S&P's DACSS Cited As the Future of Lender Technology.

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

Sept. 4, 2002--As automated and electronic property appraisals continue to revolutionize the lending industry, it has become increasingly critical for originators to analyze a borrower's credit risk at point-of-sale, especially for loans and properties that may be assessed by alternative means. By doing so, lenders can more strategically manage through the life of the loan, from the efficient analysis of appraisal requirements at origination, up to the competitive pricing of the loans during securitization.

This type of holistic, strategically focused view of the lending business is where the future of residential-mortgage technology is headed, and Standard & Poor's revolutionary analytical software tool, DACSS (Documentation and Collateral Scoring System), launched in January of 2002, is the first platform to fulfill the entire panoply of originator needs. Designed specifically for residential mortgage loans targeted at the nonconforming market, DACSS is an invaluable tool that evaluates the attributes of a U.S. mortgage loan application and the borrower's credit quality.

More importantly, it assigns alternative document and collateral requirements at point-of-sale in accordance with Standard & Poor's ratings criteria--without assigning a corresponding increase to the foreclosure frequency or loss severity expectations.

The advantage of this is that if an issuer knows that a loan is "DACSS-eligible", or S&P-approved, at point-of-sale, that loan will not be charged additional loss coverage when it is sold into the secondary mortgage market. "Even though these loans are eligible for reduced or streamlined documentation, investors and issuers will know in advance which loans meet S&P's ratings criteria, giving them an unparalleled pricing advantage on whole-loan bids," said Patrick Mahoney, product manager for DACSS.

"Moreover, if a loan is pre-approved by DACSS for the use of an automated valuation model (AVM), a borrower will only be asked to pay a minimal fee for this electronic appraisal, as opposed to the far more expensive traditional appraisal process. Ultimately, this can only increase a lender's volume and enhance its customer service capability--a win-win situation for both the lender and the borrower," Mahoney added.

DACSS, therefore, is the quintessential full-service securitization tool for the lender: at the front-end, it determines reduced income documentation and appraisal requirements for a first-lien nonconforming loan, including a determination of which AVM systems the loan is eligible for; at the back-end, it is an effective analytic tool for bulk loan sale/acquisition valuation, ensuring competitive risk-based loan pricing for a securitization.

It is also ahead of the curve in its technology. With the advent and popularity of AVMs over the last several years--giving lenders and borrowers an accurate, quick, and cost-effective means of computing appraisal values--originators have been searching for a means of efficiently determining which appraisal method is appropriate for a particular borrower.

Perhaps most significant, however, is the prominent place that DACSS takes in the evolution of the U.S. nonconforming residential mortgage market, a growing sector that covers loans exceeding $300,700.

In the past, there has been little standardization or guidance in the nonconforming market in terms of which loans are eligible for alternative treatment. "In contrast to the conforming market, nonconforming loans, historically, would automatically require the full traditional documentation and appraisal process for both income and property, from the get-go--there would be no flexibility for those requirements," noted Susan Barnes, a director in the Standard & Poor's Residential Mortgage group. "With the use of DACSS, however, a nonconforming loan pre-approved by the system for streamlined or alternative documentation and appraisal will not get hit with a loss-coverage penalty later on for bearing this alternative assessment."

DACSS, therefore, reflects the future of the mortgage origination and securitization business: it is a one-stop shop for loan-level income and collateral documentation recommendations and analysis, and an effective strategic tool for secondary market pricing. "As the first of its kind in the nonconforming market, DACSS meets the newfound needs of mortgage originators, issuers and investors, and will be a guide as to where mortgage technology goes next," Mahoney added.

For more information on Standard & Poor's DACSS software and its attributes, contact Patrick Mahoney, director, Standard & Poor's Structured Finance Ratings, by calling 212-438-2672 or sending E-mail to [e-mail]. Members of the media may contact Adam Tempkin, media relations manager, by calling 212-438-7530 or sending E-mail to [e-mail].

Copyright 2002, Standard & Poor's Ratings Services