No one can predict the future, including lenders. Therefore, it is crucial to be diligent about maintaining lien perfection today. In the event that debtors default on their loans, lien perfection helps ensure that you are protected and losses can be recovered. Having clear insights into your individual debtors’ risks and across your portfolio help you maintain a healthy portfolio and reduce risk.
Knowing the answers to the following questions can tell you if you have a good handle on your overall portfolio health. Can you answer them with confidence?
- Do you have any blind spots in your portfolio where you may not know your lien position?
- Can you be sure your lien position hasn’t changed since the loan originated?
- Do you have a clear picture of any other active liens that your debtors have?
- Are there liens in your portfolio where other creditors are first in line on your collateral? How much of a risk is this for you? For what percentage of your portfolio is this the case?
- Do you have the most current information on your liens so you can negotiate with debtors and find opportunities to gain new business?
Uncertainty is risky and could be costly
There are many issues that can put your portfolio at risk. Here are three things to be aware of that you may want to investigate further to ensure your assets are protected.
- Lenders prefer to be in the first lien position and if that was the situation when the loan originated, having first lien position likely influenced the loan interest rate in addition to other factors. A loan where the lender is in second or third position means more risk to the lenders and usually results in a higher interest rate. If the lien position has changed since the loan was originated, not only is the lender at greater risk for diminished recourse to recover any loss due to default, the original interest rate does not reflect this additional risk.
- Lien Solutions internal research has shown that the average debtor has two active liens, and 25% have more than four. Understanding if your debtors have additional active liens and how widespread this is across your portfolio gives you a better understanding of the risk not only with individual debtors but across your portfolio.
- Having insight into other lenders that your debtors may be using can expose potential opportunities to renegotiate your loans plus provide competitive intelligence on your competitors.
Time to take action
If you’ve taken the risk and extended a loan, you’ll want to protect your interests by making sure you have a clear picture of your debtor’s lien activity across your loan portfolio. There are number of ways to do this from in-house one at a time searches to working with vendor partners who can do the heavy lifting and provide comprehensive and detailed views. Either way, now is always the time to take steps to mitigate risk and proactively manage your portfolio.
We've recently launched a new Lien Insights Report that provides a more in-depth view into your portfolio. It contains custom, detailed data on your estimated lien position for your debtors and insights into lien activity against the debtor. To learn more, call us today at 800-833-5778, x3 and speak with one of our lien experts.