Warehouse facilities are one of the most common types across all verticals, from credit cards to auto loans and business financing. Without warehouse credit facilities, many of these verticals would lack the funding to grow or even initiate new originations.
For lenders overseeing a warehouse line, closely tracking the metrics of the underlying collateral is a core priority. The performance of the loans and receivables directly impacts the success and risk profile of the facility.
By tracking key statistics, lenders monitor for signs of asset quality deterioration early, understand risk and return drivers, and ensure the program stays aligned within established provisions.
We will explore the most vital metrics used in warehouse facilities across various asset categories while diving deeper into more advanced portfolio-level indicators.
Default and Loss Rates
The most fundamental metrics in any lending program are those related to defaults, losses, and recoveries. These statistics directly gauge the credit performance and risk level of the collateral asset pool.
Key default and loss metrics monitored in facilities include:
Charge-Off Rate
The total principal balance charged-off or written down divided by the original balance. This ratio demonstrates the proportion of balances deemed unrecoverable thus far. Typically shown in both cumulative and monthly terms.
Default Rate
The count or percentage of loans either delinquent by 90+ days or in bankruptcy divided by the total pool. Calculates the incidence of contractual defaults.
Cumulative Loss Rate
Total principal losses net of recoveries divided by the original pool balance capturing total losses to date as a percentage of assets originated.
Recovery Rate
The amount recovered post default divided by the total principal defaulted. Higher recovery rates provide an offset to losses recognized.
In addition to portfolio-level observations, lenders also segment rates into quarterly or monthly vintages to identify relative performance trends over time. For instance, whether more recent vintages display higher roll rates into delinquency/default indicating some underlying shift.
Lenders also monitor absolute loss dollar amounts in addition to aggregate rates, as a major cost factor behind portfolio yields.
Higher loss and default rates indicate poorer asset performance, although reasonable expectations adjust for the risk profile of the collateral (e.g prime auto loans versus subprime credit card receivables).
Delinquency Rates
Delinquency statistics make up a second vital category for tracking lending portfolio health. These rates serve as a forward-looking indicator of borrowers struggling to repay loans on schedule, thus at greater risk for default down the line.
Common delinquency metrics include:
- 30+ Day Delinquency Rate: The total outstanding principal balance of loans more than 30 days contractually past due divided by the total current balance. This delinquency definition serves as the initial stage where borrowers are meaningfully behind schedule.
- 60+ Day Delinquency Rate: The same calculation but for loans more than 60 days delinquent. At this stage, obligations are severely behind and at dangerously high risk of default.
Roll Rates
The percentage of loans rolling from current to 30 days delinquent to 60 days delinquent status, and subsequently to 90+ days delinquency status per month. Similar to a transition rate showing flows between statuses.
In addition to simple delinquency rates at period end, analyzing monthly roll rates provides further insight into the dynamics of loans falling behind. Generally, lenders assess both dollar volumes along with percentage based calculations to fully gauge delinquency impacts.
Rising delinquencies indicate loans facing hardship in making scheduled payments and at greater risk for eventual default. Catching these trends early provides more runway to intervene and also influence warehouse provisions if severe enough.
Portfolio Yield
On the financial side, lenders closely track portfolio yield measures to determine the overall profitability of the collateral loans while also benchmarking against facility costs. Below are some of the common yield metrics and their calculations, but different lenders may calculate it slightly differently.
Gross Portfolio Yield
The sum of all interest payments and fees collected divided by the average monthly principal balance. Calculates the total portfolio returns before accounting for expenses.
Net Portfolio Yield
The gross yield metric minus losses, defaults, servicing fees, and other costs. This final yield statistic represents the actual bottom line returns to investors in the assets after all expenses and losses.
Required Yield
The sum of financing costs, servicing fees, and targeted returns for the facility. Provides a benchmark for minimum gross yields required to sustain the financing arrangement.
Excess Spread
The gross portfolio yield minus the required yield costs and losses. Represents the extra cushion in returns to absorb higher than expected losses or expenses before impacting targeted net yields. Declines in excess spread indicate a narrowing margin for error.
Evaluating portfolio yields from month-to-month and across various deal stages enables lenders to assess if the asset returns adequately compensate for financing, overhead, losses and desired profit margins. If yields grow thin, the arrangement becomes less viable requiring intervention on costs or improved underwriting.
Vintage Analysis
Cohorting metrics by monthly or quarterly origination period are crucial for tracking asset quality trends over time. This technique allows identifying whether more recent vintages show worse performance, which translates into valuable warnings regarding changes in underwriting practices or loan quality. It’s also called static pool analysis.
Common examples of vintage analysis include:
Vintage Default Rates
Observing default rates for each monthly or quarterly origination cohort over time to spot increases in more recent pools. Depending on origination volume, lenders may pick quarterly cohorts.
Vintage Loss Rates
Similarly tracking principal losses (charge offs) segmented by origination months or quarters instead of aggregated portfolio rates.
Roll Rate Waterfalls
Transition percentages between delinquency statuses for each vintage to identify rising roll rates into default in newer pools. This is similar to roll rates but for each monthly or quarterly cohort.
