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64 I N D U S T R Y I N S I G H T / J O R G E P O N C E When default management is divided between multiple vendors and relies heavily on human oversight, lenders remain vulnerable. However, today's lenders have the impenetrable armor of data- driven, customizable algorithms to help them manage the default process, shielding them from potential hazards. Markets routinely experience ups and downs, and most lenders are prepared to weather these slight fluctuations in the market climate. However, when the financial crisis of 2008 hit, many had never experienced something of its magnitude, and many were caught unprepared. During the recession, the mortgage industry experienced an unprecedented level of defaults, which was, in some instances, exacerbated by poor or nonexistent default-management processes, followed almost immediately by a number of increased regulations. is combination crippled many lenders beyond repair and placed the entire industry under severe scrutiny. Strong default management is vital to the success of any lending institution, especially when it comes to real estate-based lending. It has always been an important part of the business, but lenders truly started to understand its necessity in the wake of the financial crisis of 2008. For those lenders who made it through intact, the recession served as a significant wake- up call. It became clear that there had to be more they could do to anticipate risks in order to effectively protect their assets and guard against a similar crisis in the future. Unfortunately, accomplishing this goal while keeping up with new regulations has resulted in inefficient processes, disparate technologies, and high maintenance costs. So, how can lenders successfully take a long- term approach to effective default management? e first step of the answer lies in how lenders choose to assess the health of the loan portfolio. ASSESSING CURRENT RISK e loan portfolio is generally the largest asset and the leading source of revenue for a lender. As such, it is one of the greatest sources of risk to a lender's business. Loan-portfolio management is the process by which risks inherent in the credit process are managed and controlled. To assess the health of the loan portfolio, lenders must consider how much risk the files had when they first originated and how much risk they present currently. FORTIFY YOUR MANAGEMENT APPROACH