How Mortgage Software Can Mitigate Loan Risks
Loan risk management is a discipline focused on managing credit risks related to lending products. Issues range from individual borrowers’ creditworthiness and likelihood of defaulting on loans to the entire loan portfolio of a given lending institution. Lenders mitigate risks in many ways including through risk-based pricing and diversification. They also use risk management tools such as mortgage software and data visualization to gain a deeper understanding of their loan portfolios and the key metrics that could indicate a higher likelihood of default.
Common Forms of Loan Risks
Mortgages face several forms of risk including:
Aï¿½ Borrower risk – Risks associated with the borrower such as creditworthiness or long-term employability.
Aï¿½ Collateral risk – Risks associated with the property’s value over time.
Aï¿½ Market risk – Risks associated with financial and real estate markets.
Aï¿½ Geographic risk – Risks associated with properties found in a specific geographic region.
Aï¿½ Concentration risk – Risks associated with heavily lopsided exposures.
Mortgage Software’s Role in Loan Risk Management
Mortgage software plays a role in both identifying and mitigating risk. In the past, spreadsheets, knowledge, and intuition were used to assess credit and mortgage risk. Today, sophisticated software complete with data visualization and business intelligence tools helps lenders identify risky borrowers at the point of origination as well as analyze and manage risk across the entire loan portfolio. Below are a few areas where mortgage software plays an important role:
Aï¿½ Loan Origination – Mortgage software is used at the loan’s origination to quickly determine borrower eligibility as well as to identify risk factors. A deeper understanding of individual borrowers allows for more accurate risk-based loan pricing as well as better decision making. Loan origination tools are used to assess borrower risk.
Aï¿½ Real-Time Insights – Loan risk management is an ongoing process that spans the entire portfolio. Using real-time data and highly visual business intelligence tools such as dashboards and graphs, mortgage software allows you to identify trends, spot patterns of risk and opportunity, view valuation models, and create forecasts. Real-time analytical tools can be used to monitor and report on key performance indicators as well as to create forecasts and predictions. These insights are often displayed in visual dashboards.
Aï¿½ Reporting – Predefined reports as well as ad hoc reporting tools allow you to look at loan data using different views and filters.
Aï¿½ Decision making – With data visualization and predictive analytical tools, mortgage software also facilitates smarter decisions. For example, you may discover areas of opportunity such as loans prime for refinancing or new marketing products. Likewise, you may discover loans that you’d rather sell or that are at risk of prepayment. By setting and monitoring key metrics or drilling down on data as needed, you can take a more proactive approach and make smart decisions based on solid information.
By using mortgage software with risk management tools, you can keep an eye on risk at the borrower level and across the entire portfolio. These tools allow you to monitor borrower, collateral, market, geographic, and concentrated risk in real time as well as create detailed forecasts. With in-depth insights based on real-time information, mortgage software makes it possible to respond proactively, reduce risks, and take advantage of opportunity.