12
April
2009
|
06:00 AM
America/Chicago

TransUnion and First American CoreLogic Introduce Greater Loan-Level Transparency Into Mortgage-Backed Securities and Whole Loans

CHICAGO and SANTA ANA, Calif., April 13 -- To improve visibility into the hidden risk of many of the mortgage assets currently plaguing the financial system and capital markets, TransUnion has developed a new solution called TransUnion Consumer Risk Indicators. This solution, developed in cooperation with First American CoreLogic, a member of The First American Corporation family of companies (NYSE: FAF), makes available previously missing information for Mortgage Secondary Market risk analysis and modeling.


The TransUnion Consumer Risk Indicators for RMBS (Residential Mortgage-backed Securities) and Whole Loans bring comprehensive, current and historical loan-level consumer credit information to the mortgage industry for in-depth risk analysis. This includes hard-to-find information such as complete adjustable-rate mortgage (ARM) exposure (beyond the loan in question) and the consumer's capacity to pay. This data is already proven to predict risk and consumer behavior for numerous lending products such as mortgages, auto loans and credit cards, but has previously been unavailable for mortgage-backed securities.


"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. "This was sufficient as long as property values continued to rise. But now, with the collapse of the housing market, direct insight into the actual risk of the underlying borrowers is critical. 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)."


"Sophisticated traders and investors are always looking for an information edge and these solutions provide that, enabling early adopters to capitalize on the superior insights generated," said George Livermore, chief executive officer of First American CoreLogic. "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."


The TransUnion Consumer Risk Indicators for RMBS incorporates sophisticated proprietary matching algorithms jointly developed between First American CoreLogic and TransUnion. These algorithms link individual loans within non-agency mortgage-backed securities to the consumer credit information of the specific borrowers of those loans. Additionally, these algorithms create high rates of matching and high confidence levels in those matches due to the methodology and data used to create them. This information illuminates the credit risk a borrower represents (beyond just the loan data available in a given security) and is superior to other types of consumer credit information generally available (e.g. geographically aggregated data for individual loans and consumer credit information from the origination date). 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.


This solution will help enable industry participants develop better valuations based on the composition and risk of consumers in individual mortgage pools. For example, two pools of loans with similar "aggregate" characteristics (e.g., loan size, original consumer risk and LTV and geographic mix) could have significantly different expected default rates - and, therefore, different cash flows and valuations - based on current and trended individual consumer credit characteristics (e.g., credit utilization and total debt outstanding). While results will vary from portfolio to portfolio, initial TransUnion analysis showed an improvement in default predictions of more than 15 percent over current predictive methodologies.


TransUnion's Consumer Risk Indicators for Whole Loans also provides new information previously unavailable for risk assessment of Whole Loan bids and portfolio monitoring. While updated consumer reports are commonly used in this area, TransUnion's solution provides a time-series of data specifically proven to predict risk. "This time-series is more predictive than the updated consumer reports currently used in the industry," added Hellinga. "We've also developed it to be easily incorporated into the existing bid process."


For more information on TransUnion Consumer Risk Indicators, contact Joe Mellman at jmellma@transunion.com.