Analytics Engine

Stating the obvious, managing distressed real estate assets requires good analytics.  Determining the “bottom line” requires a tool into which current data and assumptions can be easily input to determine the “best path” for a particular borrower or property;

Channel Inc. gives clients the ability to customize a variety of “calculators” that include your assumptions of future market performance.  Clients then input specific loan, asset and borrower information and generate actionable answers:  Is the borrower qualified for HAMP loan modification?  Does short sale provide a better return than foreclosure and REO sale?  What if we change the local market sales velocity assumption?  Etc.

As an example, the term “Waterfall” is used within the HAMP program to describe the sequence of steps taken to reach the target of a 31% housing debt to income ratio. Before beginning the “Waterfall” process, a determination must be made that the loan meets the eligibility criteria.

 The following steps are taken, in order, until the 31% target is reached:

 1.  Capitalize accrued interest and other eligible expenses to determine the modified loan amount.

2.  Reduce the interest rate to reach the 31% target housing debt-to-income ratio in increments of 0.125% subject to an interest rate floor of 2%.

3.  If the 31% target housing ratio has not been reached, extend the term of the loan up to a maximum of 40 years.

4.  If the 31% target housing ratio has not been reached, then reduce the principal through an agreement between the borrower and the servicer. This agreement (forbearance agreement) would require that the amount of principal reduction be set as a balloon payment at the end of the loan term or when the loan is otherwise paid off.

If the target DTI is reached through one of the waterfall steps, then an NPV test is run. The NPV test compares the net present value of cash flows with modification and without modification.

 Channel provides analytics to help clients determine and manage the “best path.”