Area Company Helps Investors Avoid Toxic Loans

Business is good for a local software startup that helps investors leery of securities backed by mortgages

August 28, 2009
By Richard Burnett
Sentinel Staff Writer
Orlando Sentinel

If Wall Street had tapped into Digital Risk LLC a few years ago, perhaps it could have prevented the meltdown of the sub-prime mortgage market and averted this recession. That's what the local software company's organizers think, at least..

It's a heady claim for the Maitland-based newcomer, formed four years ago. But Digital Risk insists it has created a high-tech system that measures risk and sniffs out potential fraud in mortgage lending and in investment securities tied to mortgage payments. 

Ultimately, the company red-flags mortgage problems for investment banks and other financial players as they try to avoid "toxic" mortgage-backed securities. Industry insiders have a fancy phrase for such a service: risk mitigation and forensic underwriting analysis.

Everyone knows there wasn't enough of that going around during the housing boom, when mortgage companies bred home loans like rabbits and Wall Street bundled the loans together in often massively flawed investment securities.

Now, according to Digital Risk, the financial sector has seen the error of its ways, and so business is booming.

"I think the market finally realized that extending loans to people without really assessing their capacity to pay is not a good business strategy," said Peter Kassabov, Digital Risk's chief executive officer and a veteran Central Florida entrepreneur.

"We've been telling them that for the past five years, but it took billions and billions of dollars in bad loans to get their attention," he said. "A lot of what we're doing now is damage control, helping clients clear up their mess. But we're also trying to prevent what happened in the past from happening again in the future."

Big investment banks and government-backed mortgage entities now use Digital Risk's software system, according to Kassabov, who was president of Connextions Inc. and Connections Health, local call-center outsourcing operations founded earlier this decade. He declined to disclose the names of Digital Risk's clients, citing confidentiality concerns.

Since 2007, the privately held company's revenues have skyrocketed, its Central Florida operations have expanded and it has opened offices in New York, Dallas and Jacksonville. It employs more than 300 people companywide, according to Kassabov. He would not disclose specific sales figures, citing competitive concerns and current financing negotiations.

He is not the only one touting Digital Risk's fortunes, however. Earlier this year, the company landed a sizable venture capital investment from a unit of Century Capital Management, a prominent investment firm based in Boston.

It was no small accomplishment for Digital Risk. Only five companies in Florida received venture capital during the second quarter, according to the latest MoneyTree Report sponsored by PricewaterhouseCoopers. Together the five received less than $65.2 million, which placed Florida 13th among all states in the survey.

Venture capital in general has been hard to come for many companies during the recession. Although venture financing nationwide edged up 15 percent to $3.7 billion in the second quarter, it is still on pace to produce the lowest annual total since 1996, according to the National Venture Capital Association, which co-sponsors MoneyTree.

Digital Risk has further expansions in the works, Kassabov said. It expects to double the company's work force and revenue by this time next year. And the company recently moved its operations from the Plaza office tower in downtown Orlando to larger quarters in Maitland Center.

Richard Burnett can be reached at rburnett@orlandosentinel.com or 407-420-5256.

---

2009 | 2008 | 2007 | 2006