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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 36 December 2024 F E A T U R E S T O R Y AI IS REWRITING THE RULES OF FIXED- INCOME INVESTING B y C A D E T H O M P S O N I f you were a research oncologist looking to extract insight from massive amounts of patient data, or an engineer evaluating clima- tological patterns to identify renewable energy sites, or an e-commerce strategist looking for new ways to use custom- er data to enhance online shopping experiences, you wouldn't think twice about using artificial intelligence (AI) to advance your work. For many indus- tries, AI is already firmly entrenched in the technology toolbox. But while the common promises of faster, more ac- curate and transparent data processing are highly applicable to the fixed-in- come world, adoption continues to be cautious. Let's be clear. AI is not simply the next, natural iteration of machine learning (ML). It's multidimensional in its abilities, combining human-like logic with something humans will never be able to do—crunch and extrapolate information from massive lakes of both structured and unstructured data from hundreds of different sources— at scale, and then, as a logic-driven, decision-making tool, distill all that into recommendations, reports, and business-critical insight. Mapping AI to Asset Management Objectives A t the ground level, fixed-income asset managers are focused on four core functions for optimizing returns: • Liquidity management • Portfolio construction and diversi- fication • Yield enhancement and risk man- agement functions • Performance and investor reporting Myriad data-driven decisions and actions steer the strategies for these functions, as well as their successful execution. AI, with its power to drive out data management inefficiencies while driving in data veracity and transparen- cy, enables asset managers to perform these functions not only faster, but with more confidence in their conclusions and recommendations. In doing so, AI is effectively bringing the power of logic-based automation to the trifecta of fixed-income management: Best Asset, Best Management, and Best Execution. Creating the Best Asset I mproving asset quality and tradability improves asset value. In the mortgage world, a significant portion of an asset's value depends on its history. The more accurate and complete the history, the less risk associated with the asset and, therefore, the more it is worth. This sounds straightforward enough until you factor in all the different partners and players that "touch" an asset's data throughout its lifecycle, including multiple asset owners, servicers, law firms, and custodians. Every party has its own data collection and manage- ment process. Different departments within a servicer, (loss mitigation, for example) may collect different borrower data points, and typically have different methods for gathering, reviewing, and cataloging key back-up documentation, such as requisite legal and title reports. Residing across such disparate sources, none of the data, nor corresponding documentation, is easily accessible, much less validated, vetted for errors or reconciled. And the longer the season- ing of the asset, the more potential for inconsistent, incomplete, or inaccurate data. In other words, the less it's worth. Questionable loan-level data severe- ly compromises the validity and applica- bility of analytics and insights the data informs. The ensuing trust deficit has a domino effect, impacting asset manage- ment strategy and execution, continuing C A D E T H O M P S O N is Co-President and Chief Growth Officer of Rocktop Technologies, a Solutions-as-a-Service (SaaS) company committed to enhancing returns on complex, fixed-income assets such as mortgages. Its solutions, harnessing data science, AI, and digital ledger technology, strive to propel the fixed-income industry towards strong form efficiency, ensuring that every asset is a known quantity and enhancing liquidity, portability, and value. He may be reached by email at cthompson@rocktoptech.com.