The complexity and opacity of structured-investment products helped precipitate last summer’s run on liquidity. Reassessing how these esoteric investments are priced a year later is a bigger-than-ever priority for market professionals the world over. Enter Edeus, a Wolverhampton, U.K.–based mortgage lending specialist that says its newly launched Asset Quality Assessment Service will bring more transparency to the U.K. marketplace by allowing investors and lenders to more accurately gauge the quality of mortgage-backed asset pools. What makes Edeus’s offering unique is its scope. Whereas typical due diligence may explore as few as 15 percent of mortgage-backed assets in a debt pool, Edeus analyzes every security, using criteria like the updated credit status of borrowers and automated valuation data to predict mortgage loss rates. Its clients include investment banks, private equity firms and hedge funds.
“In this market investors are crying out for information, and our analysis is as granular as one can get,” asserts Edeus managing director Alan Cleary. Edeus was founded in 2006 as a specialist lender at a time when the mortgage business was still booming, but the abrupt shift in the climate last year pushed it to abandon its original business model in favor of credit analysis.
Having a process in place that can help demystify mortgage-backed products is a step in the right direction, says Steve Wallace, associate director of industry relations for Europe, the Middle East and Africa at the Amherst, Massachusetts–based Chartered Alternative Investment Analyst Association. “If you can start to get a better feel for how things are priced and what’s behind it, you’re in a much better position as an investor, particularly should things begin to go wrong.”
Might things have been different had these kinds of initiatives been tried before the current bust? “It’s very easy to sit here and say it didn’t seem all that risky,” Wallace notes. “But with every crisis there’s always been some important lesson learned as a result of what’s happened. And this time it’s the whole notion of transparency and price clarity — the idea of being able to assign a value to something.”
