-Evaluating Both Risk & Opportunity-
Background & Landscape
The mortgage landscape has become increasingly regulated which has further compressed margins in a highly volatile and competitive industry. As a result, lenders struggle to compete in this environment, they are expanding credit guidelines and product offerings which could present risk to their institutional investors. As more lenders become increasingly overwhelmed with regulatory pressure and market volatility, institutional investors often struggle to identify and maintain prudent counterparty relationships. Identifying strong counterparty partners not only protects clients interests by mitigating economic, operational, and reputational risks but enables differentiation in a competitive environment.
About the Client
The client is a major institutional investor that offers warehouse financing and whole-loan acquisition options to Retail, Wholesale, and Correspondent lenders nationwide. The client sought to expand mortgage financing solutions to include Non-Agency, Non-QM, and business purpose warehouse offerings; however, its previous reviews were limited, offering only high-level information, leaving the institution at risk. With limited subject-matter expertise in related mortgage operations, credit and underwriting, and technology and workflow considerations, the client hired Consolidated Analytics to assess prospective counterparties and provide risk assessments of their new product offerings.
Solution Highlights
Consolidated Analytics provided initial counterparty assessments and ongoing monitoring, which mitigated related operational and compliance risks and allowed the client to more comfortably enter new spaces within the market, e.g., Non-Agency financing, Non-QM whole loan acquisition, business purpose financing options (e.g., fix and flip, long term, rentals, etc.). Consolidated Analytics’ Counterparty Assessment provided the client with a more detailed view of its operations through the lens of an industry expert. Consolidated Analytics leveraged several mediums, including onsite interviews, review of counterparty-provided materials, and industry-specific resources, to conduct a comprehensive assessment of the organization’s operational health, related strengths and weaknesses of critical functional areas of the business, and the ultimate viability of the entity as a business partner for our client.
The client specifically benefited from the following three features of the review:
- Data-Driven
Consolidated Analytics aggregated qualitative and quantitative data points, highlighting counterparty strengths and potential areas of concern as a mortgage originator/aggregator. We leveraged data from a broad range of internal and external, publicly available sources (loan QC, CFPB, litigation, Google, etc.) to uncover and quantify risk and opportunity for the client, providing the intelligence required to make informed business expansion decisions.
- Extensive Research
We delivered an extensive review of the due diligence materials requested by the counterparty and conducted a series of on-site interviews with the organization’s Senior Management team. Our extensive research and review component enabled us to compare management’s understanding of best practices and processes with documentation, materials, and performance metrics. Additionally, a thorough review of all functional areas of the business enabled an upstream and downstream analysis of performance impact.
- Ongoing Monitoring
Consolidated Analytics identified opportunities for ongoing counterparty monitoring for specific processes, workflows, and operations that presented greater risk to the organization. The identification of ongoing monitoring opportunities further protected our client’s interests and mitigated operational, economic, and reputational risks through the duration of the business relationship.
Outcomes
After a thorough review of pre-due diligence materials requested from the counterparty and a series of onsite interviews conducted with the organization’s Senior Management team, Consolidated Analytics aggregates qualitative and quantitative data points, highlighting counterparty strengths and potential areas of concern as a mortgage originator/aggregator. The information is collated into a holistic report that provides an overall assessment of the counterparty, reviews each functional area of the business, and is delivered to our client within two weeks of the on-site review. As a result of the assessment, the client achieved:
- Final Comprehensive Report offering ease of use and clear explanations of results
- Clear data on risks and opportunities within its operations, portfolios, people, processes, and public reputation
- Insights that support or challenge the company’s business expansion plans
- Identification of vulnerabilities and recommendations for improvement, corrective action