First American Using RAI's Optimization Technology Tools

Response Analytics Inc., a provider of optimization technology for the financial services industry, has reached a deal to provide First American Subordinate Lien Outsourcing with distressed portfolio management services.

FASLO, a business unit within the default information services division of First American, will use Response Analytics' optimization technology for portfolio valuations and optimal recovery recommendations.

By "adaptively" learning and therefore predicting how borrowers and portfolios will react to changing market and economic conditions, mortgage organizations can increase accuracy for valuations and cash flow forecasts as well as optimize workout recommendations, according to RAI.

Brent Lippman, CEO of RAI, told MSN that the company combines industry expertise with analytical mathematical capabilities to help lenders achieve optimal results.

He said the company's analytics help clients understand borrower behavior under different economic circumstances, looking at issues such as property value, geography and income levels.

He said what is often missing today when lenders or investors attempt to value a portfolio is a detailed analysis of what loans are likely to become delinquent and what should be done with those loans that do become delinquent.

Because of its portfolio valuation uses, RAI's technology is well suited for funds that are considering purchasing distressed mortgage assets, Mr. Lippman said. If a portfolio is evaluated correctly, for instance, an investor might buy distressed assets for something like 40 cents on the dollar but realize a recovery rate of something like 60 cents, he said, after reaching workout or modification agreements with borrowers.

"Once these things get sold, there really can be a win-win for the investor and the borrower," he said.

Servicers have lots of decisions to make on a delinquent loan, and RAI can help them navigate that decision making process.

"We are providing the optimal approach for that servicer to follow the guidelines in negotiations," Mr. Lippman said. "We are trying to optimize the cash flow and therefore the profitability of a portfolio."

He noted that a simple difference like geography can have a big impact on recovery, with borrowers in Iowa, for instance, being more than twice as likely as borrowers in Florida to make good on a loan workout agreement even if the loans have similar credit scores and loan-to-value ratios.

One roadblock servicers face in today's market is pooling and servicing agreements that limit the number of loans in a portfolio that can be modified to 5% of the total. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/