Default Risk Analysis Takes Some Heat Off Of Compliance
VENTURA, Calif.-Some regulatory "heaviness" was lifted off Ventura County Credit Union (VCCU) here when it turned to a third party for detailed default risk analysis on its real estate portfolio.
"The efficiency of our risk review has increased tenfold," said Beth Carr, SVP-retail services at the $502-million CU.
VCCU used to manually build and review its analysis by pulling lending system reports, automated valuation models, real estate information and FICO scores into a spreadsheet.
"Regulatory responsibilities and risk analysis were beginning to take up 100% of our time," she continued. Fixed-rate first mortgages comprise the majority of VCCU's portfolio, which also contains a concentration of home equity lines of credit.
In 2008, VCCU hired Santa Ana, Calif.-based CoreLogic to collect "true" loan-to-value (LTV) and trending data on its portfolio, Carr said. CoreLogic synthesizes the data in annual portfolio summary reports and detailed spreadsheets, and the CU updates FICO scores within the spreadsheets twice a year.
"The beauty of CoreLogic is the automated information we receive," she said.
Summary reports are primarily a synthesis of "buried" county records of open liens and property information nationwide, said Dan Thurman, regional manager, strategic lending solutions, CoreLogic. CoreLogic standardizes the lien data to facilitate electronic searches.
"The summary report recaps the credit union's concentrations of risk," using text and graphs, he explained. CoreLogic unearths data that VCCU might miss, indicating VCCU's lien holder position and whether the loan is exotic or undercollateralized. "Lien position is critical," said Jackie Benoun, VP-lending at the CU.
VCCU uses CoreLogic's accompanying spreadsheet of nearly 90 columns of data, including Home Price Index trends, to create a matrix of CLTV against FICO scores. "That way, we can analyze what properties are at a higher risk," usually about 20 properties in a given year, said April Remnant, project manager, VCCU.
The matrix helps VCCU segment the current dollar value of loans at risk and identify additional areas for loan loss reserves, Carr said. "The matrix makes it very easy to identify additional risk."
CoreLogic also brings to light secondary risk issues, Carr said. "We might discover that we have recorded a deed of trust behind an auto loan that has a lien against the house and end up in third position."
"Previously, we might find out when the loan was in default," added Benoun. "Now we know when this happens, and we can quickly get in touch with the member and the title company to obtain resolution."
Addressing Incomplete Conveyance
VCCU can promptly address incomplete reconveyances as well, Benoun said. "When the previous lender doesn't properly reconvey the property, we're able to clear the clouds on the title before too much time passes."
The examiners and ALM Committee take comfort in the information contained in CoreLogic Summary Reports, Benoun suggested. "We can present a professional, organized approach to risk mitigation assisted by third-party sources."
VCCU's most pressing concern over the economy is the long-term unemployment that some borrowers are experiencing and how it might affect their ability to pay back loans in the coming years.
As a result, the next wave in portfolio analysis is "predictive default analytics," said Thurman. "We've started using a behavioral model that predicts whether a performing loan will go bad in the next 12 months."