Wednesday, September 12, 2012

Data is King in mortgage finance space as lack of data cost $13 trillion

Reporting on the MBA's 2012 Risk Management and Quality Assurance Forum, HousingWire carried two articles, see here and here, that concluded

If the conference put anything into perspective, it drove home one key point: 
Data is king in today's mortgage finance space ... 
those who can analyze it to detect hidden risks may be sitting in the right place at the right time.
This confirms what your humble blogger has been saying about the need for observable event based reporting for structured finance securities.  With observable event based reporting, all activities like a payment or default on the underlying collateral are reported before the beginning of the next business day.

The need to be able to detect hidden risks also confirms that all non-borrower privacy protected data fields need to be disclosed.  There is a reason that the experts, mortgage originators and servicers, track the data fields they track:  to detect risks that would otherwise be hidden.  As a result, all the non-borrower privacy protected data fields rather than a subset of these data fields needs to be disclosed.

To drive home the point how important data is in mortgage finance, Ann Fulmer, vice president of industry relations at fraud analytics firm Interthinx observed

The housing crisis cost the nation about $13 trillion when tallying all losses from lawsuits, mortgage-backed securities litigation and taxpayer bailouts.... 
To put this $13 trillion into perspective, U.S. gross domestic product — the nation's entire output of goods and services — hit $15 trillion in 2011.  
"We did not pay attention to data integrity on the way up, and so we have wiped out almost an entire year of gross domestic product in the United States," .... 
When looking at just REOs, short sales, RMBS suits and crisis-related litigation, the meltdown cost the mortgage/housing industry roughly $2 trillion, Fulmer explained. In addition, U.S. taxpayers and the government lost $3 trillion, while losses tied to homeowner equity reached approximately $8 trillion.
Please re-read the highlighted text because it puts the benefit of having observable event based reporting at $13 trillion.

Compare this to the less than $10 billion it would cost to provide observable event based reporting and the cost/benefit analysis of the SEC requiring observable event based reporting under a revised Reg AB is massively in favor of requiring observable event based reporting.

No comments: