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CMSI Unveils Tool for Evaluating Loan Portfolio Risk in a New Credit Environment

Columbia, Maryland-based ""CMSI Group Inc."":http://www.cmsinc.com, a company that helps financial institutions mitigate credit risk, recently announced the first of two software applications for assessing the underlying loss risk of a lender's loan portfolio. The new solution is designed to help lenders accurately predict net return to assist in funding whole loan acquisitions and pre-securitization ratings, the company said.
According to CMSI, managing portfolio risk is the number one priority of finance executives today, extending far beyond understanding the level of credit risk at the time of origination. When lending conditions change, as the industry saw happen with the housing contraction and the resulting credit crunch, a portfolio's underlying risk profile changes with the new paradigm. Lenders need to know with certainty which loans will perform and how deep the loss risk will be for the loans that are affected by the evolving economic environment, CMSI said.
CMSI's eValuate, as the new solution is called, is a score/decision rule-based credit underwriting software, that has been tailored to provide lenders with the ability to re-evaluate each loan in their portfolio based on an existing or updated set of credit policies, the company explained in a press statement.
eValuate analyzes portfolio risk by re-underwriting each loan in the portfolio with updated credit bureau information, asset value computations, credit score, and policies. Loans are stratified into user-defined tiers based on the updated credit risk assessment, and the lender may then apply a variety of analytic tools to determine each tier's average yield and expected ROA, CMSI explained.
For many lenders, finding sources of liquidity is a major concern. The current credit environment has led to a great deal of uncertainty and lack of confidence in the performance of loan portfolios, making it virtually impossible to attract funding from the secondary market.
According to CMSI, eValuate helps re-establish that confidence by re-validating loans with updated information and credit policies that reflect current economic conditions. This validation process identifies which loans will perform and at what risk adjusted price. This has become essential when assessing risk associated with whole loan acquisitions or segmenting portfolios into tranches for securitization rating purposes, CMSI said.
""Given our destabilized credit environment, loan portfolios are experiencing a significant weakening of underlying credit characteristics and collateral values, making accurate prediction of net return a challenge,"" said Chip Riordan, president and CEO of CMSI. ""Now, with eValuate, financial executives have a tool to restore trust in their portfolio's performance estimates and improve liquidity in secondary market opportunities.""