Collateral Tracking

Overview

A collateral is a borrower's pledge of specific property to the financial institution, to secure repayment of a loan. In other words, if the borrower defaults on the loan repayments, the financial institution can seize the collateral to recover the repayments.

Key Concepts

API

• The APIs createContract, addNewCollateralLiens, changeAppraisedValueOfCollateral, and help you to associate a collateral with a contract during its creation, to associate the collateral with an existing contract, to update the collateral value, and to remove a collateral from a contract respectively. 

  Note:

  To learn more about implementing these APIs, see the Global Methods guide.

Loan to Value Ratio (LTV)

• This is the ratio of the total amount borrowed to the value of the collaterals.Example:If a borrower borrows $30,000 to purchase a house worth $50,000, then the LTV ratio is 30,000/50,000.

Combined Loan to Value Ratio (CLTV)

• This is the ratio of all the loans on a collateral to the value of the collateral.

CLTV = (Loan 1+ Loan 2+ Loan 3+...+ Loan n)/collateral value.

Factors for Calculating LTV and CLTV

• If a contract is not capitalized, then the LTV and the CLTV are calculated on the principal remaining. But if a contract is capitalized, then the LTV and the CLTV are calculated on the principal remaining, fee capitalized, interest capitalized, and the additional interest (if enabled).

  Note:

  To learn more about this, see Example > Scenario 1 and Scenario 2, explained later.

Lien

• A lien is a right to the borrower's property that secures indebtedness. A financial institution has the right to seize the borrower's property in case of non-payment.

Lien Position

• The lien position is the order in which the financial institutions can claim their right against a property. The financial institution that is in the first lien position against the collateral is the first to be repaid if the borrower defaults on the loan. As liens are filed in succession, whoever is in the second lien position only gets paid after the entity in the first position is paid off. The third lien holder gets paid after the second lien holder, and so on.

  Note:

  To learn more about this, see Associate Collateral with a Contract,  explained later.

  Lien position is required for calculating the LTV. To learn more about this, see Example > Scenario 1, explained later.

Available Amount

• This is the collateral amount that is available for pledging. Example:A collateral is added to the system with an estimated value of $30,000. When you associate the collateral with a contract for the first time, the available amount is $30,000. Let's say you pledge $10,000 for contract 1. The second time when you associate the same collateral with a different contract, the available amount is $(30,000-10,000)=$20,000.

Value

• This refers to the amount of the collateral that is pledged to secure a loan. So, every time the collateral valuation changes as per the market condition, the Value is updated in the system. 

  Note:

  While adding a collateral to the system, the Value and Estimated Value fields are the same. But later when the collateral valuation changes, only the Value field is updated.

  This Value is used for calculating the LTV and the CLTV.

UI Enhancements

This section lists the user interface enhancements made in various releases.

Manage Collaterals

With the Lithium release, the financial institutions can manage collaterals in the following ways:

• Add a collateral using the CL Loan UI

• Associate the collateral with an existing contract

• Increase or decrease the value of the collateral

• Calculate LTV and CLTV using the default formula

• Implement custom formula to calculate LTV and CLTV

• View LTV and CLTV

Add a Collateral

You can add a collateral to the system by defining the required details. This subsection provides instructions on how to add a new collateralized property.

Prerequisites

The following are the prerequisites to add a collateral:

• The Collaterals tab is created and added to the home page.

  Note:

  The Object corresponding to the tab is Collateral (Installed Package: CL Common). The API Name is clcommon__Collateral__c.

• The Estimated Value, Available Amount, and the Value fields are added to the Collaterals layout.

Steps

Perform the following steps to add a collateral:

1. Log in to your Salesforce account.

2. Click the App Launcher .

3. Search for CL Loan, and then click it.

4. Click the Collaterals tab.

   

5. Click New, and from the Record Type of new record list, select the collateral record type, and then click Continue.

   

6. On the New Collateral page, in theCollateral Editsection, perform the following actions, and click Save:

   Field Name	Action
   Collateral Name	Specify a name for the collateral.
   Estimated Value	Specify the value of the collateral.

   Note:

   The Value and the Available Amount fields are updated with the same amount as Estimated Value.

Associate a Collateral with a Contract

A collateral is required when a contract subtype is Secured. You can associate a collateral with multiple contracts or multiple collaterals with a single contract. When a collateral is associated with a contract for the first time, the Lien Position of the collateral is 1. But when the same collateral is associated with a different contract for the second time, then the Lien Position becomes 2, and so on.

