As our name implies, collateral is the cornerstone of every loan we make. Although we analyze many facets of our borrowers’ ability to repay, the underlying collateral ultimately determines our lending decision.
To assess collateral value, we scrutinize appraisals, consult with local real estate professionals, study property demographics, and make physical site visits. Our evaluation assumes that property values may decrease well before they increase which forces us to consider the long-term viability of each and every property. Thus, the Collateral Group will not originate any loan on a property it is not willing to own and operate.
To assess collateral value, we scrutinize appraisals, consult with local real estate professionals, study property demographics, and make physical site visits. Our evaluation assumes that property values may decrease well before they increase which forces us to consider the long-term viability of each and every property. Thus, the Collateral Group will not originate any loan on a property it is not willing to own and operate.
Once a loan request has been submitted, the Collateral Group undergoes a comprehensive four step process to determine if a loan will be approved.
Our underwriting committee calculates a best and worst case scenario for each loan we consider. Once the loan has passed the initial underwriting criteria we ask:
If we can answer yes to both questions, we can proceed with the underwriting process.
- Q: Is this a property we would want to own and operate?
- Q: Should a rare foreclosure occur, is our investment capital secure?
If we can answer yes to both questions, we can proceed with the underwriting process.
Ability to Pay
- Q: Does the borrower have the resources necessary to make payments and ultimately pay off the loan?
- A: We determine this by evaluating the borrower’s assets and liabilities, employment, income, and general
financial stability.
Payment History
- Q: Has the borrower demonstrated a successful history of timely payments?
- A: We obtain the borrower’s credit report and meticulously review it to evaluate their history of fulfilling payment
obligations.
The Collateral
- Q: If the borrower fails to make the payments, are we protected?
- A: The collateral is the foundation of determining our level of interest in providing every loan. We go to great
lengths to confirm we have a margin of safety well in excess of the loan amount.
The Collateral Group goes through a comprehensive analysis to determine the current market value of every property we make a loan on. This process typically includes:
Our analysis often leads to a reduced appraisal value. If necessary, we may require other properties owned by a borrower be included in a loan agreement with a trust deed placed on each property -- a process known as cross-collateralization -- to secure sufficient collateral.
- A strict review of the borrower’s property appraisal
- Follow up evaluations from licensed real estate professionals
- Physical site inspection by the Collateral Group underwriting committee
Our analysis often leads to a reduced appraisal value. If necessary, we may require other properties owned by a borrower be included in a loan agreement with a trust deed placed on each property -- a process known as cross-collateralization -- to secure sufficient collateral.
The final appraisal value of a borrower’s collateral must meet our loan parameters. The Collateral Group targets an average Loan-to-Value (LTV) ratio of less than 50% with a maximum LTV ratio of 65%.
We must also have a high degree of confidence that in the event of foreclosure the property can be sold in a timely manner at a net price significantly above our initial investment and costs that secures (1) our investor's capital, (2) all interest and fees owed under the terms of the loan, and (3) our estimated costs to foreclose, manage, and market the property.
Only when these requirements are met are we prepared to move forward with a loan.
We must also have a high degree of confidence that in the event of foreclosure the property can be sold in a timely manner at a net price significantly above our initial investment and costs that secures (1) our investor's capital, (2) all interest and fees owed under the terms of the loan, and (3) our estimated costs to foreclose, manage, and market the property.
Only when these requirements are met are we prepared to move forward with a loan.