| Given the multitude of end
users of fair value (e.g., middle office, portfolio
management, accounting, regulatory), it is challenging
to ensure consistent usage methodolgies to satisfy
the timing and accuracy requirements of end users
|
Inaccurate and untimely prices can have a significant
impact on economic position and financial reporting
|
Understand current state policies governing pricing methods (3rd party marks, mark-to-model, manual marks) and reference data availability
Design future state business process and architecture
that best satisfies policy and end user requirements
Identify gap and implement solution around organization,
data needs, technologies, and governance |
Numerous middle office and pricing experience of mortgage-based loans, mortagage servicing rights, mortgage derivatives, both from a process and pure valuation perspective |
| Given recent re-statements and bankruptcies due to faulty valuations (e.g., residual interests), regulators and auditors are placing greater emphasis on model and pricing governance models, which can be challenging to implement and maintain in a cost effective manner |
Lack of controls and governance around models used for valuations can decrease management's reliance on the output, impacting key decisions and increasing overall risk |
Work with client to define key tenets of the
governance model based on internal processes and
external best practices
Design governance model, including data architecture, organizational design, and enabling technologies
Implement solution |
For a large financial institution, designed
and led validation of valuation output for a large
MBS and structured product portfolio |
| Given the availability of multiple fair value
sources, it is a challenge to select the right
fair value provider for a given set of product(s) |
3rd party model providers can miss critical product details leading to incorrect fair values
For example model providers can forget to account for prepayment penalties that have a significant impact on prices and a potential mis-statement of earnings |
Define a process to validate the reliability and quality of fair values produced by 3rd party providers
From creation of internal models to hand pricing, the process has to be documented and repeatable |
Defined processes around validation and also identified potential
shortcomings of the pricing approach |
With the introduction of
FAS 159, organizations are considering whether
to adopt the standard or to retain the accrual
method of accounting
|
There is increased risk of
model-related compliance
and version management.
Changes in model need
to be documented and
controlled resulting in
increased costs |
Find the right model for the right product
Given the availability of numerous 3rd party
models, it is imperative that the model supports
the product completely |
Validated and priced a
variety of securities and
loan products for a multi
billion dollar portfolio |
Compliance and Disclosures