A loan tape is an essential document that provides detailed data on the loans or other assets that are being used to secure an asset backed debt facility. The loan tape allows potential lenders or investors to conduct due diligence on the loans by analyzing the tape’s data points in order to determine risk levels and appropriate pricing for the debt facility.
This blog post will provide a comprehensive overview on constructing an effective loan tape for an asset backed financing. It will cover the following key topics:
- Purpose and uses of a loan tape
- Main data points to include
- Format and layout
- Sources of data
- Construction process and methodology
- Quality control and auditing
- Updates and maintenance
I hope it’ll help you understand the critical components of a loan tape that meets industry standards and allows parties to make informed decisions regarding asset backed lending facilities.
Purpose and Uses of a Loan Tape
The core purpose of a loan tape is to provide potential lenders, investors, rating agencies, trustees, and other parties detailed information on the collateral loans or assets involved in an asset backed security issuance or debt facility. Some of the common uses include:
Due Diligence
The tape allows underwriters, rating agencies, trustees, and third party diligence firms to analyze the underlying collateral to determine risk levels, appropriate pricing, and structure for the deal. This includes evaluating metrics like loan terms, borrower credit stats, property values, etc.
On-going Monitoring and Reporting
Once the deal closes, the tape is updated monthly or quarterly to provide investors and other parties on-going transparency into collateral performance over time as loans repay, default, or have other activity.
Modeling and Analytics
The data tape allows financial models to be constructed to analyze cash flows, loss coverage levels, overcollateralization requirements, and other analytics based on the detailed loan information.
Investor Communications
Data from the tape may be used to construct monthly remittance reports to update investors on deal performance as it pertains to activities like payments, losses, delinquencies, collateral substitutions, etc.
Regulatory Compliance
Issuers of securities may be required to provide loan data to meet certain regulatory reporting obligations. The data tape provides the information necessary for this.
The loan tape essentially acts as a “data room” or repository that allows both initial analysis of collateral for new deals, as well as ongoing monitoring and reporting throughout the deal’s life.
Important Data Points to Include
The loan tape should provide dozens of data points on each loan file or asset to allow comprehensive analysis by lenders, rating agencies, trustees and other parties involved in asset backed finance transactions. The main categories of data to include are:
- Loan Identifiers – Details like loan number, borrower ID numbers, property address, or other codes that uniquely identify each collateral asset file
- Loan Terms – Original and current loan amount balance, original and remaining term, maturity date, amortization schedule, interest rate type and terms
- Borrower Details – Borrower name and contact info, credit scores, income/financials, payment history
- Property Details (for mortgage assets) – Address, type of property, occupancy status, value, source of valuation, other attributes
- Lien Position – Details on senior liens associated with property
- Payment Status – Details all payments made and due, along with any delinquency, default, or modification activity
- Loss Details – For any liquidated or foreclosed loans, data like default date, loss amount, recovery amounts, sale date, etc.
This covers the primary data elements, though some loan tapes may contain 50+ discrete data fields with many additional details on loan history and performance that may be relevant in analyzing collateral quality.
Format and Layout
The loan tape is typically structured as a Microsoft Excel workbook, though data files in other formats like CSV can also be provided. Having an Excel format allows financial models to easily link up to the data tape worksheet to drive analytics and reporting.
The tape should be well-organized with clear labeling of each data field (the “column headers”), data field definitions (for less common elements), and grouping of related data categories together. Sorting and filtering functionality should be enabled in Excel to allow end users to easily parse the tape.
Documentation like a data dictionary, overview of construction methodology, and other descriptive materials on the tape should also accompany the file.
Sources of Data
The loan tape is constructed from data extracted from the underlying source systems and databases that house the information on each individual loan. This includes:
- Origination System – The system used to originate the loans will contain credit risk data, terms, lien position and other details created at origination
- Servicing System – Ongoing updates on payment/default activity, account balances, loan modifications etc. come from the loan servicing platforms
- Property Valuations – Automated valuation models, broker price opinions, appraisals provide updated property values
- Foreclosure and REO systems – Loss and recovery data is sourced from liquidation processing systems
Data is extracted in a standardized format from these disparate systems and merged together into the final tape that combines the details on each loan in one consolidated view. This extraction is automated as much as possible to create efficiencies in the tape construction process.
Construction Process and Methodology
Producing the loan tape follows a methodical process with quality control and validation checks along the way to ensure accuracy and completeness. The key steps include:
- Identify Data Needs – The initial collateral transaction specifications dictate what loan details need to be included in the tape to align with due diligence and reporting requirements
- Map Data Sources – Catalog all systems that house the source data, identify database tables and fields where individual data elements reside
- Extract Data from Sources – Write scripts for data dump that pull targeted elements from different systems into staging tables
- Standardize Data – May require decoding of some fields (ie status codes), merging disparate name/address fields, synchronizing dates and identifiers across systems etc.
- Populate Tape Template – Move standardized data from staging tables into loan tape workbook template with clear labeling and organization
- QC Checks – Scan tape for issues on data population like blank records, out of range values, duplicate entries, improper formats etc. Cross check totals balance to control reports
- Distribute Tape – Format tape file and documentation for secure transfer to lenders, rating agencies, and other parties to consume its data
A clear methodology for constructing the tape with governance and quality control facilitates accuracy now and over time as periodic updates are made.
Quality Control and Auditing
The data tape construction process has quality control procedures embedded throughout, however additional reviews should be performed as a secondary validation on accuracy. Some best practices include:
- Rule Validation – Validate data formats, expected values, ranges, cross field calculations are all within specified guidelines
- Population Analysis – Scan tape for empty records, missing values, duplicates, which may signal extraction issues
- Source System Reconciliation – Reconcile record count, unpaid balance totals, defaulted loan totals etc. back to source system control reports to ensure proper pull of data
- Historical Comparisons – Analyze current loan attributes like scores, LTVs, balances to prior tape to flag any questionable or inconsistent results
- Manual Spot Checking – Pick random samples from tape to check individual loan details trace back properly to source servicing system downloads
These processes can be managed by an internal analytics team or outsourced to an external loan review firm. Audits should be conducted annually, as well as with major data system conversions, to ensure accuracy is maintained.
Loan Tape Updates
The loan tape typically needs to be updated on a monthly or quarterly basis to reflect the most current collateral details and performance. This allows all parties to analyze trends over time. New records should be added for any new loan collateral that gets added, however the historical records remain intact. Updates follow a similar construction process and sources as the original tape build.
A release notes page summarizing what changes were incorporated helps users understand any differences vs. prior tapes. Archival policies should be established on retaining historical loan tapes and documentation.
The systems that house source loan data also evolve over time. The tape construction process needs to stay in sync with upgrades or migrations that may alter interfaces, data availability or formats from the sourcing systems. So technical maintenance is critical as well.
Conclusion
A well-constructed loan tape is important for any financing backed by loan collateral or receivables as it protects lenders, provides transparency for investors, and fulfills regulatory requirements. The details provided in this blog covers best practices for format, content, construction methodology and quality assurance that apply across most asset classes – whether mortgages, auto loans, equipment leases, consumer loans, or otherwise.