Challenge:
A large unsecured loan provider in the United States was having challenges with its model suite and convincing its regulator and partners that its models were compliant and in control. The client had a few Matters Requiring Attention (MRAs) and other regulatory issues threatening to disrupt its business and didn’t have a large budget to hire a full modeling team to close the gaps.
PAG Solution:
PAG was hired to do a complete end-to-end review of three different models and assess their overall performance and compliance relative to industry expectations. PAG was able to determine that all three models were built from sound assumptions, and the performance seen in the development samples was consistent with production.
The client, however, had a number of issues with exceptions in its lending process and a complete lack of model documentation that confused regulators about performance and compliance. PAG created a report to separate underwriting performance on loans within the credit sandbox versus those approved on exception. We also compared the client’s model documentation to the OCC’s requirements and identified the missing documentation. PAG put a six-month plan together to close all gaps and identified an ongoing governance structure that the regulator blessed, and the enhancement work began.
Client Benefits:
- PAG successfully built out its client’s enhancement plan to close down its areas of opportunity in the model governance space to the point it was able to meet monthly with its regulator to review progress.
- PAG’s staff allowed the client to focus on documenting its model practices while we educated the model team on ongoing governance, saving the client hundreds of thousands of dollars on personnel costs.
- PAG was able to help get the client’s current MRAs closed and allow it to go back to running its business.
- The client successfully passed a regulatory audit after one year with zero significant findings or MRA’s.
