In late 2006, the U.S. subprime mortgage industry witnessed the housing bubble disintegrate due to the sudden rise in the rate of subprime mortgage foreclosures, which consequently caused a number of subprime mortgage lenders to file for bankruptcy. The meltdown saw prices in the $6.5 trillion mortgage bond market collapse, not only threatening broader impacts on the U.S. housing market and economy, but also taking its toll on financial institutions around the world.

This debacle has forced many financial institutions to take a step back to reassess their lending processes so they can get a better understanding of what went wrong and how they can avoid it in the future. But where do they start?

The answer may vary from firm-to-firm, but there is one approach that every firm should consider when evaluating the risk associated with their portfolios: combining a suitable risk assessment strategy with that of a solid technology foundation can help financial institutions make more sound lending and investment decisions. Adding enterprise content management to the mix can up the ante by helping firms rapidly deploy content-centric business solutions that can help increase efficiencies, help improve customer service levels, assist in mitigation of risk, help accelerate product development cycles, help streamline deal-related processes, and therefore may generate competitive advantage.

We've put together a few key fundamentals to help firms mitigate risk associated with lending:

• Technology, automation and information management, access and control all are necessary components of a comprehensive solution to this issue, but that it is only one element of the equation. Clearly, there will be further oversight put into place by the regulatory and watchdog agencies. While the secondary markets may impose a combination of government overview and perhaps quasi, self-regulatory controls to mitigate this in the future, the mortgage originators, brokers and banks will also be monitored more closely going forward. These regulatory and compliance issues will create the need for further internal controls and tracking on the lending processes and documentation associated with them.
• Increasing the quality, and quantity, of risk-related and risk-adjusted metrics in relation to real estate investments is critical. Analytical technology can provide the ability to alert, detail and summarize risk in a type of executive dashboard that can help financial institutions look at the trends and critical points in their investment alternatives, and directions they should be concerned with. Investment appetites and pain points tend to be defined in terms of numbers, thereby alerting investors to over-indulging, hopefully before a negative outcome becomes a reality.
• Fully-digitizing and automating lending processes allows organizations to create rules and alerts when risk-adjusted thresholds of subprime investments are reached; while keeping track of all the documents (paper and non-paper) that go into the lending process.
• With the proper technology in place, lending folders can be packaged up and more precisely analyzed by secondary market purchasers so they can get a 360o view of all the information they need from the primary lenders that is pertinent to their subprime purchases and packaged loans to make informed investment decisions.

Additional Resources:

• An information page outlining key services to help financial firms get the most value for their money


• Solutions for Financial Services: Best Practices