With undetected risk in mortgage backed-securities (MBS) remaining a concern nationwide, a company has stepped forward claiming it has the technology to accurately assess these hidden dangers.
The company—New York-based Daylight Forensic & Advisory LLC firm specializing in fraud risk management, officially introduced its new “proprietary software” this week.
“This is a breakthrough product for our firm,” said Ellen Zimiles, Daylight’s chief executive officer and co-founder. “In today’s market and the ongoing subprime mortgage crisis, it is critical to be able to assess the amount of risk facing your secured investments. Investors need to evaluate the underlying collateral — the individual loans — of the MBS in an organized, efficient and reliable manner to inform the investor about the risks. Applying this risk-based approach helps investors identify where the greatest exposure to current and future earnings lies and lets them focus their time and attention where it is needed most.”

Zimiles told DSNews.com on Friday that the tool was devised in-house a year ago to compile baseline-risk scores for clients by evaluating 30 different risk factors, including everything from FICO scores to loan documentation data and appraisal values.
Daylight Forensic & Advisory is then able to run these risk factors through their tools to develop numbers that reflect the reality of underlying risk. Zimiles says clients can determine what risk score or risk benchmarks they want to use—but whatever score they choose, the tool meets the same needs for everyone.
“These securities have been repackaged and repackaged so many times that making sure you’ve got the right flow of underlying loans within any particular security is challenging,” added Zimiles. “But if you can track the loans, you can certainly use this tool.”
Zimiles says the tool helps financial instutitutions holding loans, while also giving rating agencies, investors and auditors a leg up in assessing a security’s true value.
“I just think it’s crucial for institutions to be able to demonstrate that they have a tool that can give them some assurance here,” concluded Zimiles. “There really hasn’t been anything in history that’s done that effectively. So whether it’s this tool or something else, the institutions really need to protect themselves, their investors and the public in general.”
To date, Zimiles is not aware of any other firms that can assess risk in mortgage-backed securities in this fashion.