Clayton Holdings Inc. said today that it has launched Clarity, a new platform for risk assessment during due diligence. The platform gives loan buyers/securitizers greater insight into the risk profile of mortgage portfolios at the time of purchase, as well as a projection of future losses and new options to reduce potential losses. From the press release:
Unlike traditional due diligence, which simply reports on whether or not loans meet an acquirer's guidelines, Clarity scores individual loans and the overall portfolio for credit, compliance, collateral and estimated loss risk. Using these risk scores, clients can more effectively target their due diligence reviews using a modular approach. Best-of-breed, third-party data and technology can also be integrated into the process to assess collateral and fraud risk.
What's stunning to me is how nobody -- and I mean nobody -- in the mortgage business was interested in including "risk assessment" into the definition of portfolio due diligence as recently as even one year back. Too much cost, nobody wants it, and it eats away at investor's returns, was the common refrain I heard from most when I asked why 'due diligence' in mortgage securitizations wasn't really the same thing as the 'due diligence' I'd learned in mergers & acquistions. Can you image Company A buying Company B because the balance sheet was deemed to have "met an acquirer's guidelines?" (That's a rhetorical question, and you'd better be saying no way in hell). I saw today that seven out of ten consumers blame mortgage lenders for the subprime mortgage mess, placing far less blame comparatively at the feet of investors. My takeaway here is that seven out of ten consumers have no idea what they're talking about.