|
|
KAL_II Loan Servicing Valuation Manual |
This Chapter explains the Portfolio Valuation and the Group Valuation process.
Number of Months to Simulate We explain how to use this field to your advantage.
Printed Reports We explain how to generate the different forms of printed and data file output.
Evaluation Results The KAL II Model provides the following reports. This Chapter explains each report and defines each the data field.
Loan Status
Earnings
P&I Float
Impound Balances
Debt Repayment
Daily Cash Flows
Investment Ranking Criteria are presented and explained
for the Portfolio and the Group results.
Expected Loan Life
Present Value
Net Present Value
Payback
Internal Rate of Return
Modified Internal Rate of Return
Duration
Evaluation Functions The KAL II Model performs
many functions in addition to determining the present value. These functions
are explained in this Chapter.
Group Definition Files We explain how to create
a group file, how to evaluate this file and how to locate the valuation
results.
This section is a description of the computer output screens
used by the system. Almost all data that is printed by the system is also
available as output screens. The KAL II Model can be used interactively
without printing any reports. You may want to run quick analyses of different
servicing scenarios without generating printed reports. The Kal II program
is designed to allow the user to ask many different questions and receive
immediate results. The Model also provides output in the form of ASCII
files, printed reports and spreadsheet files.
We have provided definitions for each output field and
given references to where the fields are entered. If they are generated
by the program we have provided an explanation of the calculation. This
will allow you to trace each output field and determine where it was entered,
how it is calculated and test the correctness of the result. Remember to
always look through the rates and Factor Screens and the Backup Screens
to determine if the data can be verified directly from one of those screens.
We have added many standard definitions to assist the
Novice User in learning the intricacies of Mortgage Servicing Evaluation.
In this section of the manual we want to accomplish the
following:
1. Examine and explain each computer output screen.
2. Define each of the output fields on the computer output screens.
4. Explain where to verify the correctness of the outputs.
3. Explain how the output fields are calculated.
5. List what input fields are used in the field calculations
6. List the Rate and Factor Screens available for each field.
7. List the Backup Screens available for each field.
The Model will evaluate the portfolio segment based on
the simulated future cash flows. The simulated cash are calculated based
on the information you have provided to the program in the three data files;
the economy, the firm, and the portfolio segment. Any changes in the data
files will cause a change in the portfolio value. In addition, the time
period that is entered in this section can affect the value.
The program will simulate through any month up to a maximum
of 360 months. The full simulation of the entire loan life must occur for
the program to calculate the entire present value. A simulation for less
than the loan life will usually result in a present value that is substantially
less. This simulation time period will also affect the internal rate of
return and the breakeven variables.
We recommend that you simulate for the entire life of
the portfolio. When you simulate for less than the entire loan life the
value of the portfolios or group of portfolios is calculated ONLY for the
period which was entered. The valuation results do not reflect the entire
life of the portfolio only the shorter period. In some cases the valuation
may not be performed at all.
We have provided the ability to simulate for less than
the loan life for many reasons:
It is best to run the simulation for a small number of
months until you are sure that the input fields are defined correctly.
It is not unusual to enter data incorrectly and receive erroneous results.
Start with a twelve month simulation and verify that the results are acting
correctly using the backup screens.
The greater the number of months used in the simulation
the longer the simulation will run. This process can be very time consuming.
When you are entering the initial data for a segment, test the data by
running the simulation for twelve months and verifying the results.
When you are performing "WhatIf" analysis only
run the simulation over the time frame that you are concerned about. If
you want to look at a five year forecast it is much quicker to simulate
for only sixty months. The valuation results will not be valid.
For explanatory purposes, it is always easier to simply
run the simulation for twelve months and use the results as a basis for
the explanation. You can quickly examine different scenarios using this
short simulation.
Calculation
> Simulate Months
Results
Reports
Loan Status
Earnings
P&I Float
Impounds
Debt Repayment
Cash Flows (Daily)
Valuation
With Debt Service
Proof of Results
Factors & Rates
Backup Details
Quit this Menu
Simulate Thru Month 360
Enter the number of the month through which you wan to
program to simulate. All reports and investment variables will be calculated
based on the number of months you enter.
