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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 38 December 2024 F E A T U R E S T O R Y to drag on asset value and ROI. How AI Helps Achieve Best Management L ack of centralized, validated loan data casts a long shadow, impacting asset management effectiveness and decisioning at both the operational and strategic levels and eventually dragging on investor yield. The weightiest asset management challenges lie primarily in secondary market operations where verification, manual validation, and extensive docu- mentation requirements cause friction, delays, incremental costs, and potential disputes. Compounding these challenges are third party diligence providers tasked with unearthing risk associated with ownership transfers and other asset conditions that may impede asset management efficiency and subsequent execution of the disposition strategy. Meanwhile, AI has the power to make light work of even the most complex, labor-intensive diligence tasks; using sophisticated querying to help de- termine critical decision loan attributes such as: • Lawful and rightful ownership and the seniority/subordination of the asset • The right to foreclose or take owner- ship of the underlying collateral in the event of borrower default • Compliance at the origination of the asset • Value and condition of the underly- ing collateral • Borrower payment history and likelihood of paying a loan to matu- rity, paying off early, or default [the borrower credit profile] • Determination that proper servicing practices are in place, including loss mitigation and borrower contact In essence, AI can be leveraged to identify, evaluate, validate, reconcile, tabulate, rank, verify, search, append, compose, analyze … just about any data-enabled logic task associated with managing an asset or portfolio of assets through their lifecycles. These agents also enhance curative functions, not only pinpointing clouded assets and documentation issues but automating instructions for remediation and improving asset value. Even more impressive is AI's ability to perform complex asset management tasks and optimization across more esoteric asset classes such as reverse mortgages, HELOCs and EBOs. Using AI to de-risk and improve value, enhances liquidity and tradability and, in the case of the more complex asset classes, provides transparency and confidence to help increase participa- tion on both the buy and sell side of the transaction equation. AI's Power to Reshape Best Execution The true transformative power of AI for fixed-income lies in its potential to create a strong-form efficient market where every asset is a known quantity and portfolio pricing and trading are driven more by the future potential of an asset than its risky past. When coupled with blockchain for ensuring full transparency and data im- mutability, AI can automate a more in- tricate pricing structure that takes more data points into account. In addition to due diligence findings, such as borrower credit and payment history, predictive algorithms can factor into valuations, probability algorithms on early repay- ment, possible default, legal timelines and expenses, and ongoing servicing costs. Because the data feeding these predictions is accurate and verifiable, the resulting valuation, pricing, financ- ing, and hedging are better informed. Layering in additional data points regarding property condition and home improvements history also bolsters valuation and pricing while helping to minimize investor risk by ensuring the asset value covers the mortgage balance. If you're thinking "this is already being done," the answer is yes, but not at scale … and not with the level of veracity necessary to protect asset valuation and pricing and optimize returns. Additionally, the capacity of AI to automate the generation of investor and servicing reports brings an unprece- dented level of speed and efficiency to the marketing and trading of portfolios creating greater options for liquidity. Inputting custom queries that "ask" AI specific counterparty and investor ques- tions provides more reliable, data-in- formed answers in a fraction of the time it would take a team of humans. How AI Goes Beyond Speed and Cost-Efficiency If you believe in the potential of a strong form efficient market, you believe in the potential of AI. We simply will not get there without its (and blockchain's) ability to enable the free-flowing ex- change of fixed-income assets whereby investors have trust in the assets and the integrity of the processes and systems for buying and selling them. Furthermore, AI and blockchain technologies are fueling innovation and ideation in an industry that is certainly not known for either. Fractional owner- ship of assets through tokenization can open up market participation exponen- tially, eventually leading to direct access by retail investors. What does not take much imagi- nation is this: we are only at the very beginning of understanding how AI will eventually reshape the fixed-income industry and market