BasePoint Analytics, a predictive analytics and fraud management firm, said today that it has launched a new platform for predicting the risk of early payment default (EPD) on mortgage loans. Called BasePoint EPD alert, the solution is targeted to mortgage originators prior to funding of loans and by investment banking firms prior to the purchase of loans on the secondary market.
EPD alert provides a pattern recognition score that can drive more intensive review of "high-risk" files -- the company claims in its press statement
that a 10 percent sampling rate provided 50 percent loan value EPD detection.
I wanted to bring attention to this effort over at BasePoint because its significance lies in the fact that the company sees a market for performing due diligence before a loan is sold on the secondary market -- that's where this solution is targeted.
It's also interesting to see an analytics firm target EPDs specifically, rather than the more traditional due diligence work centering around fraud, credit and compliance.
To say that due diligence was an afterthought during the housing boom would be an understatement; with nearly every loan performing well, and those that weren't easily refi'ing their way into another loan, much of the due diligence work that would seem to be a prerequisite for loan sales went by the wayside. It was merely another cost that ate into margins investors could make, so many technology providers simply didn't look to innovate in this space.
Early payment defaults have clearly come to forefront of the industry's collective consciousness now -- after all, investors are no longer accepting the reps & warranties put out there by many lenders, and many lenders are finding that the loans they put into the secondary markets are coming back to bite them (Clayton
, anyone?). In fact, EPD activity is what's driven the majority of the mortgage crunch thus far, with even the 2007 vintage so far already looking like a lemon
due to astronomically high EPD activity.
For more information, visit http://www.basepointanalytics.com