REPORT CONTENTS Screen {S62}
Include the following items:
1. Economic Data Y
1. Firm Data N
1. Portfolio Data N
1. Earnings by Year N
1. P&I Float by Year N
1. Impounds by Year N
1. Valuation Y
1. Debt Repayment by Year N
2. Monthly Results Data File N
2. Annual Results Data File N
Do Plot Now (Not Used)
3. Pause Before Printing Reports Y
There are three different functions of this screen:
1. Printed Reports Each report on this screen can
be selected to print in a combined report. Enter "Y" if you wish
the report to print (printer or file). Enter a "N" if you do
not want the report to print.
2. ASCII Data Files The program will generate an
ASCII file of the valuation data. Chapter 16 describes the actual fields
in the file and the file layout. There are three files generated: monthly
data, annual data and debt repayment data. Enter a "Y" if you
want to generate the data file. These files can be very large (400K) for
a full 360 month simulation. Be certain you have sufficient disk space
available before you select this feature.
3. Pause Before Printing This field gives you the
option of deciding which reports print each time you access this menu.
If you select "N", the program will not pause before generating
the reports and the ASCII data files. If you select "Y" the program
will pause and allow you to select which reports to print. The field can
also be selected in the System Environment section of the program.
All Loans in Original Portfolio
1. Month 1 2 3
2. Terminated 0.00000 0.00000 0.00779
3. Paying Off 0.00000 0.00654 0.00654
4. Foreclosing 0.00000 0.00125 0.00125
5. Surviving 1.00000 0.99221 0.98442
6. Total 1.00000 1.00000 1.00000
As a Percentage of Surviving Loans:
7. Good Loan 0.90000 0.89953 0.89925
8. Del 1 Mon 0.03000 0.02993 0.02992
9. Del 2 Mon 0.02500 0.02519 0.02513
10. Del 3 Mon 0.02000 0.02016 0.02031
11. GT 90 Day 0.01500 0.01512 0.01524
12. Foreclose 0.01000 0.01008 0.01015
13. Total Delinquent 0.10000 0.10047 0.10075
14. Mortgage Bal 500000000 495904521 491814540
15. First Month (0) Every (1) Months for none
the first set of totals apply to all loans in the portfolio.
1. Month The analysis can only be for months. If
you want to see the ending ratios for each year then select (12) in Line
15.
2. Terminated This is the accumulated total of
all loans that have paid off or have been Foreclosed. The total is used
to balance the Portfolio as time passes. These totals are also used to
be certain that all loans are accounted for.
3. Paying Off This is the percentage of loans that
have completed the Payoff process in the current month. This is the accumulated
total of all payoffs from all Loan Status categories. (Backup Details Chapter
8 A.2)
4. Foreclosing This is the percentage of loans
that have completed Foreclosure in the current month. It is the OFF BOOKS
loan status category. Since it may take man months for a loan to reach
foreclosure, new portfolios will often not show any foreclosures for the
first year. (Backup Details Chapter 8 A.4)
5. Surviving The Surviving Loans for a particular
month areas:
ONE (1) Less Terminated less Paying Off less Foreclosing.
6. Total Loans The total of items one through four
should always equal ONE. The program always balances back to .01 percent
of the beginning portfolio. This is a program control to be certain all
loans are always accounted for.
7. Good Loan This is the percentage of the current
portfolio that is not delinquent. Good Loan plus Total Delinquent (Line
13) should equal one hundred percent (100%). (Backup Details Chapter 8
A.1)
8. Del 1 Mon The fraction of the Surviving Loans
(Line 4) that are in this Loan Status Category. (Backup Details Chapter
8 A.3)
9. Del 2 Mon The fraction of the Surviving Loans
(Line 4) that are in this Loan Status category. (Backup Details Chapter
8 A.3)
10. Del 3 Mon The fraction of the Surviving Loans
(Line 4) that are in this Loan Status category. (Backup Details Chapter
8 A.3)
11. GT 90 Day The fraction of the surviving loans
that are in this Loan Status Category. Remember that this category is longer
than one month. (Backup Details Chapter 8 A.3)
12. Foreclose The fraction of the Surviving Loans
that are currently in Foreclosure. This fraction includes loans that have
been sent to foreclosure in the current month and loans that are still
in the foreclosure process. Loans which have completed foreclosure in the
current month are shown in the foreclosing category on Line 3. (Backup
Details Chapter 8 A.3)
13. Total Delinquent Loans This is the total fraction
of all loans that are delinquent and in foreclosure. It is the total of
all loan status categories other than Good Loan.
