The residential mortgage backed securities market has been a bit like a beached whale over the past couple of years in part due to past risk management and performance reporting considered by investors to be incomplete and out of date, a gap that new risk tech solutions are hoping to bridge.
"If loan level data can be provided, and assuming that the data gets scrubbed, it's better for the overall mortgage industry," says John Jay, a senior analyst at Aite Group.
In an attempt to help servicers and other financial institutions sell existing RMBS and create more investor confidence in future originations and securitization across all mortgage types, risk management tech platforms and services have emerged from firms such as Standard and Poor's Valuation and Risk Strategies unit, as well as CoreLogic.
Better risk reporting can't come too soon, as the lack of trust in real estate and loan valuation on behalf of investors has played a role in the RMBS market hitting a historic wall. According to Moody's research, new issuance of non agency RMBS "ground to a halt" in 2009, with recovery not likely until later this year or in 2011. "There hasn't been a lot of new issuance in the residential MBS market over the past two years," says Damien Weldon, vp, credit risk products and analytics for CoreLogic, who says there's a "greater hunger than ever" for more detailed information on loan portfolios delivered with "zero latency."
To monitor month to month performance, investors and the banks will need to have access to granular and timely loan level data, says Rui Carvalho, managing director for global data solutions for Standard & Poor's Valuation and Risk Strategies unit. The S&P unit just entered an agreement to offer new analytics for RMBS using the 1010data service, which offers data warehouse and business intelligence products. The S&P unit provides loan level performance data on subprime, alternative-A, prime jumbo and additional collateral types.
The desired benefit of the partnership is to make outstanding RMBS more transparent, which can boost sales and eventually open up other parts of the origination and capital markets as the overall market for residential mortgages and RMBS improves. "[The market] will be able to put a value on a loan and trade it. And you can get a better sense of performance in the future," says Bill Berliner, an asset-backed securities analyst.
Risk Data as a Service
S&P's loan level data includes origination details and dynamic data such as delinquency status, current balance, current rate, and other data points-sourced from dozens of mortgage servicers, master servicers and trustees. The S&P unit will be able to use its relationship with 1010data to allow institutional and investor clients to tailor analytics around each loan within a portfolio. All loans are placed into a standard format, with analysis of current valuation, REO, and LTV ratios-an improvement over most legacy loan level MBS risk management systems which list most of these measurements at the time of the loan's origination. "Mortgages have been going south a bit, so property values have been going south," says Kevin Smith, tktkt at the S&P unit, which did not release uptake number for the new product. "Linking the loan's performance to the actual property that collateralizes the performance is what's new."
The S&P partnership is the latest coup for 1010data, which provides analytics and ad hoc query tools to analyze large amounts of loan and MBS/ABS deal level data. The firm, which counts Bank of America, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Nomura, RBS, Greenwich Capital and UBS among its dealer clients and Alliance Bernstein, PIMCO and Putnam among its money management clients, sets up the data servers and provides users with an interface to access data, analyzing thousands of pools, more than one hundred million loans and billions of payment records.
"It has a unique model in that [1010data] runs data 'as a service.' The credit crisis has really put them on the map," says Donald Feinberg, a vp and distinguished analyst for Gartner, who says MBS market participants can increase deployment speed as well as shave some IT costs by having their MBS data managed "as a service." "During the crisis, [1010data] could get [loan level risk analysis] applications up and running for [institutions] that didn't' have them."
At CoreLogic, a new project has combined a collaborative suite of risk management products under the Loan Performance brand that measure the performance of mortgage loans, the underlying real estate collateral and risks associates with the actual borrower.
The "data repository" includes a simultaneous analysis of multiple information resources affecting the performance and value of mortgage loans in a portfolio, including historic ownership patterns, possible fraud and component parts of securitized bonds. By viewing loans form these multiple perspectives, the repository spots risks and anchors the loans in a time frame.
The solution, which leverages the firm's huge database of mortgage transaction data, is designed to give lenders and servicers a way to present a single source of information to secondary market or MBS investors. "Investors want information in a one stop shop, rather then from five or twenty vendors," Weldon says.
This article can also be found at AmericanBanker.com.
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