Process Modernization Analysis for Mortgage and Asset-Backed Securities

Background

An investment bank launched a significant post-merger global technology investment program aimed at increasing the scalability of their newly integrated business by eliminating control weaknesses, inefficiencies, manual processes, and reducing operational risk. Multiple projects were launched in the UK to investigate the main business flows and propose optimization solutions, the first step in a GBP 500 million program to modernize the firm’s operating infrastructure.

While the core project was directed from the UK, it was determined that the analysis for the US-based mortgage- and asset-backed securities business line should be driven from the US. This line was a primary revenue driver for the investment bank, and post-merger integration challenges were the source of numerous operational inefficiencies and missed business development opportunities.

With years of proven business-analysis capability and experience with securitized products, the investment bank selected Delv to execute this project stream.

Challenges and Solutions

Delv faced three primary challenges. First, since this project stream was being run from the US, Delv had to build relationships with key UK stakeholders to gain insight into relevant future-state plans and interdependencies. Second, the US mortgage and ABS business was operated with proprietary systems that were not well documented. Thus, there was a need to build effective relationships with knowledgeable personnel who were understandably anxious about the firm’s post-merger plans. Third, there was an urgent need to build consensus on a methodology for determining the true cost per transaction, taking into account costs such as back-office, software licenses, and data centers, among others.

Delv developed a current-state map of the high-level processes and supporting systems. It then met with senior managers and subject-matter experts to validate the map and generate detailed workflow diagrams and a comprehensive list of issues. Input was solicited from all functions, including sales, trading, market risk, credit risk, compliance, technology, product control, financial reporting, tax, regulatory reporting, and operations. The analysis also took into account interdependencies with strategic cross-product data and data warehouse initiatives that were being initiated in the UK.

When this research was completed, Delv identified a list of key projects detailing tactical solutions to alleviate short-term issues, as well as more robust, long-term solutions. To help the steering company prioritize the initiatives, Delv embarked on a detailed cost-per-trade analysis, collating information on trade volumes, straight-through processing rates, time spent on redundant or duplicative processes, recoverable expenses from decommissioning systems, the implications of worst-case scenarios for all of the identified risks, and the estimated monetary and control benefits to be realized.

The projects, along with their associated cost-benefit analysis and high-level business requirements, were presented to the project steering committee, which assigned a priority level for each one. These included trade-capture enhancements, work to support industry and regulator-mandated initiatives, enhancements in processing for TBAs and whole loans, and various reference-data refinements.

Result

The steering committee approved the recommendations, and the global investment program board approved the multi-million-dollar budget, which was a major win for the business line. Delv was later selected to lead several of the approved projects and delivered them successfully, helping the client raise their infrastructure to a new level of scalability, efficiency, control, and risk-management.

"Delv landed their team of business and systems analysts and hit the ground running. Their deep knowledge in regulatory reporting and ability to spec out data requirements is top notch."

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