TransUnion, First Am Tout Loan-Level Risk Management
Chicago-based credit bureau TransUnion said Monday that it had partnered with First American CoreLogic to roll out a new risk management platform that pairs consumer credit data with loan-level information. "Billions of dollars in mortgage securities were traded without visibility into the risk of the underlying borrowers of the loans backing the securities, focusing instead on pool-level home price appreciation (HPA) and initial loan-to-value (LTV)," said Jeff Hellinga, president of TransUnion's U.S. Information Services division. "But now, with the collapse of the housing market, direct insight into the actual risk of the underlying borrowers is critical." The TransUnion platform, called Consumer Risk Indicators, is tailored either for securities trading or whole loans; it includes information such as complete adjustable-rate mortgage (ARM) exposure, and specific data on the consumer's capacity to pay -- data that has long been available for individual mortgages, according to officials at TransUnion and First American, but is often unavailable in analysis of mortgage-backed securities. "This is particularly relevant given the recent creation of the Public-Private Investment Program (PPIP), which is designed to draw private capital into the market to facilitate price discovery of legacy assets and the expansion of other government programs, such as the Trouble Assets Relief Program (TARP) and the Term Asset-Backed Securities Loan Facility (TALF)," Hellinga said. "In pre-release reviews with select hedge funds and investment banks, we have received very positive feedback on the RMBS and Whole Loan solution set," George Livermore, CEO of First American CoreLogic said. The RMBS platform offering matches individual loans backing non-agency mortgage-backed securities to the consumer credit information of specific borrowers, according to TransUnion. Gaining access to this information illuminates the credit risk a borrower represents beyond just the aggregate loan data available in a given security, both companies said. "It also allows investors to directly tie the newly-available consumer credit information to the First American CoreLogic LoanPerformance Securities Database, which spans subprime, Alt-A, option ARM, and jumbo securities and represents over $1.8 trillion in loan-level data, or 96 percent of all non-agency securities," the companies said in a press statement. The idea here is a simple one: deal cash flows and valuations are a function of expected default rates. Two loan pools in two different deals may often have very similar aggregate characteristics--same average weighted loan size, loan-to-value, and geographic mix--but differ dramatically in expected loss experience based on current and trended consumer credit characteristics, such as credit utilization and total debt outstanding. This information is traditionally not part of the information given to investors on the securities side of the mortgage industry. TransUnion officials said that initial analysis of their consumer-credit enhanced data found that it improved default predictions (so-called 'involuntary prepayments,' for those in the securities side of the business) more than 15 percent over current predictive models. The whole loan risk management platform also provides new information previously unavailable for risk assessment of whole loan bids and portfolio monitoring, the companies said. TransUnion's solution provides a time-series of consumer data specifically proven to predict risk, rather than a simple credit snapshot. "This time-series is more predictive than the updated consumer reports currently used in the industry," Hellinga said. "We've also developed it to be easily incorporated into the existing bid process." For more information, visit http://www.transunion.com and http://www.facorelogic.com. Write to Paul Jackson at email@example.com.