need to know how to do this, right? Are there any certifications, are there any programs that they can go through to get started to have proof of competency just in general to show that we know how to implement this. Here’s the best practice of implementation, etc.

Brian Vieaux, CMB (13:22)
I love that question. From the lender’s perspective, there’s really not a certification per se. They’re gonna be certified when they are able to demonstrate to whoever’s asking questions of them, whether it’s a regulator or an investor or a GSC, that’s gonna be their, quote unquote certification. Having said that, we do believe and we understand that not every lender,

Has the single throat to choke in their organization as it relates to AI governance. Some smaller lenders don’t even have a single person that’s responsible for risk governance, right? You’d see that in regulated financial institutions more often and less often in IMBs, especially smaller ones. and so what we’ve done, is we’ve stood up two certifications that kind of fall under AI governance.

One

Is a a certification of companies that can help lenders of all shapes and sizes and models implement and stand up in AI governance practice with frame as the foundation. We’re in the process of certifying our first half dozen or eight or so of these consultants, I’ll call them. We’re calling it a certified AI advisor.

These advisors and consultants, if you will, are being certified that they have the knowledge and expertise and experience to help implement something like Frame. So that’s one certification that’ll be a great resource for industry. The second certification is for folks like MeridianLink. So for the vendor side of our industry to come to MISMO and get your

Product and or AI use cases certified. Now we’re not certifying that the product does what it says it’s going to do, right? The certification that we do is gonna certify the maturity level of the AI governance of the company, the product, the use case. And the idea is that these certifications, lenders can rely on them for some

Not all, but some of the diligence that they should be doing as they contemplate adding new products, new technology, new vendors, and or managing their existing tech stack partners. So those are the two certifications. We launched those at our Fall summit and we’ve got our first call it 15 to 20 companies that have submitted for that process.

Brooke Lapides (15:35)
That’s awesome. You mentioned the Fall summit. You guys also launched a workshop there as well, didn’t you? Can you tell us a little bit about that?

Brian Vieaux, CMB (15:40)
We did. We

Yeah, there’s it’s twenty twenty six and in February of twenty twenty six as an industry, we celebrated getting to fifteen percent adoption on eNotes as an industry. And I wanna applaud, but come on, it’s fifteen percent.

Is that like the ultimate participation trophy?

I know I’m being harsh, but there’s still a lot of friction that impedes a full digital eMortgage all the way through eNote. And a big part of that friction point was the ability for mostly lenders who are gonna sell to an aggregator. most of the friction is between

The

Lender, it’s warehouse lender, and then the ultimate buyer, the investor on those loans. And so what we found was industry, this is how all problems come to MISMO, and they come from the industry themselves. industry, which was a combination in this case of an investor buyer of loans and a warehouse lender, and a large lender. And the large lender basically said,

We spend about a hundred grand a year just on legal fees related to negotiating tri-party agreements, which is essentially how an eNote gets handled between warehouse investor and lender. And so at Summit, we had a workshop, a three-hour workshop. We had 50 or 60

People participate in the workshop that represented lenders, warehouse lenders, investor buyers of loans, even some technologists. Fannie and Freddie were in the room. And the idea of the workshop was to, spend enough time surfacing the problem, but also not creating a solution in the workshop, but getting to a place where we could understand the scale, scope, and impact if there was a solution to be had.

And I’m happy to say that we knew about halfway through the workshop there was a there there, as they say. And so we’re formally standing up a work group that will kick off in Q4 of this year and we’ll have a formal meeting at our winter summit in January in New Orleans on this try-node. And you know, if we can take a look at, this item that’s a friction point for eNote adoption, and maybe there’s two or three other

Items that are friction points, how cool would it be if this time next year we are applauding that we just went from 15 to 25% adoption. Informally we’re calling it our drive to 25.

