By Consulting Magazine 09/21/2007
"Some of this was foreseen; some of it wasn’t," says Christopher Formant, executive vice president of BearingPoint’s Global Financial Services. " With some clients, there were efforts going on all along. [Some of them] needed more sophisticated ways of dealing with their defaulted loans and optimizing what their options should be or managing their real estate. And quite candidly, some of them just need to get their bottom-line performance back to a decent zone, so they’re taking out a lot of cost."
The answer that the McLean, Va.-based consultancy embraced is a three-part toolkit that allows lenders to evaluate risk and manage accordingly. The solution took BearingPoint several months to create, although the firm had some of its tools a la carte before the toolkit was released earlier this month. "So we said, ‘What are things that we can put together into a toolkit for them that could first help them evaluate the extent of what their current situation is ?’" Formant says. "Good or bad, you’ve got to know it."
BearingPoint’s aim with the credit toolkit is to help lenders better evaluate risk as well as examine costs. "At the end of the day," Formant says, "the mortgage companies on the credit side really have no physical product. All their costs are people and technology."
"If you layoff staff and that’s all you do, you still have the same cost model," adds Lowell Alcorn, managing director of BearingPoint Financial Services, Lending and Leasing Group.
The creditor toolkit is broken down into three functional divisions: evaluation, management and improvement. The first two, which BearingPoint groups together, are dashboard-centric. Functionalities include predictive modeling, inventory management and compliance monitoring. "As part of the dashboard," Alcorn says, "we think you should have some alerts or triggers that any time one of your assumptions starts getting out of bounds or start getting outside the threshold you have set that that immediately starts coming to your attention."
As for the compliance element, "Those requirements constantly change the business rules for the default-management process," Alcorn says, "and this toolkit allows lenders to stay ahead of the game. We think that’s going to keep our clients away from lawsuits."
The last element is what Alcorn calls "a totally separate program," and focuses more on long-term consulting strategies to help lenders. This part of the toolkit centers around analytics and process improvement to lower costs.
The need for such a toolkit isn’t limited to lenders who’ve made some poor decisions in the recent past. "There are some lenders have tried to stay away from the non-prime business, but what we’re seeing is that delinquencies on other loan types are going up as well," Alcorn says.
The feedback, Alcorn says, has been great. He even organized a Webinar on the topic and says about 450 from the lending industry participated.
Formant says BearingPoint’s competitors are trailing behind when it comes to this troubled industry. "You would think with something that is this important and is dominating the news and is such a crisis with our clients, [we would], but we don’t see any of our competitors out there."
The help the consultancy is offering to lenders is a return to what consulting is all about, Formant says. "This is kind of consulting in its truest form. Our clients have a really big problem and they need some help fixing it. And the industry has some issues and they need some help fixing it. So in its purest form, this is good old-fashioned, old-school consulting."
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