General Whitepaper Series: Discretionary Loan Score (DLS) Conforming Loan Model

Lenders across the nation are focused on originating high quality loans. In support of their origination and servicing activities, lenders are required to develop and maintain robust quality assurance/control(QC) review programs. In particular, lenders who sell loans to third parties like Fannie Mae or Freddie Mac, or have loans insured by others are contractually required to review loans prior to and after closing to ensure loans meet eligibility and underwriting guidelines.

Lender pre-funding and post-closing QC review requirements may vary, but broad risk management principles should be consistent. As part of a QC program, lenders must develop a process to determine which loans to select for QC review. QC program loan selection processes generally fall under one of three representative sampling methods; random, statistical or discretionary. The purpose of discretionary sampling is to identify or highlight areas that may pose unique, elevated or unintended risks for a lender.

In support of these activities, Five Bridges Advisors, LLC has developed the Discretionary Loan Score TM(DLS) a proprietary loan quality scoring system to help automate and streamline this selection process. It provides lenders with a robust, controlled and cost-effective solution that assures conformity with current industry best practices and requirements for discretionary loan selection. DLS is a perfect companion to originators, servicers and both internal and external QC providers.

DLS is an econometrically estimated scorecard tool. It instantly evaluates the borrower’s likelihood of payment default in each of the following three periods after closing: the first six months (months 1 to 6),the next six months (months 7 to 12), and the following 12 months (months 13 to 24). It assigns a score to the loan based on its estimated risk level. DLS evaluates the potential for elevated risk level across every geographic region including all 50 states and Washington, DC and help prioritize high risk loans for QC review.

Request Discretionary Loan Score (DLS) Conforming Loan Model White Paper

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