I spent the last couple of days attending the Securitisation Professionals Program put on by the Australian Securitisation Forum. A great course BTW, and highly recommended for anyone who wants to get their head around the basics of securitisation. But of course my perspective was very much a LIXI one and my head is now full of intriguing thoughts...
Securitisation is a big topic but a couple of key points stood out for me. First and foremost was the importance of having plenty of rich and timely data. Transparency is something that is highly valued by investors and by ratings agencies, and thus is something that can make a big difference to margins. This is particularly true for offshore investors who need extra assistance to get comfortable with Australian product. Yet the comments made by lecturers from the investor side were that data quality and timeliness typically leave a lot to be desired - a problem seriously exacerbated by the fact that data sources (originators and services et al.) don't have a consistent reporting format or even a consistent interpretation of the meaning of basic concepts like "arrears" or "default".
It appears a Common Reporting Format (CRF, to coin an acronym) would be a Very Good Thing and needless to say I think a LIXI-based CRF could be the way to go. I have a few starting assumptions in mind:
- A LIXI CRF should be as simple, and as low-level, as possible. By which I mean it should address the raw data only, and at a loan-by-loan level. Any interpretation and aggregation of the data should be left to the data recipients. For instance it would be sensible to capture the LVR of each loan in a pool, but we shouldn't try to capture interpretive or derivative information (such as the expected default rate for loans of that LVR, or average LVR's across the pool, etc.).
- We should, however, make it possible to capture the basis on which the raw data has been determined. For instance it is not sufficient to simply flag a loan as being in arrears by x days - you need to be able to specify that the time in arrears has been calculated by counting from the date of the last payment, for instance. The obvious point of comparison is the LIXI Commissions standard where we don't just capture the commission amount, we also capture the commission calculation basis.
- A large proportion of the data required is already defined in the LIXI Vocabulary (e.g. details about loan types, property types, borrower types, etc.) but careful documentation of the meaning of terms in the context of the LIXI CRF will be essential. If we use a term we not only need to know precisely what we mean by that term we also have to make it easy for non-LIXI parties (e.g. offshore investors) to discover what we mean.
- Despite what I just said in point 3, we need to avoid over-complicating things. A perfect solution might be built on XBRL for example, but my guess is it would take a very, very long time to become commonly used due to its complexity and the fact the lending industry has had very little prior exposure to XBRL. A LIXI CRF, in contrast, would be a "good enough" solution that could be quickly piggy-backed onto existing systems and processes for loan processing and back-channel reporting.
At present I'm envisaging something built on a mix of LIXI CAL plus the planned LIXI Loan Servicing standard, but structured like the LIXI Commissions standard, i.e. line-item reporting of self-describing raw data. With support from the right parties (Perpetual Trustees springs to mind for a start...) I think we could get something done quite quickly, and it would be relatively easy for lenders and servicers to adopt because it would be mostly just stock-standard LIXI data. The payoffs, for all parties the length of the securitisation chain, could be huge.
[Of course this could all get done much, much faster if we had the LIXIpedia in place already. But I've made that point before in another context...]
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