Due Diligence Helps Company Purchase Mortgage Portfolios Despite Economic Uncertainty

A large, multi-billion-dollar pension fund company was planning a significant investment in the consumer finance sector – having identified an innovative partner in the US residential mortgage market.

As part of their strategy, the partner firm planned to purchase whole mortgage loans, mostly from smaller pools of receivables. They required funding to realize this opportunity at scale, and the pension fund company needed to complete enhanced due diligence on their suite of risk and pricing models.

In Mid-2022, Inflation Peaked as Costs Ate Away at Buying Power

Inflation and negative GDP cast a long shadow over the economic landscape in 2022. By mid-year, leaders across the consumer lending industry were bracing their businesses for tough economic headwinds. In the case of the Canadian pension fund company, they rightfully sought an extra layer of due diligence in their evaluation of their investment in the US mortgage asset class. 

Pricing a Mortgage Portfolio for a Risk-Adjusted Return

Bridgeforce was called upon for a speedy and thorough analysis of the target’s portfolio underwriting models and analytical tools. Given the underlying economic climate, it was imperative that the pension fund company could accurately price these mortgage portfolios for a stable, long-term risk-adjusted return.

Over the course of two months, the Bridgeforce team worked shoulder-to-shoulder with the client to combine our experiences and assess credit policy, procedures, and unearth “blow up” risks.

Experience in Collections & Loss Mitigation Brings Crucial Context to Due Diligence

Due diligence of analytical models is not simply an academic or intellectual exercise to us, as numbers and spreadsheets tend to only paint one side of the story. Bridgeforce also brought real experience in collections and loss mitigation to this engagement– which, coupled with our depth of knowledge in the asset class, helped the client gain a new perspective when weighing the portfolio risk.

This experience resonated with our client, “The team at Bridgeforce are seasoned practitioners in the collections industry. We experienced a very knowledgeable, flexible, insightful team that provided quality recommendations and take-aways. Bridgeforce exceeded our expectations and we are looking forward to our next engagement with them.”

The Result: Peace of Mind to Advance the Deal

At the end of the engagement, our client was fully confident that Bridgeforce helped them robustly assess the target partner and their models’ vulnerability to downside economic risks. This allowed them to act quickly on the investment within their risk/return appetites. The accounts of pension beneficiaries are also expected to receive a boost if the investment is successful. And lastly, with their new implementation plan, the client can efficiently price other future volumes of portfolios.

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