Without question, the rise of social networks has been the dominant theme in Silicon Valley over the past few years. Platforms like Facebook and Twitter have inspired countless startups looking to latch on to networks to deliver new applications and services for consumers. In many ways, the glue that binds these enterprises is an advanced ability to organize and analyze the reams of user data generated by these networks or systems. Entirely new business models have emerged to try and capitalize on this improved understanding of consumer preferences and behavior.
Over the last couple of years, the analytics experts in Silicon Valley have started to turn their attention to other big data problems. A question that is increasingly attracting their attention is: How can the fallout from the subprime mortgage crisis be better managed for all the players involved, including at-risk homeowners, lenders, mortgage servicers and investors?
We’ve heard a lot about the near-universal frustration that at-risk borrowers have had with their mortgage servicers. The common refrain is that if mortgage servicers could only make smarter and quicker decisions on how to modify the terms of individual mortgages, then there would be fewer foreclosures on the margin and lenders or mortgage investors would actually lose less money in aggregate, since the foreclosure process itself is costly.
For many, the challenges in this area are about asymmetries of information or structural market frictions, since win-win outcomes aren’t realized as often as they should be in an otherwise efficient marketplace. Glenn Hubbard and Chris Mayer at Columbia University have developed plans for addressing some of the frictions that have blocked borrowers from taking advantage of today’s low interest rates by refinancing their mortgages. But now new companies, some with their roots firmly established in Silicon Valley, are eyeing the mortgage servicing market as fertile ground for deploying their creative and analytical firepower.
A prime example is Palantir Technologies (pronounced Pal-an-TEER). At its core, Palantir develops platforms that help other companies integrate and analyze their data. Initially Palantir’s focus was on the intelligence and defense community, helping organizations like the CIA and FBI ferret out terrorist activities. Analogous platforms have since been developed to help financial institutions comb through their networks to identify suspicious or fraudulent transactions. Hedge funds, including one of the world’s largest – Bridgewater Associates LP – have also knocked on Palantir’s doors looking for ways to leverage their open-ended or extendable platform as a way to better process or integrate their investment-related data and research, which often comes from multiple sources.