Prerequisites

The following are the prerequisites to associate a collateral with an existing contract:

• A collateral is added to the system.

• A contract is created.

Steps

Perform the following steps to associate a collateral with an existing contract:

1. Log in to your Salesforce account.

2. Click  (App Launcher).

3. Search for CL Loan, and then click it.

4. Go to Servicing Configuration > Product Management > Collateral Lien Setup.

   

5. On the Collateral Liens page, in the Add new Collateral Lien section, perform the following actions, and then click Save:

   Field Name	Action
   Collateral	Click theicon and search for the collateral that you want to associate with the contract.
   Loan Account	Click theicon and search for the contract with which you want to associate the collateral.
   Loan Amount	Specify an amount if you want to update the amount of the existing contract.
   Lien Amount	Specify the amount of the collateral that you want to pledge for a contract. You can specify a part or full value of the collateral. Note: The Lien Amount field is populated with an amount that is available for pledging.  It cannot be more than the available amount.

6. Go to Servicing Configuration > Batch Jobs > Run Batch Jobs.

   

7. In the Select Job for Process section, select ChangeLTVAndCLTVDynamicJob, and then click Next.

   

8. To run the job, click Run. The collateral is now associated with the contract.

9. To view the collateral associated with the contract, click the CL Contracts tab, and from the list of contracts, select the required CL contract ID.

10. On the CL Contract page, click CollateralLiens.In the Collateral Liens section, the collateral associated with the contract is listed.

    

Appraised Collateral Value

With this release, the financial institution can now do the revaluation of a collateral. With the change of the collateral's value, the available amount of the collateral, the LTV, and the CLTV are also changed.

Let's say a contract is secured by the borrower's publicly traded stock. While adding this collateral to the system, the current market price of those stocks is updated as the Estimated Value of the collateral. The value of those stocks may change in the future depending on the market situation. So, the lender has the authority to revise the value of the collateral whenever it is required.

Prerequisites

The following are the prerequisites to appraise the value of a collateral:

• A collateral is added to the system.

• The Collateral Valuation tab is created and added to the home page.

Steps

Perform the following steps to appraise the value of a collateral:

1. Log in to your Salesforce account.

2. Click the App Launcher.

3. Search for CL Loan, and then click it.

4. Click the Collateral Valuation tab, and then click New.

   

5. In the Collateral Valuation Detail section, perform the following actions, and click Save:

   Field Name	Action
   Collateral	Click theicon and search for the collateral for which you want to update the value.
   Appraised Value	Specify a new value of the collateral.
   Appraisal Date	Specify the date on which the collateral value is modified.

   Note:

   On the Collaterals tab, the Available Amount, Value, and Value Date of the collateral are updated to the new value.

Example

Let's assume that a collateral is created with the following terms and conditions:

Implement Custom Formula to Calculate LTV and CLTV

In CL Loan, the LTV and the CLTV are calculated using a default formula. But with this release, financial institutions can create a custom formula to calculate the same.

To customize the LTV and the CLTV calculation formula, perform the following steps:

1. Create a custom class and extend the clcommon.AbstractCollateralLienCalculator.

2. Override the following methods and write the logic:

   • setParam

   • computeLoanToValueRatio

   • computeCombinedLoanToValueRatio

3. Specify the class name in Custom Settings > Org Parameters > Custom_CollateralLien_Calculator.

global class CLASS_NAME extends clcommon.AbstractCollateralLienCalculator {

    global override setParam(Map<String,Object> paramMap)

    global override Map<Id,SObject> computeLoanToValueRatio(Set<ID> objectID)

    global override Map<Id,SObject> computeCombinedLoanToValueRatio(Set<ID> objectID)
    {
    }

}

View LTV and CLTV

This subsection provides instructions on how to view the LTV and the CLTV calculated for a contract.

Prerequisites

The following are the prerequisites to view the LTV and the CLTV:

• A collateral is associated with a contract.

• The ChangeLTVAndCLTVDynamicJob is executed.

Steps

Perform the following steps to view the LTV and the CLTV:

1. Log in to your Salesforce account.

2. Click the App Launcher.

3. Search for CL Loan, and then click it.

4. Click the CL Contracts tab, and then from the list of contracts, select the required CL contract ID.

5. To view the value of LTV and CLTV, search for loan to value ratio.

   

Example

Let's assume that the following contracts and collaterals are created with the following terms and conditions: