Sept. 11, 2001, changed everything – including banks’ loan portfolios. “After 9/11, the whole economy changed,” says Christine Pratt, analyst at Tower-Group (Needham, Mass.). “The mix in the portfolios changed, the borrowers changed, and the risk” changed.
While some lenders battened down the hatches, others took on greater risks. But banks’ risk models were calibrated during better economic times and did not quickly adapt to the new reality. “People began to realize that the scoring models didn’t work as well as they thought they did,” Pratt says. “There is much more of an impetus to make sure that these models are constantly tested, refreshed and refined now.”
Part of the solution has come through better management of customer information. “I’ve seen a nice uptick in the number of organizations that are looking for new collections and recovery systems, or are looking for tools to help them segment their servicing portfolios, so that they can get a better handle on what’s going on,” Pratt says. “People have started to say, ‘We’ve had this same collections and recovery system for years now – it’s about time we invested in some new systems.’”
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