14. Mortgage Balance The total existing balance
of all loans still on the books.
15. Entry Fields
First Month (0) This is the first Month that you want
displayed on the computer screen. You can "roll" forward to future
months or backward to previous months by using the {PgUp} or {PgDwn} keys.
Every (2) By selecting "2" the program will
display every SECOND month. In this instance the program will display months
1,3,5,7, and 9. If you wanted to see the year-end Ratios you would enter
"12" in this field. This would give the 12th month for five years.
{Esc} This will cause the program to start at the first
month and show every month after that.
1. Month (Year) 1 2 3
2. Service Fees 180414.97 179003.59 177599.05
3. Late Fees 52190.79 51862.24 51523.67
4. Ancillary Income 7990.78 7979.59 7949.32
5. Earn on P&I Float 4908.51 13016.62 12967.85
6. Earn on Impounds 23817.70 27583.14 29780.12
7. Subtotal (Income) 269322.75 279445.18 279820.02
8. Servicing Costs 26755.56 26635.50 26514.57
9. Delinquency Costs 38788.61 38643.71 38491.45
10. Payoff Costs 3283.13 3289.86 3296.56
11. Foreclosure Costs 27594.38 27499.51 27480.22
12. Cost of Advances 3602.13 2944.53 2916.40
13. Impound Interest Paid 0.00 0.00 0.00
14. Subtotal(Costs) 100023.81 99013.10 98699.20
15. Operating Income 169298.93 180432.08 181120.82
16. less Amortization 62833.33 62833.33 62833.33
17. less Income Tax 37262.96 41159.56 41400.62
18. Net Income 69202.64 76439.19 76886.86
19. Cash Flow 132035.97 139272.52 139720.20
20. First Period (0) Every (1) Month/Year (M/Y) PerLoan (Y/N)
1. MONTH/YEAR The analysis will be for either months or
years depending on what is selected in Line 20.
2. Service Fees This is the total of all service fees
paid from current loans, loans coming current during the month and loans
paying off during the month. (Backup Details Chapter 8 B.1)
3. Late Fees This is the total of all Late Fees received
from every Loan that has come current during the month or that has paid
off from a state of delinquency. We assume that all Loans paying off will
pay a fraction of the Late Fees due. It is possible that late fees may
be waived or not collected for some reason. (Backup Details Chapter 8.B.2)
4. Ancillary Income This is the total of the Ancillary
Income received from all loans and the borrowers' premium from optional
insurance programs. (Backup Details Chapter 8.B.3
5. Earnings on P&I Float This is the imputed interest
earnings on the average monthly P&I account balance. (Backup Details
Chapter 8.B.4)
6. Earnings on Impounds This is the imputed interest earnings
on the combined property tax, Hazard insurance and insurance premium Impounds'
monthly average bank balances. (Backup Details Chapter 8.B.5)
7. Subtotal (Income) This is the total of all income received
from the portfolio in the current month. The program may also display the
annual earnings totals. These totals are calculated by summing the individual
monthly amounts. The program does not calculate the yearly amounts in separate
calculations.
8. Servicing Costs This is the total servicing cost for
all loans still on the books at the beginning of the period adjusted for
the growth in servicing costs factor. (Backup Details Chapter 8.C.1)
9. Delinquency Costs This is the additional costs to service all loans in all delinquent loan states plus the cost of the monthly delinquency notice. Each of these costs are adjusted by a relevant price index or adjusted according to the growth table entered by the user. (The monthly delinquent notice cost may also include the cost of servicing loans which have not paid by the late notice date) (Backup Details Chapter 8
C.1, C.2 Delinquent Servicing)
10. Payoff Costs This is the amount calculated by multiplying
the cost to process a payoff by the number of loans paying off from each
loan state. Payoff Costs are adjusted for inflation in the same manner
as the servicing costs using the same table. Payoff Costs may also include
an interest differential cost. This is the difference between the interest
the mortgagor paid and the interest paid by the mortgagee to the investor.
