Digital Risk Helping Restore the Mortgage Industry to Health

May 14, 2009
By Allan Maurer
TechJournal South

Orlando, FL (May 14, 2009) - Technology and hands-on expertise are helping rejuvenate the bad-loan plagued mortgage industry that caused so many of the current economic problems. So says Peter Kassabov, chairman of Orlando-based Digital Risk, which has just closed on a $7.5 million round of equity from Century Capital to help it meet demand for its mortgage loan risk mitigation services.

Kassabov tells TechJournal South the 200-employee company is already profitable but took an equity round to expand to as many as 1,000 more people in its Orlando or Dallas offices over the next 12 months to work with loan originators and others in the mortgage investment sector.

For the last few years, the company has processed thousands and thousands of non-performing loans, “So we know what didn’t work in the past,” Kassabov says. The company’s platform allows a 360 degree review of loans and can detect any misrepresentations or fraud, he notes.

Sees large demand

“Through the work we’ve done cleaning the mess, we’ve become trusted advisors. We see this enormous demand in the market to help loan originators and investors and public entities implement screening up front that enables them to originate and invest in new loans better than in the past. To do this, we have to extend our operations.”

“This is my fourth start-up and we have unlimited access to capital,” says Kassabov. “We chose to go with Century because it has strong connections in the financial industry.”

Digital Risk uses a combination of advanced predictive modeling and risk analytic tools, hands-on loan reviews, and forensic underwriting helps its clients make informed loan decisions.

Investors coming back to mortgages

It works with investment banks, hedge fund and private equity firms, fixed income security firms, serving organizations, bond guarantors, M&A for financial firms with mortgage positions, mortgage originators and rating agencies.

Kassabov says the company’s clients include a majority of the mortgage insurance players, three of five major investment institutions in the space, and three major banks. It also partners with all the government agencies involved with the mortgage industry.

Kassabov says investors are finally beginning to show more interest in buying mortgage loans, because good ones can offer better returns than the stock market. “The reasons banks were not loaning is that there was no investor interest in buying those loans,” Kassabov says.

“Now investors are becoming more comfortable with the tools we offer to screen new loans. We’re providing the mitigation of risk they need.”

Government leadership critical

“Right now we’re seeing an enormous push from government agencies to develop new standards for loans and to make sure loan originators follow those standards,” he adds. “We’re helping to develop those standards.”

He points out that today the government is the largest buyer of conforming mortgage loans. So government agencies are updating their risk mitigation tools so they can resell those loans to investors. “We’re pleased to see the government playing a championship role in bringing investors back into the marketplace,” Kassabov says.

Kassabov notes that the mortgage loan industry is now dealing not just with the melt-down in the industry, but also the secondary impact caused by broader economic conditions.

“But consumers will see an improvement. For qualified buyers with a job, it’s much easier to obtain a good loan or refinance than it was a year ago. And it will get easier as long as buyers don’t falsify their income or employment. With the new tools being employed by the government and private agencies, they’ll get caught.”

Avoid mistakes of the past

In the past, it was relatively easy for borrowers to fake income capacity, he says.

“There are still some larger and smaller loan originators who have not upgraded their tools to the level required,” he says. “That’s the reason government leadership is critical in demanding risk mitigation compliance.” Investors insist on making sure that loans are the ones originators represent, he adds.

Kassabov echoes numerous other CEOs in saying that not everything is bad in a down economy. “There’s a lot of talent on the street right now,” he says. “We have an enormous opportunity to pick the best of the best to develop software or review loans.”

Kassabov says he is very optimistic about the mortgage loan origination industry now. “I believe the fear is gone. Now it’s about how to do better and avoid the mistakes of the past.”

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