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Articles Tagged with: private credit

Private Credit Primer Series: Insights for Investors

We are delighted to announce the release of RiskSpan’s series of Private Credit Primers aimed at providing investors with essential knowledge about the diverse and growing landscape of the loan types that private credit investors are buying. These primers offer at-a-glance insights into the mechanics, performance expectations, and unique features of various asset classes, enabling investors to make informed decisions in this dynamic market.

The first two primers in the series are available now: They focus on Residential Transition Loans (RTLs) and Personal Loans, two loan types that are becoming increasingly popular in the private credit space.

Residential Transition Loans (RTLs) (full primer here)

RTLs are short-term loans designed to help borrowers bridge financial gaps during transitional periods in residential real estate. Often used for construction, bridge, and relocation purposes, RTLs typically have terms ranging from 6 to 36 months and feature higher interest rates than traditional long-term financing. These loans play a crucial role for both homeowners and real estate investors, especially in markets where property values fluctuate or where short-term liquidity is needed.

  • Important Features: RTLs often involve draw functionality, allowing borrowers to access funds incrementally as projects progress. Another key aspect is the use of the “As-Repaired” Value (ARV) to calculate Loan-to-Value (LTV) ratios, based on the projected value of the property after repairs.
  • Performance Considerations: While RTLs have performed well during periods of stable or rising home prices, the primer cautions that these loans are more vulnerable during economic downturns or periods of home price decline​.

Personal Loans (full primer here)

Personal loans can be secured or unsecured and are used for a variety of purposes, including debt consolidation, medical expenses, and large purchases. They are repaid in fixed monthly installments over a predetermined period.

  • Important Features: The primer highlights key modeling considerations for personal loans, such as static default/prepayment assumptions, which rely on historical data to predict future loan performance based on factors like loan age and borrower profiles.
  • Performance Expectations: As of 2024, the delinquency rate for personal loans stands at around 3.38%, with average interest rates hovering around 12.42%, though they can vary widely depending on market conditions and borrower credit quality​.

What to Expect from the Series

Each primer in the series will not only break down the mechanics of the loan type but also provide performance insights and modeling considerations. With the ongoing volatility in the financial markets, these primers will explore how various asset classes perform under different economic conditions, such as rising interest rates, declining home prices, or increasing unemployment.

By offering practical, data-driven insights, the Private Credit Primer series will serve as an invaluable resource for private credit investors who are looking to deepen their understanding of these asset classes and navigate potential risks effectively.

Stay tuned for more primers in this series, as we continues to expand RiskSpan’s library of resources for private credit investors! Loan types to come include:

  • Non-QM/DSCR Loans
  • HELOCs
  • Autos

Enhancing a HELOC Lender’s Operations with RiskSpan’s Data as a Service (DaaS)

A leading fintech company specializing in home equity lines of credit (HELOCs), was seeking to optimize the management of its data operations. To accomplish this, the company turned to RiskSpan, a leader in data analytics and financial technology solutions. Through a tailored Data as a Service (DaaS) offering, RiskSpan helped the company improve its HELOC business operations by providing advanced data management and modeling capabilities.

Challenges

The company sought to enhance its HELOC operations in two critical areas:

  1. Data Management and Integration: The company was dealing with complex data sets from multiple sources, including credit bureaus, property data, and customer behavior insights. Integrating and managing this data effectively was crucial for making informed lending decisions.
  2. Risk Assessment and Modeling: Accurate and reliable risk assessment models were necessary for evaluating customer behavior and predicting loan performance. The company required a solution that could model draw behavior and other variables specific to HELOCs.

RiskSpan’s DaaS Solution

RiskSpan’s DaaS offering provided the company with a comprehensive solution tailored to address these challenges. The key components of the solution included:

  1. Advanced Data Integration: RiskSpan’s DaaS platform seamlessly integrated the company’s various data sources, enabling a more streamlined and efficient data management process. This integration allowed the company to better understand their borrowers and make more informed lending decisions.
  2. Enhanced Loan-Level HELOC Pricing and Projections: The client successfully loaded its historical loan performance data onto RiskSpan’s DaaS platform and established a monthly process within the platform’s flexible data warehouse. Using the embedded historical performance tool, the client analyzed loan-level behavior across its portfolio. This enabled the client to generate detailed collateral performance reports for investors and rating agencies, as well as leverage these insights to enhance future projections and loan-level pricing for new loans.
  3. Cost-Effective Data Services: RiskSpan also identified an opportunity to replace the client’s existing data services provider at a significantly reduced cost. By offering a more competitive pricing structure while maintaining high-quality data services, RiskSpan positioned the client to achieve substantial cost savings, making them more competitive in the HELOC market.

Outcomes and Benefits

Implementing RiskSpan’s DaaS solution brought several key benefits:

  • Improved Decision-Making: With better-integrated data and more accurate modeling of HELOC draw behavior, the client could make more informed lending decisions, ultimately reducing risk and enhancing profitability.
  • Operational Efficiency: The streamlined data management process allowed the client to operate more efficiently, freeing up resources to focus on core business activities.
  • Cost Savings: RiskSpan’s competitive pricing enabled the client to cut costs significantly, improving their bottom line and allowing them to reinvest in other areas of the business.

RiskSpan’s Data as a Service solution provided the clients with the tools it needed to optimize its HELOC business. By addressing its data integration challenges, improving risk assessment through advanced modeling, and offering a cost-effective alternative to existing data services, RiskSpan helped the client strengthen its market position and enhance overall business performance.


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