(Backup Details Chapter 8.C.4)
11. Foreclosure Costs This is the total of all specific
costs of foreclosing loans. It does not include the servicing costs for
a foreclosure. For a complete examination of the calculation refer to the
Backup Detail Chapter. (Backup Details Chapter 8.C.5)
12. Costs of Advances This is the monthly interest charge
that results from bank borrowings or company funds used to make the P&I
remittances to the investors. (Backup Details Chapter 8.C.6)
13. Impound Interest Paid This is the total amount paid to the mortgagors on their impound accounts. The program calculates the monthly interest due and shows the calculation on the backup screen. The amount is only expensed according to the schedule input by the user in Chapter 4 Impounds
(Backup Details Chapter 8.C.7)
14. Subtotal Costs The total of lines 8 through 13.
15. Operating Income This is the income from the portfolio
before amortization, taxes, and interest. (Line 7 less Line 14)
16. Amortization The amount of amortization calculated by the program using the method entered in Chapter 4 Amortization. It is subtracted from operating income in order to determine net income before taxes. The program uses net income before taxes to determine the income tax amount.
Net Income Before Taxes = Operating Income Amortization
17. Income Tax The tax calculated using the marginal tax
rate for the current Period and multiplying times net income before taxes.
Income Tax = Marginal Tax Rate * Net Income Before Taxes
18. Net Income = Operating Income Amortization Income
Taxes
19. Cash Flow Cash Flow is calculated by adding back amortization
(Line 16) to net income (Line 187). This is the cash flow that will be
used in the preDebt present value analysis. The present value discount
factors can be found on the rates and factors screen in Chapter 7.D.
20. Status Line Definitions
First Period (0) The first month which will show on the
computer screen.
Every (1) This will tell the program which months you
want to appear on the screen. Entering "3" will show every third
month of the analysis.
Months/Years (M/Y) You can show either annual totals or monthly totals on the Screen and in the reports.
"Y" An entry of "Y" will show Annual Totals in the Columns.
"M" An entry of "M" will show months
on the Screen.
Per Loan (Y/N) The Screen will show the amounts in either Dollar Balances or Amounts per Loan.
"Y" Show amounts in Dollars per Loan
"N" Show amounts in Dollars for the period.
Annual Earnings 1 2 3 4
Service Fees 218 216 215 213
Late Fees 63 63 61 61
Ancillary Income 10 17 22 23
Earn on P&I Float 15 12 14 15
Earn on Impounds 29 36 43 45
Subtotal (Income) 336 344 355 357
Servicing Costs 33 34 36 37
Delinquency Costs 48 50 51 52
Payoff Costs 4 2 3 3
Foreclosure Costs 35 36 42 35
Cost of Advances 4 7 7 6
Impound Int Paid 0 0 0 0
Subtotal(Costs) 123 129 138 133
Operating Income 212 215 218 224
less Amortization 79 86 92 98
less Income Tax 47 45 44 44
Net Income 86 84 82 82
Cash Flow 166 170 174 180
First Period 0 Every 1 Months/Years Y Per Loan Y
This is an example of the earnings per loan screen. The
results can be shown as monthly earnings per loan or as annual earnings
per loan.
1. Month 1 2 3
2. Previous Balance 0.00 1876481.18 1874524.68
3. Regular Payments 3975618.99 3942444.02 3910166.77
4. Delinquent Payments 515043.70 514520.81 513328.57
5. Payoff Payments 3336827.51 3331262.88 3325647.12
6. Foreclosure Adjust 74746.97 74747.06 74747.25
7. Remittances 4599813.72 7864931.27 7823633.23
8. Ending Balance 1876481.18 1874524.68 1874781.15
9. Average P&I Bal 1115571.05 2958322.98 2947239.48
10. Average Advance 540319.56 441679.94 437460.23
11. Biggest Advance 2252310.31 2237825.47 2220763.03
12. First Period (0) Every (1) Months/Years (M/Y)
These amounts can be verified on the daily cash flow screen
in Chapter 5
1. Month/Year The analysis will be for either months or
years depending on what is selected in the Status Line (line 12). If the
analysis is for the year then the beginning and ending balances will be
for the year.