I still feel like 25’s too low of a bar. you know, If you look at companies like Veterans United, they’re pushing north of 75%

eNote adoption and it has massive, massive economic benefit to their cost to manufacture and ultimately to the experience of the consumer. If you think about the highly digital experience that consumers go through with lenders, especially lenders that work with platforms like MeridianLink, only to get to the final mile, the last mile, the last stretch. And now we got a paper execute and note.

Right. And so, if we can just, keep chipping away at those remaining friction items, I do think we have a really good shot at continuing to push adoption of eNotes to a much more meaningful level.

Tom W (18:40)
Would you be able to dive just a little bit deeper into what those friction points may be? With that lower adoption? What are some examples that you think are causing those? Yeah.

Brian Vieaux, CMB (18:48)
Yeah, I think well I think the big

Example is what we’re solving for with the tri party agreement if I’m a lender and I need three, four, five, eight investor buyers, it still comes down to best execution, right? If I’m a lender and I’m originating a mortgage, I have to make sure I can originate it in a manner that optimizes my execution, right? And so

Tom W (19:10)
Mm-hmm.

Brian Vieaux, CMB (19:11)
If today I only have one or two buyers of eNotes, it doesn’t make a whole lot of sense for me to go scale massively and turn my machine into an eNote producer. But if instead I have 10, 12, or 15 buyers of eNotes across all products, well now I can really lean in at the lender level and change my manufacturing process to be e first, right? And so I think that’s probably the most tangible one.

We have an active eMortgage community of practice and they’re talking about this every month in their meetings. Like what are the other friction points and when something else or whatever the next thing that comes up where a MISMO work group can be part of the solution, then that’s what we’ll work on.

Brooke Lapides (19:49)
Awesome. Thank you so much. last question for our lender clients who are listening and saying, hey, we really need to see frame. We need some of these certifications. and maybe they are or not a MISMO member, what’s the best way for lenders to get a hold of that?

Brian Vieaux, CMB (20:03)
The good news is there’s well over six hundred lenders today who are active MISMO member companies. So there’s a good chance that your company is a MISMO member. And so if that’s the case and you also happen to be an MBA member, the same login you use for Mortgage Bankers Association, you could use to log into MISMO Connect and then you can navigate to frame.

If you’re not an MBA member, somebody in your company who’s the MISMO contact can set you up with credentials. Look at I’m an email away. I’m on LinkedIn. You can hit me up directly and we’ll tell you whether your company is a member or not. If your company’s not a member and you want to get set up ASAP for access to frame, hit me up on LinkedIn. You can email me. It’s B, my first initial in my

First name, last name at mismo dot org. So B Vieaux at mismo dot org. And we’re three quarters of the way through calendar year twenty six. So we can get your company set up for membership at a significant reduced price so that you can get immediate access to frame. We do have a landing page on MISMO dot org. That’s the public website. So if you go to mismo dot org, navigate to

I think it’s the second nav bar at the top. or you can just type in frame in the search. We have a full landing page to frame. There’s short tutorials on those three artifacts I described. And then there’s a link in there to either access them if you’re a member or to reach out to us to get set up.

Tom W (21:27)
Fantastic.

Brian, thank you so much for your time and for kicking off this podcast with us.

Brian Vieaux, CMB (21:31)
And by the way, guys, the your logo is awesome. I love the new logo. It looks great.

Tom W (21:35)
Thank you.

We appreciate that.

Brooke Lapides (21:37)
Thank you. We were

Very proud of our creative team that came up with it. love the rebrand,

Brian Vieaux, CMB (21:41)
It’s cool.

Brooke Lapides (21:42)
The refresh. our tagline is Lending Made Human and it’s perfect for MeridianLink.

Brian Vieaux, CMB (21:46)
Love it.

Tom W (21:47)
Much.

Brooke Lapides (21:47)
You’re the

First official guest of the mortgage version of The Link Up and we couldn’t have picked a better one. So thank you for your time and thank you everyone for listening.