Servicers Are Under Pressure to Find Problems Early.

Tampa, FL -- Mortgage servicers are under pressure to help the mortgage securities market detect potential fraud earlier and update investors about progress in addressing loan problems, according to executives at Digital Risk here.

Peter Kassabov, co-founder and managing director of the privately held firm, said the mortgage industry is coming to understand in the wake of the subprime crisis that a credit score, tax return and pay stub are not sufficient to protect against loan fraud.

"The industry is about to go to an inflection point where either the industry will have to reinvent itself in terms of the way business is conducted or there will be a major shakeout," he said.

Digital Risk not only uses data from the loan application, but also data from the public domain and private data sources to quickly provide a predictive model review of loan portfolios. Those additional data include information from the telecom industry, the insurance industry, employment sources and the public domain.

He said much of the data used by the industry in the past to verify information about borrowers and collateral are obsolete. Digital Risk, which has offices in Dallas, and Jacksonville and Orlando, Fla., has developed technology that features new data and algorithms for assessing loan fraud and default risk.

Mr. Kassabov said Digital Risk's Portfolio Review Predictive Model helps servicers and investors who acquire loans. Increasingly, they are looking very carefully at loan performance over the first three to six months of seasoning to make sure that prime credit quality loans really are prime loans, he said.

Jeff Taylor, also a co-founder and managing director of the firm, said that FICO scores are too easily ...