2. Previous Balance Bank Balance from the prior Period
(Line 8). In the first period of the model this amount will be zero (0).
It is important to note that the beginning and ending advance account balances
are not shown on this screen.
3. Regular Payments The total amount of principal and
interest payment received from the GOOD LOAN Category. (Backup Details
Chapter 8.D.1
4. Delinquent Payments The total of all principal and
interest payments received from delinquent loans coming good. Each time
a loan returns to the GOOD LOAN status we assume that the mortgagor has
made all necessary P&I and T&I payments. (Backup Details Chapter
8.D.2
5. Payoff Payments This is the total P&I received
during the month from payoffs. It is the total of the current payment due,
the principal balance due as of the payment date and the interest paid
by the mortgagor for the month calculated according to the data provided
by the user in Chapter 4.K Payoffs. (Backup Details Chapter 8.D.3
6. Foreclosure Adjustment The amount of funds being repaid
into the advance account as a result of loans completing foreclosure during
the month. Funds received should bring the advance amounts for those loans
to zero. The funds may come from:
a. Investors
b. Insurance Companies as a result of PMI payments
c. Federal insurance agencies as a result of MIP premiums.
7. Remittances This is the total amount of funds that
is remitted to the Investors during the month. It may include:
a. Remittances from all current loans and loans coming
current less any accrued advances on the loans. (Backup Details Chapter
8.E.1
b. Remittances due from all delinquent loans (P&I
Advances due). (Backup Details Chapter 8.E.2
c. Remittances from current month payments on loans paying
off. (Backup Details Chapter 8.E.3
d. Remittances of principal balances and extra interest
payments from loans paying off. (Backup Details Chapter 8.E.4
8. Ending Balance The end of the month bank balance in
the P&I Account. It is the total of Line 2 through Line 6 less Line
7. The previous Balance of Month 2 is equal to the Ending Balance of Month
1.
9. Average P&I Balance This is the daily average P&I
Bank Balance for the current month as determined from the Daily Cash Flow
screen shown in Chapter 5.H.
10. Average Advance The daily average P&I Advance for the full month using a 30 day month. If the Advance was $100 for six days and zero for the remainder of 24 days, the Average for the month would be:
100 + 100 + 100 + 100 + 100 + 100 + 0 = $600
Average Advance = $20 = $600 / 30 days
11. Biggest Advance The largest advance amount on any
single day of the month.
12. Status Line
First Period (0) The first month or year which will show
on the computer screen columns.
Every (1) This will tell the program which months you
want to appear in the screen columns. Entering a "3" will show
every third month of the analysis.
Months/Years (M/Y) You can show either Annual Totals or Monthly Totals on the screen and in the Reports.
"Y" An entry of "Y" will show annual totals in the columns.
"M" An entry of "M" will show monthly
totals in the columns
Per Loan (Y/N) The screen will show the amounts in either Dollar Balances or Amounts per Loan.
"Y" Show amounts in Dollars per Loan
"N" Show amounts in Dollars for the period.
Year 1 2 3 4
2. Previous Balance 0 1905302 451387 698908
3. Regular Payments 45610506 42158639 40436839 37991682
4. Delinq Payments 5999050 5548110 4365795 3792911
5. Payoff Payments 39676287 20656798 20226774 19792915
6. Foreclosure Adj 896512 848087 928619 731829
7. Remittances 88851110 70665548 65710505 62288294
8. Ending Balance 1905302 451387 698908 719952
9. Average P&I Bal 2764778 1740302 1677934 1682921
10. Average Advance 424946 701608 556015 447266
11. Biggest Advance 2252310 2562525 2348444 1922540
First Period 0 Every 1 Months/Years Y
2. Previous Balance The beginning and ending year balance.
The annual twelve month total or average for each of these
accounts.
3. Regular Payments
4. Delinquent Payments
5. Payoff Payments
6. Foreclosure Adjustment
7. Remittances
9. Average P&I Balance
10. Average Advance The monthly average of the twelve
monthly average advances.
11. Biggest Advance The single largest monthly advance
for the twelve month period.
