Mortgage market specialist Edeus is launching an asset quality assessment service that aims to help investors understand fully the current risk in mortgage-backed asset pools by assessing

Mortgage market specialist Edeus is launching an asset quality assessment service that aims to help investors understand fully the current risk in mortgage-backed asset pools by assessing 100 per cent of the mortgage pool and taking into account up to date credit information on borrowers and underlying assets.

According to Edeus, traditional due diligence checks around 15 per cent of the original mortgage pool using information available at the point of origination. The new asset quality assessment service checks borrowers' current credit scores, their current ability to service their loans and the current debt to value ratios on underlying assets on 100 per cent of the mortgage pool.

The service, which Edeus says is tried and tested in the open market, is aimed at investors looking to use asset valuations in the purchase of assets at discounted prices or to give evidence of asset values for balance sheet purposes.

'Mortgage-backed assets are complex, opaque and mistrusted - that's why the market has so deeply discounted their value,' says Edeus managing director Alan Cleary. 'But our new service brings transparency to residential mortgage-backed securities.

'It's the cure to the credit crunch. Billion-pound asset-backed writedowns have reflected the market's lack of understanding of these products. No-one knows what risk mortgage-backed assets represent.'

Richard Monahan, the firm's director of asset management, adds: 'Until now, due diligence has been unable to assess accurately the current credit risk contained in a pool of mortgage assets. It's merely checked the paper trail on around 15 per cent of the asset pool, and only at the point of origination. Writedowns reflect the lack of accuracy in this type of asset assessment.

'We look at every single borrower and every single asset in a mortgage book. By doing this, we can ascertain whether writedowns truly reflect the inherent value of an asset. We can provide evidence of an asset's value. This is the transparency the financial markets need to reinstate trust.'

The system also allows behavioural analysis on borrowers within an asset pool, designed to allow asset holders to manage the borrower-lender relationship should a borrower experience repayment difficulties. Edeus is offering an asset management service as part of the quality assessment programme.

'We're entering a down phase of the economic cycle, and arrears and possessions are going to grow in the coming months,' Cleary says. 'But securitised assets won't necessarily suffer defaults. Our behavioural analysis on borrowers in a mortgage pool enables us to avert possessions by rebrokering borrowers onto more affordable deals, or at the least to deal with repossessions quickly to minimise loss.'

Edeus' asset quality assessment service is available to hedge funds, investment banks, private equity firms, and mortgage lenders. The assessment report can be tailored to include reasonability of income assessments, Land Registry checks to ensure clean title in England, Wales and Scotland, sample fraud investigations, delinquent loan analysis, traditional manual due diligence and an FSA Register Check.

The service will use a risk-based affordability algorithm, the original declared income and current bureau data provided to give an indication of the maximum loan affordable by the borrower - a more robust measure than traditional income multiples. An automated valuation assesses the current value of the underlying assets in the security and the up to date debt to value ratio.