As the recent mortgage collapse has demonstrated, the number and specialization of participants within the industry has increased significantly. Each party tries to maximize profits while minimizing risks that produce individual loan and portfolio underperformance.

Digital Risk’s powerful combination of advanced predictive modeling and risk analytic tools hands-on loan reviews, and forensic underwriting enable our clients to make informed decisions, often under time-critical conditions. Here’s how:

Mortgage Originators
Mortgage originators close loans and typically sell or securitize the loan in the secondary market subject to representations and warranties (Mortgage Originators can also keep loans on their balance sheets). Mortgage Originators are exposed to significant repurchase liability and ultimately losses if it’s underwriting breaches representations and warranties. Utilizing its extensive experience servicing the industry’s repurchase needs, Digital Risk has designed QC Management solutions featuring Analytical Tools - RiskIQ - and Expert Services to help mortgage originators detect and prevent repurchase liability and resulting losses (Portfolio lenders experience lower losses through lower defaults). Digital Risk also offers mortgage originators a variety of tailored secondary market solutions including Loss Management, Performance Management and a variety of consulting services (best practice reviews and training).

Warehouse Lenders
Warehouse lenders advance funds to Mortgage Originators while the sale of the loan in the secondary market is being executed. While warehouse lending is low LTV and short duration, a warehouse lender’s risk is counterparty default and systemic underwriting errors and fraud (such as Taylor, Bean and Whitaker). Utilizing its extensive experience analyzing delinquency and identifying systemic fraud and errors, Digital Risk has designed QC Management solutions specifically tailored to help warehouse lenders detect counterparty systemic risk. Digital Risk’s solutions feature Analytical Tools - RiskIQ and Plates - and Expert Services - Forensic Analysis, Fraud Detection and Prevention and Collateral Advisory Services. Digital Risk also offers warehouse lenders Loss Management solutions for loans that age on its warehouse lines.

Mortgage Insurers
Mortgage Insurers insure up to 100% of the policyholder’s loss on a loan. Mortgage Insurers are at risk for paying claims that violate the contractual policy between the insurer and the policyholder. Digital Risk has designed Loss Management solutions specifically tailored to the nuances of mortgage insurance policies. Digital Risk’s Mortgage Insurer solutions feature Analytical Tools – RiskIQ, Plates and Severity - and Expert Services - Forensic Analysis, Fraud Detection and Prevention and Collateral Advisory Services that increase rescission rates. Additionally, Mortgage Insurers need to improve the screening of the insured prior to binding a policy. Utilizing mortgage insurance data gained from the Loss Management solution, Digital Risk has developed Quality Management solutions that help Mortgage Insurers detect and prevent policies that contain fraud or reckless underwriting from binding in the first place. These front-end solutions feature Analytical Tools – RiskIQ, Coral, and Plates- and Expert Services - Fraud Detection and Prevention and Operational Risk Reviews specifically tailored to Mortgage Insurers.

Conduits and Issuers
Conduits / Issuers generally aggregate loans for securitization by buying loans from “correspondents” and effectively re-selling the loans as mortgage backed securities (a process known as securitization). Despite the appearance of a simple buy and sale transaction, Conduits / Issuers are subject to a variety of risks, most notably the risk of loan level repurchases or bond level repurchases. Digital Risk has developed a comprehensive solution for conduits and issuers. First, operational reviews are conducted to detect systemic counterparty risk. Next, Analytical Tools – RiskIQ, Severity, IE and Expert Services – Forensic Analysis, Collateral Advisory Services, Regulatory Compliance Review, Fraud Detection and Prevention are utilized at the loan level to detect and prevent problematic loans out of the portfolio. Then, any inbound repurchase requests are defended. Finally, if inbound repurchase request are not able to be defended, a Loss Management solution is activated to recover from the correspondent who sold the conduit the loan in the first place.

RMBS Investors and Insurers
RMBS Investors and Insurers (monolines) buy and insure mortgage backed securities, respectively. Investors and Insurers ultimately bear the risk of loss on mortgages and ironically perform the least amount of risk mitigation. Instead, investors and insurers rely on representations and warranties for protection. RMBS investors and insurers’ risk is ground zero in this credit crisis and their rights under representations and warranties are not being enforced due to structural obstacles within securitizations. Digital Risk has designed a loss management solution specifically for RMBS investors and insurers featuring multiple patent pending processes. The loss management solution features Analytical Tools – RiskIQ, Severity, IE and Expert Services – Forensic Analysis, Collateral Advisory Services, Regulatory Compliance Review, Fraud Detection and Prevention. Additionally, Digital Risk has tailored a surveillance solution specifically for RMBS Investors and Insurers to prevent a recurrence of the credit management shortcomings, which gave rise to the current global contagion.

Distressed Asset Investors
Distressed Asset Investors acquire whole loans, RMBS and servicing rights below market value intending to workout, liquidate or sell the assets for substantial profits. Distressed Asset Investors typically buy assets on a “where is as is” basis placing a great deal of importance on the due diligence process. Digital Risk has developed a solution specifically tailored to the needs of the Distressed Asset Investor. Digital Risk’s solution features Analytical Tools – RiskIQ, Severity, IE and Expert Services – Due Diligence, Collateral Advisory Services, Regulatory Compliance Review, Fraud Detection and Prevention, designed to uncover the collateral’s true value as well as the borrower’s current willingness and ability to pay if the loan is performing. Additionally, in securitization situations, Digital Risk’s solution features an assessment of losses, cash flows, deal performance and the ability to execute a loss management strategy upon the security. If applicable, Digital Risk will deploy loss management solutions to help recover losses on RMBS securitizations.

Servicers
Servicers collect payments on loans and manage defaulted loans. In todays market the words “manage defaulted loans” could not be more understated. Services must deal with conflicting demands from RMBS investors, borrowers, regulators and local, state and federal governments. One focal point of the pressure is loan modifications. Loan modifications, if executed properly, prevent foreclosures and theoretically improve home prices all things equal. However, the re-default rates on modifications have historically been unacceptably high. To prevent re-defaults, Digital Risk has developed a quality control solution designed to ensure borrowers will not re-default on their modified loan. The solution features Analytical Tools – RiskIQ, and Expert Services – Forensic Analysis, Fraud Detection and Prevention, Operational Risk Reviews Income, Asset & Occupancy Verification.