1. Month (Year) 1 2 3
Property Tax
2. Previous Balance 2493243.24 2973922.95 3447059.55
3. Plus Received 497040.82 492744.80 488471.92
4. Less Paid Out 0.00 0.00 0.00
5. Less Refunded 16361.11 19608.20 22846.71
6. Ending Balance 2973922.95 3447059.55 3912684.76
Insurance
7. Previous Balance 2306756.76 2301180.02 2592429.24
8. Plus Received 300323.08 299121.96 298711.17
9. Less Paid Out 300000.00 0.00 298286.50
10. Less Refunded 5899.82 7872.74 5904.39
11. Ending Balance 2301180.02 2592429.24 2586949.53
Extra Premiums
12. Previous Balance 25000.00 9334.97 98512.36
13. Plus Received 9334.97 9301.69 9269.37
14. Less Paid Out 24937.90 0.00 18449.90
15. Less Refunded 62.10 124.30 62.46
16. Ending Balance 9334.97 18512.36 9269.37
17. First Period (0) Every (1) Months/Years (M/Y)
1. Month/Year Period of time that the screen balances
will represent. The column balances are either for a month or for a year.
If you have selected an interval other than one (1) the program does not
accumulate the missing periods. The program only shows the amounts for
the period of one month or one year.
2. Previous Balance Determined by either:
a. Beginning Balance for the program is determined by
the screen in Chapter 4.H on Impounds.
b. In the second period through to the end of the program
the amount of the Prior Period Ending Balance (Line 6).
3. Plus Received Tax payments received during the month
or the year. (Backup Details Chapter 8.F.1
4. Less Paid Out Taxes paid out will only appear in those
months that are specified by the user in Chapter 4.H, Impound Payment Schedules.
(Backup Details Chapter 8.F.2
5. Less Refunded Amounts paid back to the Mortgagors through
Payoffs. Whenever a loan pays off the Mortgagor receives a refund of his
impound balances unless the mortgagor is delinquent. (Backup Details Chapter
8.F.3
6. Ending Balance The Total of Line 2 and Line 3 less
Line 4 and Line 5. This is used as the Beginning Balance for the Next Period.
7. Previous Balance is determined in one of two ways:
a. Month One Beginning Balance for the program is determined
by the information entered in Chapter 4.H on Impounds.
b. Month Two In the second period through to the end of
the program the amount of the prior period ending Balance (Line 11.b)
8. Plus Received The total of Hazard Insurance premiums
received during the month or the year. (Backup Details Chapter 8.G.1
9. Less Paid Out Amounts Paid Out will only appear in
those months that are specified by the user in Chapter 4.H, Impound Payment
Schedules. Hazard insurance payments are likely to pay evenly during the
year with a heavier concentration during the summer months. (Backup Details
Chapter 8.G.2
10. Less Refunded Amounts paid back to the Mortgagors
through Payoffs. Whenever a loan pays off the Mortgagor receives a refund
of his escrow balances unless the mortgagor is delinquent. (Backup Details
Chapter 8.G.3
11. Ending Balance The Total of Line 7 and Line 8 less
Line 9 and Line 10. This is used as the beginning balance for the next
period.
The difference between this impound account and the other
two accounts is that there is no advance made for this account. If the
mortgagor does not have sufficient impound amounts to pay the premiums
then the premium is not paid.
12. Previous Balance is determined in one of two ways:
a. Month One Beginning Balance for the program is determined
by the information entered in Chapter 4.H on Impounds.
b. Month Two In the second period through to the end of
the program the amount of the Prior Period Ending Balance (Line 16).
13. Plus Received The total of Optional Insurance premiums
received during the month or the year. (Backup Details Chapter 8.H.1
14. Less Paid Out Amounts Paid Out will only appear in
those months that are specified by the user in Chapter 4.H, impound payment
schedules. Optional insurance payments are likely to pay evenly during
the year. (Backup Details Chapter 8.H.2
15. Less Refunded Amounts paid back to the mortgagors
through payoffs. Whenever a loan pays off the mortgagor receives a refund
of all his impound balances. (Backup Details Chapter 8.H.3
16. Ending Balance The total of Line 12 and Line 13 less
Line 14 and Line 15. This is used as the beginning balance for the next
period.
17. Status Line
First Period (0) The first month or year which will show
on the computer screen columns.
Every (1) This will tell the program which months you
want to appear in the screen columns. Entering a "3" will show
every third month of the analysis.
