SERVICES

Mortgage Profitability

Mortgage Portfolio Evaluation

Evaluation

EYC Analytics is a methodology and software suite for analysing and differentiating the lender’s Mortgage Loan Portfolio into its various constituents, to facilitate measurement and tracking of its segmented income, costs and net profitability. This analysis is required under IFRS 9 for regulatory compliance. Equally importantly, it is required for overall effective management of the loan portfolio e.g. for the acceptance and accurate pricing of new business and for the prioritisation and management of mortgage arrears.

Synchronising mortgage costs with mortgage income recognition

EYC is an IFRS compliant solution which distributes mortgage costs in line with mortgage income, for more accurate profitability measurement over the lifecycle of the portfolio.

This product was developed to differentiate and manage profitability in the bank’s very large mortgage loan portfolio.

EYC enables the bank to identify aspects of cross subsidization across the various standard sub-portfolios e.g.tracker versus other loans, fixed rate versus variable rates etc. and thereby to differentiate and improve cost and risk pricing within the bank’s overall mortgage portfolio.

EYC employs precise calculations of net income and adjusts for variations over time e.g. interest rates, redemption patterns, mortgage origination and other costs, new business levels and changes in the economy.

EYC provides flexibility to the lender to differentiate the profit performance of alternative mortgage types and loan maturities.

  • Increasingly, Banks trade in mortgage portfolios (Mergers and Acquisitions) to facilitate the funding of new portfolios for expansion, so it is critical for both buyers and sellers to measure these portfolios accurately for accurate pricing.
  • In the past it was usual to receive and recognise mortgage income over the lifecycle of the constituent loans, but to post all costs in year one, thereby depressing the reported early profitability of the portfolio (also reducing corporation tax!).
  • Today it is recognised as essential to differentiate all mortgages, to note their individual income streams, by reference to maturities and interest rates and then to distinguish their individual costs and to calculate their individual net profitability for pricing.
  • While the ‘explicit’’ costs of the mortgage were identified and were formerly distinguished, viz, Insurance charges, Brokerage and Discounts and were sometimes redistributed appropriately, other invisible costs were even more important over the loan lifecycle and were often missed, viz, differential funding costs (e.g. for fixed versus variable rate loans), administrative overheads and impairment. For proper discrimination and profitability maximisation, especially for sale, all these costs must similarly be distinguished and redistributed for M&A purposes.

EYC Analytics and the Software Suite

In collaboration with its Mortgage Lender Bank, Credit Expo designed and installed its first EYC Analytics system in 2008. That system focused on the explicit costs on day one and has measured all profitability over the years, to the full satisfaction of auditors PwC. Most recently the software has added further discriminatory functionality to achieve more precise mortgage valuations and profitability measurement.

EYC Analytics and the Software Suite

In collaboration with its Mortgage Lender Bank, Credit Expo designed and installed its first EYC Analytics system in 2008. That system focused on the explicit costs on day one and has measured all profitability over the years, to the full satisfaction of auditors PwC. Most recently the software has added further discriminatory functionality to achieve more precise mortgage valuations and profitability measurement.

COMPLIMENTARY CONSULTATION

We would be delighted to undertake a complimentary consultation to show you our approach and identify where we can be of assistance to your organisation in reducing credit risk.
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