Data Management and its Impact on Comprehensive Investor Reporting

In the structured finance sector, robust investor reporting which can be customized to address specific needs serves as the cornerstone for informative monthly updates to be consumed by investors. A structured finance team that produces comprehensive reporting can empower investors to confidently navigate complex investment environments by executing on sound practices that enhance insights into a wide variety of asset classes within both the consumer asset and commercial asset space. By adopting customized reporting solutions, investors can receive critical information needed to make informed decisions aligned with their financial objectives. Moreover, customized reporting solutions cater to the unique needs of each investor, ensuring that outputs are not only informative but also actionable. This level of transparency and detail fosters a deeper understanding of the underlying investment, allowing issuers to better showcase their trust performance and investors to effectively manage risk and seize opportunities in their portfolios.

An essential aspect of effective investor reporting is data normalization, which involves collecting loan level data on a periodic basis from one or more servicers and transforming it into a consistent format that can be applied across multiple trusts or reports. By standardizing data from multiple sources, structured finance teams can create unified reports that provide a seamless experience for clients. This makes it effortless for investors to compare and analyze performance across different asset classes and investment strategies, promoting informed decision-making without the confusion of disparate data field layouts or terminology used.

Month-End Loan Level Data

• Raw to normalized loan level data transformation: Monthly loan level data provided by servicers details all relevant loan characteristics as of month-end, enabling the aggregation of data that can be parsed for static reporting metrics and dynamic time series analytics.

Monthly Transaction Data

• Cash and non-cash transaction activity: In addition to providing monthly loan level data, servicers will provide a monthly transaction data file that includes details on all principal, interest, and fees for each loan for the entire collection period. This reported activity determines the change in loan level balances and generation of additional income or expense on the assets in the trust.

Monthly Control Totals

• Aggregated report: Summarized beginning balances, transaction activity, and ending balances from the servicer is used to confirm that the collateral information reported in the month-end loan level and monthly transaction data files is consistent and can be used to generate a loan roll forward, the results of which is incorporated into the monthly investor report.

To ensure accuracy, completeness, and transparency in its process, the structured finance team incorporates a systematic approach involving the calculation, validation, reconciliation, and management of the core data components of any comprehensive investor report:

Trust Bank Accounts

• Reconciliation, oversight, and reporting: Monthly bank roll forwards which detail beginning and ending account balances and transaction activity are generated and reviewed to ensure all bank activity is mapped properly and no duplicates or data omissions are incurred. This reconciliation of cash typically applies to the trust’s collection account which reflects the receipt of borrower loan payments. Bank account oversight is conducted for other trust accounts such as the distribution account which reflects outgoing payments to trust service providers and investors, and the reserve account, the balance of which is calculated and funded to its required level with each collection period in providing credit enhancement to the trust. Comprehensive investor reports include a summary of all trust bank account balances, reconciled activity, and transfers among the different accounts for a given period.

Underlying Collateral

• Data validation, reconciliation, and reporting: Monthly loan roll forwards which detail beginning and ending aggregate principal and interest balances and transaction activity are generated and reviewed to confirm all underlying collateral as reported by the servicer has been properly captured for the collection period. Borrower principal and interest payments, interest accruals, loan charge-offs, loan recoveries, borrower late charges, and other fees are elements that are typically included in the monthly loan activity that is reconciled. The same servicer month-end file that forms the basis for the loan roll forward is used to generate summary loan performance metrics and loan stratification tables. Loan metrics incorporated into an investor report often times include details on delinquencies, defaults, interest rates, original and remaining terms, credit scores, and prepayment rates, enabling issuers and investors to assess the underlying collateral at the end of the collection period and track loan performance trends over time.

Issued Bonds / Notes

• Reconciliation, calculation, and reporting: Monthly liability roll forwards which are used to reconcile beginning and ending aggregate principal and interest balances along with payment and accrual activity for each issued note within a trust are generated and reviewed to ensure distributions to investors are accurate. Within the monthly payment activity, trust structural features dictate how note principal payments are calculated while a combination of interest period, interest rate type, changes in floating rate indices, interest rate spreads, and day count conventions determine how note interest payments are calculated. Based on payments received on the underlying collateral in a collection period less any service provider fees that are paid through the waterfall, the remaining amount of available funds in a trust is largely used to remit interest and principal payments on the notes to investors. Summary details on initial note balances, note principal and interest payments, and maturity dates allows issuers and investors to gauge the paydown of a trust as of a given distribution date and evaluate cash flows over time.

Other Waterfall Distributions and Trust Issuer Orders

• Fee verification and calculation: Fees that are owed to trust service providers includes servicing fees, master / back-up servicing fees, administration fees, trustee fees, legal fees, rating agency fees, and other third parties, which are verified and calculated as needed prior to distribution through the waterfall. Verification of fees can involve confirming loan counts, balances, and per unit fees align with what is stated in an invoice as well as being able to replicate a credit facility’s used and unused fees that are based on either fixed rates or floating rates requiring confirmation of daily market interest rates as well as the daily outstanding balance. Confirming that fees are calculated correctly and outlining all payments in the waterfall distributions provides transparency on all trust expenses to both issuers and investors.
• Payment instruction utilizing detailed waterfall distributions and issuer orders: Direction on trust payment distributions is achieved by providing concise yet clear waterfall distribution details within an investor report outlining all payments to be remitted and monthly issuer orders which include bank account information, methods of payment, and authorization from a structured finance team representative.
• Waterfall payment validation: With each distribution date, a diligent provider of investor reporting services confirms that all payments outlined in the waterfall were paid as instructed and resolves any payment discrepancies or errors that are discovered as part of the waterfall payment validation process.

In conclusion, the integrity and effectiveness of investor reporting in structured finance rely heavily on meticulous data management and validation processes. Through the normalization, reconciliation, and validation of loan-level, transaction, and trust account data, teams can produce accurate, transparent, and customized reports that meet the specific needs of investors. This comprehensive approach not only enhances confidence in the reported figures but also facilitates better risk management, informed decision-making, and strengthened trust between issuers and investors. As the structured finance industry continues to evolve, ongoing investment in data quality and reporting infrastructure will remain essential to maintaining transparency, optimizing operational efficiency, and supporting the sustainable growth of the asset class.

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