Targeting Valuation of Subordinate Loan Pools

After sister organization First American CoreLogic rolled out a solution earlier this week to help lenders and investors identify hidden second liens tied to their first lien positions, First American Subordinate Lien Outsourcing — another member of title insurance giant The First American Corporation (FAF) — said Wednesday that the company had rolled out a platform designed to help investors value subordinate loan pools. Called the Tool for Reserve Underwriting (TRU) Scoring Model, the platform defines the potential loss, predicted recovery and velocity of recovery on a monthly timeline for a subordinate loan pool. The company told HW that it created TRU Scoring to address the risk management needs of Wall Street and hedge fund clients. The platform delivers gross recovery cash-flow projections on a 24- to 36-month basis for a pool of performing and/or nonperforming subordinate lien assets, projecting recovery based on internal collection experience with similar types of collateral. Prepayment and collateral performance data also can be used to determine forward market pricing for second liens. We mention this platform for one simple reason: second liens, despite the press being focused elsewhere these days, remain the single largest hurdle for most lenders, servicers and investors attempting to manage loss mitigation operations in some of the nation’s hardest hit housing markets — particularly California and Florida, where borrowers relied on second liens to afford their homes. And wek now that more than a few investors are looking to begin trading in second liens, which we’re told are trading at roughly 5 cents on the dollar for distressed seconds. “It has been an invaluable solution in managing performance expectations in relation to market servicing benchmarks for the 100,000 distressed junior lien assets that we monitor in our operation,” said Brett Benson, director of analytics at First American Subordinate Lien Outsourcing. Benson previously was managing director for Bear Stearns & Cos. in its mortgage trading departments, for those with industry history. For more information, visit

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