Ongoing vintage analysis, with at least quarterly observations, picks up emerging differences in default and loss curves which would otherwise be obscured in pooled portfolio rates. Any uptrends in newer vintages warrant further investigation and potential tightening of underwriting or credit standards.
Some lenders have triggers around default rates by vintage. Increasing delinquencies and default rates for newer vintages may result in lenders turning off the debt facility.
Supplementary Portfolio Metrics
In addition to the primary metrics discussed above which focus heavily on defaults, losses, and yields, lenders also utilize various supplementary portfolio metrics to track other vital risk indicators:
Weighted Average FICO Score
The dollar balance weighted credit score across obligations, most common in facilities securing unsecured consumer loans like marketplace products. This gauges average underlying credit quality.
Weighted Average Loan-to-Value (LTV) Ratio
For lending arrangements financing hard collateral like auto loans, the weighted ratio of loan size to the appraised value of the vehicle or home. Rising LTV ratios indicate potential exposure issues upon default and asset liquidation.
Weighted Average Interest Rate
The average interest rate weighted by dollar balances. Used to benchmark asset pricing levels relative to various credit risk profiles such as FICO bands.
Weighted Average Term
The weighted average number of months loans remain outstanding by balance. Longer terms increase duration risk and cumulative defaults.
Geographical Concentrations
Loan distributions across states and regions. Geographic factors partially drive risks including local economic activity, state regulatory risks, etc.
These additional portfolio metrics provide broader context around collateral quality, contract terms impacting risk profiles, and concentrations along various dimensions.
Auto Loan Portfolio Metrics
For warehouse facilities financing auto loans and leases, lenders track specialized metrics complementary to aggregated portfolio rates which provide deeper insight into underlying risks and structure. Below are some of the common metrics. Lenders generally track more detailed metrics in addition to the ones below.
Average Vehicle Age
The dollar balance weighted average age of vehicles financed within the collateral pool, tracked by model year typically. Older vehicle loans see both greater price depreciation and potential mechanical issues influencing defaults.
Recovery Rates
A prime feature of auto lending deals is the ability to repossess vehicles upon default. Monitoring recovery performance provides valuable data for loss forecasting. Most lenders follow both cash recoveries and repossession rates by delinquency stage.
Credit Tier Distribution
Auto lenders sort borrowers into various credit tranches based on FICO scores, typically Prime, Near-Prime, Subprime, and Deep Subprime. Keeping tabs on asset mix by tier helps catch adverse drifts towards lower quality balances which boost risk profile.
Vehicle Type Composition
Segmenting the portfolio between new, used, and leased vehicle assets. Certain vehicle categories show distinct risk patterns influencing overall pool behavior. Used cars suffer greater price declines while leases allow asset versatility upon default.
Given auto loans hinge on both the underlying vehicle assets along with borrower credit, their structured nature lends well to targeted portfolio analytics rather than solely aggregated views. Facility covenants also contain portfolio constraints across these various cuts.
Credit Card Portfolio Metrics
Credit card warehouse arrangements feature very different collateral profile dynamics than most term loan products. As revolving lines of credit rather than fixed term, lenders rely on specialized portfolio benchmarks to monitor risk:
Utilization Rates
The average percentage of total available revolving credit utilized across all cardholder accounts, a key indicator of consumer leverage and by extension default risk likelihood.
Monthly Purchase Volume
Total monthly dollar transaction volume from card spending. Regular card usage signals healthier account engagement essential for managing revolving credit facilities.
Average Balance per Borrower
Total outstanding receivables divided by number of unique cardholders, calculating average balance outstanding. Higher figures suggest elevated consumer leverage levels.
Payment Rate
The percentage of statement balances borrowers pay down each billing cycle i.e. 1 – (balance after payment / previous statement balance). Faster paydowns lower revolving risk but may indicate overly conservative credit limits.
Yield Composition
Breakdown of total interest income between transactor balances, cash advance balances, promotional rates, and base lending rates. Mix shift towards distressed borrowing types flags potential issues.
Performance depends not just on loss rates but key usage metrics given the evergreen nature of credit card loans. Enhanced portfolio reporting provides transparency within facility agreements.
Marketplace & Alternative Lending Portfolio Metrics
For marketplace loans and alternative lending assets, warehouse agreements mandate various additional portfolio metrics to gauge risk:
Weighted Average Term
Average number of months loans remain outstanding by dollar balance. Longer obligation duration increases lifetime default exposure.
Weighted Average Age
The age of loans weighted by balance since origination. As loans season, portfolios become more stable with weaker borrowers already defaulting early.
Weighted Average Coupon
The dollar balance weighted average interest coupon across all loans. Serves as comparison benchmark for asset pricing based on risk.
Industry Concentrations
For small business loans, tallying exposure by business verticals. Certain at-risk industries see mass defaults during downturns. Wide sector mix helps mitigate correlation risks.
Since marketplace loans consist of unsecured consumer and small business products, they necessitate tracking of various credit quality indicators. And as relatively new entrants, their warehouse metrics continue evolving.
These are only a few metrics that warehouse lenders track to monitor the performance of the portfolio.
Most of these metrics need to be reported monthly. Lenders like to receive these reports within 5-10 business days of the preceding month. The warehouse facility agreement will define this time period.
Make sure your systems are set up to deliver these reports on time.