LTV stands for Loan-To-Value, perhaps one of the most important measures of risk in asset-based lending products like auto and mortgage. It is the ratio of what the purchased asset (collateral) is worth, to the loan amount being financed—and the higher the LTV, the higher the risk to the lender. Knowing the LTV is an important part of the loan origination process. For example, higher LTVs may merit higher APRs to offset the higher risk; or in mortgage it may require the borrower to pay for mortgage insurance, etc. But LTV is often under-appreciated, or ignored completely, in the many loan management software solutions in the marketplace. Not with Lendisoft LMS! In Lendisoft, we display the forecasted LTV across the full timeline of loan maturity. And we highlight, graphically, the relationship between the outstanding principal balance and the collateral’s present value at every point along the way. This graphical representation of LTV gives managers a great viewpoint of potential loss severity, now, and in the future. This chart can be hidden, or shown to specific users at your discretion, so you may want to hide it from agents, but show it to managers to aid them when it comes to important decisions like, “should we repossess now, or wait a little longer”.
In this example, note that the yellow dots indicate the numerator and denominator in the present LTV. And the orange and blue curves present the past, present, and future path of each component. At a quick glance you can tell the worst point of LTV is behind us as the Principal Balance and Collateral Value are now converging and no longer widening. In this case, a collections manager may decide NOT to order repossession when faced with the pros and cons of that decision. This is just one more tool to aid managers in these sorts of important decisions they make every day in their duties. Want to learn more? Contact us today for a demo!