Primary, Secondary Market Maximize Use of Data Pools

Stamford, CT-It appears the industry is fulfilling demand for transparency and coherence in customer credit reporting and asset risk evaluation through data pools that maximize the use of existing resources - both in the primary and the secondary market.

Standard & Poor's has fully integrated VantageScore into LEVELS 6.6, S&P's U.S. mortgage analytical model. VantageScore is the borrower credit score jointly developed by the three national credit reporting companies, Equifax, Experian and TransUnion.

VantageScore president and CEO, Barrett Burns sees the Standard & Poor's acceptance of VantageScore as a way to provide new insight into the securitized mortgage loan market.

David Goldstein, managing director at Standard & Poor's, said that the inclusion of VantageScore into the rating agency's data processing model will allow S&P "to offer the market even greater transparency and insight into the performance and surveillance of RMBS securities."

The data exchange partnership is also expected to provide banks with "greater flexibility" when using the S&P LEVELS as a risk management tool to monitor their whole loan mortgage portfolios.

The rating agency said the decision was based on a company analysis of VantageScore "to determine whether the score was an appropriate measure of borrower risk," which concluded that VantageScore allows for fair ratings analysis for U.S. residential mortgage-backed securities.

Standard & Poor's LEVELS is a risk analytics system of residential mortgage loan (or pool of loans) characteristics, regional economic data and borrower data - and assigns loans an S&P risk grade. It also determines the foreclosure frequency, loss severity and credit enhancements required for securitization.

The partnership with S&P shows that since its introduction in March 2006, the "blanket" credit scoring system has been gaining more credibility and acceptance.

Designed to screen borrower credit risk, or likelihood a homeowner will repay the loan, the VantageScore tool is based on the same algorithm and statistical method used by the aforementioned three major credit reporting companies.

The stated goal of Equifax, Experian and TransUnion when creating VantageScore Solutions LLC here is "to provide lenders with a coherent interpretation of consumer credit files."

The scoring methodology allows for a consistent interpretation of consumers' credit history already stored by these credit reporting companies.

In addition, according to VantageScore, the system has the ability to score a broad population responding better to today's market needs.

S&P's use of VantageScore is one of various industry and government efforts to revitalize the securities market.

In 2008 congressional hearings about the credit rating agencies and the Wall Street crisis a lot has been said about how data and data transparency has affected the secondary market and how it should be updated to avoid future crisis.

Rating agencies base their evalautions on documents and information provided by issuers of securities and collateralized debt obligations backed by home loans, experts and their agents. Now the mortgage industry keeps talking about securing loan level data that is not lost once the loans are pooled into a security. Transparency in securing data about liquid and illiquid assets is now a market demand.

New York-based SecondMarket, an online marketplace and auction platform for illiquid assets, says it is expanding to assist private investors and government entities to address the so-called legacy asset problem.

SecondMarket CEO Barry Silbert said in a press release that his company is engaged in the development of "innovative, value-creating solutions to the systemic problems that exist in our capital markets" while the industry is going through "a massive restructuring."

SecondMarket provides specialized markets for mortgage-backed securities, whole loans and collateralized debt obligations. It allows buyers and sellers to trade these assets in a centralized marketplace.

Access to the platform is free. According to SecondMarket by the end of April, over 3,000 participants managing more than $1 trillion in assets have become part of the SecondMarket network and over 600 accredited investors "have specifically expressed interest in private company securities."

SecondMarket participants interested in purchasing securities from these companies get free access to aggregated public data about the companies posted on the company's WatchList.

The information is based on feedback from "dozens of meetings with venture capital firms, institutional investors, private company employees and, most importantly, fellow entrepreneurs," Mr. Silbert said. He describes the goal as an effort to assist private companies increase profitability.

The newly released SecondMarket WatchList is composed of "some of the most interesting and fastest growing" private companies in the country as identified by SecondMarket participants.

Added to the tool mix is the SecondMarket set of shareholder administration tools for private company management teams.

The program includes shareholder custody, recordkeeping and secure communication options that allow users to save time and expense associated with shareholder management. In addition, it allows private companies to create and manage their own "micro-market" on the SecondMarket platform, the company said, "giving management complete control of the secondary market for their securities."

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