BasePoint Analytics says it’s developed a statistical scoring method of identifying mortgage applications and loans that are at the highest risk of early payment default, offering the service for about $6 to $10 per application scored.
Lenders can use BasePoint EPD alert to score all new applications, and then subject 10 to 15 percent of those loans for further targeted reviews, the company said.
In a test in which EPD alert was used to score past loans and 10 percent were targeted for further review, the software would have reduced by half the dollar volume of loans that later experienced early payment defaults (EPDs), the company said.
“Other solutions require you to investigate a much higher percentage of loans to get that 50 percent” level of EPD detection, said BasePoint Analytics spokeswoman Shelley Ehrman. “That tells you it does a really good job rank ordering.”
To generate risk scores on a zero to 999 scale, BasePoint EPD alert uses pattern recognition technology that draws on the historical performance of more than 4 million loans, the company said. The 10 percent of highest-scoring loans usually fall in the range of 750 to 999, Ehrman said.
Lenders can choose to subject a greater or lesser percentage of applications for targeted review, expediting those loans that fall below the threshold for review through the approval process.
On loans targeted for further review, BasePoint provides specific information on the factors behind their elevated risk score. Typically, about 60 percent of loans that are subjected to further review can ultimately be approved, Ehrman said.
Lenders can send BasePoint batches of loans on a daily or weekly basis that are scored within 24 hours, Ehrman said. BasePoint will also help lenders install the software themselves and work the process of scoring applications into their workflow.
In either case, users are charged on a per-application-scored basis, with discounts for large volume. The cost will probably range between $6 and $10 per application, depending on volume, Ehrman said.
BasePoint’s EPD alert is part of a suite of fraud detection and risk management software that includes the company’s fraud scoring system, FraudMark. The software is used not only by loan originators, but investors who buy loans in the secondary market.
BasePoint claims that since late 2005, FraudMark has been used to prevent the funding or purchase of more than $2 billion in suspicious loans. BasePoint’s EPD alert can be used independently or in conjunction with FraudMark.
In releasing its latest report on mortgage fraud, the FBI cited an analysis of 3 million loans by BasePoint, which found 30 to 70 percent of early payment defaults are linked to significant misrepresentations in the original loan applications.
“The analytic advancements of the BasePoint EPD alert now enable mortgage lenders and investment banks to go beyond traditional credit scores and risk management tools and processes and cost effectively score all mortgage applications and loans to understand early default risk at the individual loan and portfolio levels,” said Tim Grace, president and chief executive officer of BasePoint Analytics, in a statement.
Carlsbad, Calif.-based BasePoint has partnerships with Experian and ComplianceEase, and First American Real Estate Solutions holds a minority interest in the company. Competitors include First American LoanPerformance and its parent company, First American CoreLogic Inc.