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65 leveraged to streamline the loan boarding process and improve document classification, indexing, and auditing when ingesting portfolios. As a result, servicers are able to reduce the amount of manual tasks associated with MSR trades and allow their staff to focus more attention on quality assurance and compliant borrower communications. Speaking of which, AI and machine learning technologies are also being used to improve the borrower experience by providing servicing agents greater insight into customers who call for help. ey also enable agents to more easily identify opportunities to transition borrowers who need assistance to digital channels based on their specific needs and communication preferences. And for both lenders and servicers, these tools are even being applied to post-closing platforms to create client-specific checklists that more lenders and servicers are using to lower repurchase risk and improve loan file integrity. All this being said, AI and machine learning generally carry their own unique set of risks. Increasingly, federal regulators are looking at these tools as having the potential to unintentionally create discrimination in lending and servicing operations. Which is why organizations need more than the tools to manage risk—they need to make risk management part of their culture. PREVENTING RISK IS CULTURAL e clients we work with that do the best job at managing risk are those that create a full-circle ecosystem of risk management. ey create a plan, follow it, have everybody review each other's work, and then adjust the plan based on what was found. We call this concept part of building a "culture of correction," and it's based on the concept of constant improvement. To be honest, however, most companies don't spend enough time or thought on risk, and fewer spend much time preparing for it. Problems are bound to happen, of course, but you don't see companies putting line items in their budget for them. On the other hand, it's not that bad of an idea. In fact, we find it useful to put a dollar amount to your risk, which does two things—it focuses your attention on what the risks to your business actually are, and it gives you the opportunity to implement a plan for reducing risk and measuring results. Either way you look at it, there are costs involved with errors, repurchases, and enforcement, and costs involved with managing risk and compliance. Most companies have figured out what level of risks and costs they're able to live with. However, wise organizations don't look at the costs of managing risk as an expense, but rather as investments. For this reason, more lenders and servicers are choosing to outsource their risk management needs for several reasons. For one, buying risk management expertise is typically more cost-effective than recruiting or developing it in house. Secondly, it allows organizations to put a dollar figure on their risk management costs, so they're easier to measure. Usually, they'll find that the cost is significantly lower than the costs associated with buybacks, fines, and reputational losses. Either way you slice it, the industry has already shifted into a new gear this year. e lenders and servicers who come out ahead by 2023 will almost certainly be those that have built a risk management ecosystem that looks at compliance as an investment and likely involves third-party expertise and AI and machine learning technologies to keep that investment as low as possible. e bottom line is that risk is rising, and the only way to not let it drag your organization down is to rise above it. Patrick Gluesing is EVP, Head of StoneHill. Prior to the December 2021 acquisition of e StoneHill Group by Sourcepoint, Patrick Gluesing had served as the company's President and COO since 2018. He currently oversees the strategic growth of the business as well as its day-to-day operations. As a former mortgage solutions executive for IBM's Global Business Services unit, he worked on transformative technology initiatives for lenders that included robotic process automation, blockchain, big data, and analytics. As Chief Innovation Officer and Managing Director for the Virginia Housing Development Authority, Gluesing introduced systems and strategies that improved the performance of the agency's business lines. Most companies have figured out what level of risks and costs they're able to live with. However, wise organizations don't look at the costs of managing risk as an expense, but rather as investments.

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