When you buy a house, would you trust the appraiser that the seller recommends? No; underwriting standards dictate that the lender on the mortgage orders the appraisal. This principle is not followed when lenders require verification and calculation agents as part of providing capital. The borrower gets to decide who to appoint.
Verification agents and calculation agents are control functions for capital providers. These firms need to select the parties that perform these functions and their scope. When the originator controls the selection of the custodian, trustee, verification agent, and calculation agent, the risk mitigation layer collapses.
Correlation risk hides in plain sight
In practice, borrowers can dictate which verification agent is on a deal. A capital provider may approve a shortlist, but the borrower makes the final call.
The current model exists for real reasons. Verification agents can cause friction in the funding process, so originators naturally favor the same one across all their deals. Frequently, verification services are bundled by the custodian or the back-up servicer as part of a cost-efficient package. Borrowers gain operational efficiency: fewer data sharing arrangements, fewer onboarding processes, less friction at funding time. Those efficiencies are legitimate.
But efficiency and risk mitigation are different objectives, and capital providers should weigh them as such. This structure benefits the originator’s operations, but not the capital provider’s risk position. The mechanism meant to mitigate risk becomes a source of correlated risk.
A higher standard for risk controls
Capital providers should evaluate verification agents on the depth of data access, review coverage, and speed with which they deliver the service. Most verification agents return a static PDF or Excel file with color-coded pass/fail results. The report is the service. Capital providers get a conclusion, but no access to the underlying data that produced it.
A better model exists. Setpoint’s verification agent gives capital providers a tech-forward solution, offering direct access to the verified data behind every report and full transparency into what was reviewed and what was flagged. This results in faster SLAs than the market standard and quicker resolution of disputes. All stakeholders operate from the same system reducing the risk of process friction.
A verification agent is a risk control. It’s worth asking whether yours is structured as one.