ALI Solutions

ActionOptimizer for Loan Modification ("Loan Mod") from ALI Solutions provides a new approach to quickly identify “at risk” customers within performing and non-performing loan populations. It enables mortgage lenders to proactively target non-delinquent but financially stretched borrowers for loan modification and optimize the offered terms. For delinquent loans, Loan Mod can determine which customers should be retained and which loans should simply be liquidated. And, this can be done without IT resource involvement.

Proactive restructuring of loans can result in a few outcomes:

• The borrower can continue to pay under their existing terms.
• The borrower can pay down their loan and refinance under better terms elsewhere, when possible.
• The borrower can default and become delinquent as a result of hardship and/or loss of property value.

Each of these outcomes can be evaluated in terms of their likelihood of occurring as well as their economic impact to the lender.

Loan Mod uses a combination of decision rules along with forward-looking predictive Net Present Value (“NPV”) models to accurately estimate the economic value associated with various treatment options along with the association effects those treatments or modifications may have on the probability of default, the impact to revenue and the underlying operating costs. The result is an up-to-date and accurate estimate of the financial impact of the proposed modification, enabling intelligent offer optimization.

Loan Mod utilizes a two step optimization process:

1. Initial offer targeting: Borrowers who should receive an offer are identified based upon the available data. Direct contact with the borrower is made, interest is determined and updated information is obtained directly from the borrower.
2. Revised Offer Assignment: The updated information is run through the treatment assessment process and an updated Loan Mod score is produced. This is now run through ALI's Default Effect Model to determine the relationship between reducing the borrower’s payment and the reduced likelihood of them staying current.

In other words, it is an action-specific account level forecast of the relationship between reducing someone’s payment and the reduced likelihood of them becoming delinquent as a result.

Proactive loan mods are different than reactive modifications in the context of loss mitigation. The economics of proactive action must take into account foregone revenue and retention of good borrowers, and apply them to various forms of contract term changes, thus calling for sophisticated analytics. It can determine the optimal balance between minimizing foreclosures and maximizing the Net Present Value (NPV) of loans. As a result, lenders can better contain losses while increasing the economic performance of their loan portfolio.

Built on a solid yet flexible foundation

The Loan Mod is built on ALI's core decisioning platform that supports comprehensive workflow and business rule integration with the core Loan Modification Analytics - Predictive Component Models (credit default, dollar loss and pre-payment effect models) and NPV models. Strategy testing is easily performed utilizing champion/challenger and strategy simulations against multiple historic data sets. Once accepted, the optimal strategies can be quickly migrated to production - all without direct IT involvement.

Benefits

Used by major banks and lenders across the U.S., the Loan Mod can help:

• Minimize risk and exposure through a proactive, preemptive approach to loan restructuring.
• Enjoy greater leeway in determining optimal treatments.
• Minimize current and future loss mitigation operational costs.
• Decrease foreclosures and increase the number of mortgages that remain as performing assets.
• Reduce pre-payment of good borrowers.
• Determine treatments to ensure the optimal NPV for each asset.

Click here for more information about ALI Solutions and how they can help your organization enhance risk management and improve profitability.