Specialty investment boutique Credit-Based Asset Servicing and Securitization (C-BASS) is about to launch a surveillance tool, dubbed RADAR Viewer, that many market participants claim will set a benchmark in the mortgage industry for the availability and transparency of delinquency reporting and detailed loan-level data.
Set to go live on the Web within the next few weeks, RADAR (Risk Assessment Default Analytics and Reporting) Viewer is specifically targeted to provide analysts and investors crucial information on sub- and non-performing loans, as well as other credit-sensitive mortgages and mortgage pools, which are the focus of C-BASS' investment/servicing /securitization business (see C-BASS profile, ASR 1/21/02 p. 12).
The new product offers investors some of the same information that exists on the company's internal proprietary servicing platform ("RADAR"), including net present value (NPV) calculations of non-performing loans, a delinquency matrix on individual loans, month-by-month breakdowns of borrower payments, bankruptcy data and detailed pool balances on specific C-BASS bonds, just to name a few of its features.
"The system provides an impressive detail of information on a deal, on both a group and a loan-level basis," said Inna Koren, a director at Wachovia Securities. "It basically provides comfort to investors when they know they can analyze C-BASS deals to such a great extent. As far as I know, no other issuer is able to provide this kind of transparency on their deals. Not only does the system provide the historical and current delinquency information on transactions, it also shows the migration of delinquent loans starting from the day of securitization."
According to market sources who have beta-tested the product, industry participants will now be able to gain easy and efficient access to important loan-level data on C-BASS deals that is simply not available elsewhere. Other existing systems, as well as monthly remittance reports, offer only aggregate data on transactions - which is not surprising, as most of the industry is focused mainly on performing assets and traditional servicing, and not on monitoring less-than-pristine loans.
RADAR Viewer, on the other hand, will offer the opportunity for investors to trace what happened to a very specific class of loans, in an unambiguous and precise manner.
"This will allow you to drill down into individual loans," said Mark Bilodeau, a managing director at C-BASS. "You will be able to tell which loans are in which buckets, and investors can determine where losses are coming from."
With its emphasis on loss mitigation, timeline management and valuations of non-performing loans, C-BASS is specifically focusing not only on special-servicing problematic mortgages, but also on providing ready access to information on each individual loan in its own transactions.
"This is about loan-by-loan management," Bilodeau added. "You have to get down and look at every individual loan - you cannot just look at averages."
A supplement to trustee reporting
As a first-loss investor, C-BASS recognizes the importance of getting a snapshot of bond performance at specific points in time and having a consistent and integrated source of information on bonds that one holds.
Though investors usually receive monthly trustee remittance reports that provide a summary of pool and collateral information, these reports merely skim the surface on delinquency information.
RADAR Viewer supplements trustee reporting by providing loan-level delinquency and loss mitigation information that allows users to project liquidated proceeds and advances. It also enables investors to calculate loan-level loss severities. In short, the system provides the very same data that is reported to the trustee - or the underlying information that is aggregated each month - who, in turn, issues a summary report.
The problem with remittance reports, however, is that there may be double- or even triple-counting of loans in different loan buckets: Aggregate data provided by each trustee makes it hard for an investor to determine how many loans are in foreclosure, or how many are in bankruptcy status, for example. There is no real industry standard for classifying loans.
"What if a loan is both 90-days delinquent and in foreclosure? You would not be able to make that distinction from a typical remittance report," said Jeffrey Toll, senior managing director and co-founder of C-BASS. "An accurate and consistent set of data is needed, which is what RADAR Viewer aims to deliver. On both the loan side and on the bond side, a broader set of information is available that gives investors higher confidence.
"This is a tool we use ourselves as investors, and we see the benefit to a wider audience."
Evolution of the system
C-BASS, along with its wholly owned subsidiary, Houston, Texas-based Litton Loan Servicing, has always aimed to reduce losses on problematic mortgages by simultaneously pursuing two potential avenues in the workout process, namely providing counseling and presenting other workout options to borrowers while, at the same time, also preparing for foreclosure. This two-pronged approach saves both time and money.
To help the company determine which of these options to pursue, C-BASS had developed its default system, RADAR. Through detailed and up-to-date loan information contained within the system, RADAR makes it easy to determine the economic value of loss-mitigation alternatives, which is based on their net present value relative to foreclosure.
The proprietary system has certainly helped C-BASS reduce losses and remove guesswork in resolving problematic loans. By using the RADAR technology, resolutions on loans could be solidly based on financial analysis and be accomplished within a reasonable timeframe.
Through this servicing platform, information from the different departments involved in servicing the C-BASS portfolio is integrated (as opposed to a linear system), including loss mitigation, foreclosure, collections, bankruptcy and claims. All these factors affect the value of the loan, which changes constantly. Because the different departments can input data into one integrated system in real time, every loan's value is adjusted according to the most current information available from the various areas.
RADAR Viewer is actually a component of this default system. Through the RADAR Viewer, more people can now have direct access to the information coming from RADAR. The information, which will be made available on the Internet, has been streamlined and tailored to suit the needs of investors, traders and analysts alike.
RADAR, which supports all the special servicing functions and is part of the other systems at C-BASS and Litton, is a centralized database that contains information on origination, current month payment, collateral value and bankruptcy data. The system also provides the expected loan resolution and projected losses for every loan in a security. This data, in turn, is fed through the RADAR Viewer from RADAR.
"We considered all this value-added information we had on our own internal system, so we thought to ourselves, Why don't we take this wealth of information, isolate what's important, and bring it out over a Web site?" said C-BASS' Toll.
RADAR Viewer, which will feature all C-BASS deals, was the result. It is made up of two main components: the first looks at delinquency and performance data on the underlying loans and at the deal, pool and loan-level data.
The second component involves allowing users to determine the effects of actual and projected losses on credit support.
To determine the credit support on a bond, RADAR Viewer allows investors to place a value on the excess spread. They can also insert their loss assumptions to know the loss coverage ratio for their bond.
The detail provided by RADAR Viewer, according to Wachovia's Koren, is important to an industry where information is key and where it is essential to know how well issuers are performing.
She also likes the fact that the system is extremely user-friendly. Koren said that RADAR Viewer provides near real-time comprehensive data on delinquencies and prepayments that can be efficiently downloaded to an Excel spreadsheet where it is easier to look at and analyze. And since it is Internet-based, users can access information anywhere they are, which is an added advantage.
Other mortgage participants concur. "I think it is standard-setting in terms of credit analytics from a servicer," said a trader who beta-tested the product. "It provides a level of detailed information unavailable from any place in the market right now."
The trader explained that in the world of credit mortgages, investors have to perform loan-level analysis as well as trend analysis, which involves determining whether servicers are making things better or making things worse. This would be hard to do with standard reports that investors get from servicers, unless the investor has someone else do the analytics for him.
"RADAR Viewer allows an investor without those resources and most don't [have those resources] - to be able to do these types of analyses," the trader added.
Other information available on the Web site
Aside from posting information on C-BASS deals, RADAR Viewer will also provide data on other Litton-serviced deals from inception, starting April 2002, and will add information on C-BASS CDOs later on.
The site will also have available other deal documents aside such as remittance reports from the usual delinquency and credit support data. A prospectus for each deal will also be provided starting in May 2002 to help users evaluate and analyze the structure of each transaction. Under the Deal Notes section, miscellaneous information will be included such as rating actions, letters issued to investors, etc.