A major challenge in project and portfolio management is doing it right the first time. Multiple data sources and complex modeling requirements are needed for determinative use of analytics. Since the 2008 downturn, financial institutions have become very meticulous in evaluating loan applications and in monitoring portfolio performance.
In asking for effective portfolio management tools our client expected a bigger proportion of their residential mortgage portfolio to be profitable and to have greater confidence in predicting it.
Coforge provided them a set of integrated, customized tools—including Moody’s Mortgage Portfolio Analyzer—to manage and control portfolio items for achieving strategic business objectives. The tools also provide a stronger framework for issue resolution and risk mitigation.
About the Client
The client is the asset manager of a publicly traded company listed on Euronext Amsterdam. They manage more than EUR 190 billion in assets for institutions and individual investors worldwide. Responding to the continually changing market conditions, shifting user needs, and tight regulations, the organization embraces new technologies and innovations to deliver high value to its customers. It has regional centers across Europe, South America, and Asia.
The client approached Coforge to implement Portfolio Management on Residential Mortgage Loan Portfolios. They aimed to achieve specific goals through this service:
- Reviewing portfolios for risks and implementing risk mitigating strategies
- Implementing capabilities to stress cash flows and detecting scenarios that could cause ineffectiveness of the existing risk mitigating strategies
- Implementing tools to allow sanity checks on cash flow data used for input of the hedging strategies, and to minimize potential P&L impact due to incorrect data
- Ensure compliance with Solvency 2 for the portfolio
A residential mortgage loan is considered safe when the risk of loss is minimal in event of payment default. Effective management of the loan portfolio and the credit function is vital to the safety and soundness of the client's operations. The challenges here included:
- Managing and analyzing the credit risks, project defaults, prepayments, and severity dynamics of mortgage portfolios
- Creating a robust and flexible platform to facilitate future onboarding of mortgage portfolios from external parties
- Enabling simplified processing with complete process audit and orchestration
- Processing of large data volume XML files with sizes over 2 GB
Coforge provided the client a set of powerful risk management, stress testing, and capital allocation tools. These were tailored to analyze effectively the credit risk of residential mortgage portfolios. Our solution facilitated:
- Daily and monthly delivery of XML files containing data for a portfolio of mortgage loans and supporting data—borrower’s mortgaged property, life insurance, savings and investment accounts—used as repayment vehicles for the mortgages.
- Implementation of a Mortgage Portfolio Analyzer database using Microsoft data technologies
- Import/export of data from/to Moody’s Mortgage Portfolio Analyzer (MPA) application
- Utilizing Moody’s MPA for risk and capital management, stress testing (probability of default, prepayment, severity, and losses), loan level analysis (modeling of loan characteristics and behaviors), and providing flexibility to adjust model parameters at loan level
- Implementation of dashboards in Qlikview
Delivering More Value
The implementation of new tools for the client brought in a series of benefits to portfolio management:
- More Transparency: The retail credit portfolio managers were able to get a clearer, more transparent view of risks concerning their mortgage portfolios.
- More Control: The tools afforded greater control over the portfolio with full visibility of data for every investment. They also helped in planning of next moves and decision-making strategies as per historical data of past decisions.
- More Insights: Using the new portfolio management tools the client could get forward-looking insights into portfolios being used for hedge accounting process.
- More Returns on Investment (ROI): The implemented tools helped in maximizing full potential of investments, which will further maximize ROI in the long run.