Months/Years (M/Y) You can show either annual totals or Monthly Totals on the screen and in the reports.
"Y" An entry of "Y" will show annual totals in the columns.
"M" An entry of "M" will show monthly
totals in the columns
Per Loan (Y/N) The screen will show the amounts in either Dollar Balances or Amounts per Loan.
"Y" Show amounts in Dollars per Loan
"N" Show amounts in Dollars for the period.
1. Month (Annual) 1 2 3
2. Cash Account Bal 0.00 91410.97 190504.12
3. x Rate Earned 0.00750 0.00750 0.00750
4. Before Tax Earnings 0.00 685.58 1428.78
5. x (1 tax rate) 0.65000 0.65000 0.65000
6. Earned After Tax 0.00 91856.60 191432.83
7. Cash + Earnings 0.00 91856.60 191432.83
8. Net Cash/Service 132035.97 139272.52 139720.20
9. Available Cash 132035.97 231129.12 331153.02
10. Principal Repaid 0.00 0.00 0.00
11. Interest on Debt 62500.00 62500.00 62500.00
12. + Tax Shield 21875.00 21875.00 21875.00
13. Ending Cash Bal 91410.97 190504.12 290528.02
14. Debt Balance 7500000.00 7500000.00 7500000.00
15. less Repayment 0.00 0.00 0.00
16. New Balance 7500000.00 7500000.00 7500000.00
17. First Period (0) Every (1) Months/Years (M/Y)
1. Month/Year The program will show Months or Years depending
on what is selected in Line 17. The program will only show the totals and
balances for the month or year specified. If alternating periods are selected
in Line 17, the program will not accumulate the in between months or years.
2. Cash Account Balance In the first month of the analysis
the cash balance is assumed to be zero. During the following months the
ending balance from the prior month (Line 13) is used as the beginning
balance for the next month.
3. Rate Earned This is the reinvestment rate entered in
Chapter 3. The rate is applied to the total of all available cash at the
end of the month.
4. Before Tax Earnings The amount earned on the available
cash balance using the reinvestment rate to determine the interest.
5. (1 Tax Rate) The amount of income (as a fraction) that
remains after taxes are paid. The tax rate is the marginal rate for the
period being investigated.
6. Earned After Tax The After Tax Earnings of the cash
account.
7. Cash + Earnings The total of the cash account and the
after tax earnings on the cash account. (Line 2 + Line 5)
8. Net Cash Service The total amount of cash generated
from the servicing operation. This is the significant figure for purposes
of the present value analysis. The amount is explained very clearly in
Chapter 5.
9. Available Cash The sum of the cash account balance
at the beginning of the month, the prior month's after tax earnings on
the cash account and the current month's addition (from servicing) to the
account.
10. Principal Repaid The principal repayment amount on
the debt. The debt is the debt resulting from the purchase of the portfolio
being investigated. This is considered the "New" debt.
11. Interest on Debt The interest on the debt which resulted
from this portfolio purchase.
12. Tax Shield The tax savings resulting from the interest
deduction. The interest paid in Line 10 is multiplied by the marginal tax
rate for the current period to determine the tax shield. This amount is
added back to the cash account.
13. Ending Cash Balance The combined total of the following:
Plus Beginning Cash Account Balance
After tax earnings on Cash Account
Cash from Servicing
Tax Shield
less: Principal Repayment
Interest on Debt
Ending Cash Balance
14. Debt Balance The current outstanding amount of Debt.
This does not include the debt in Chapter 3 Fixed Costs.
15. Repayment The amount of the principal repaid every
month. Often there will only be an annual repayment. If a 12 month repayment
schedule was selected then the amount will appear every 12 months. (Chapter
4 Debt Financing)
16. New Balance The prior month/year debt balance less
the current month's principal repayment.
17. Status Line (See Chapter 5 Earnings for a complete
description)
1. 2. 3. 4. 5. 6. 7. 8. 9.
Day Reg Delinq Prep F/C Clear Repay Advance Bank
Balance Balance
1425942 0
1 198781 0 83421 2492 0 284693 1141249 0
2 198781 0 83421 2492 0 284693 856556 0
3 198781 0 83421 2492 0 284693 571863 0
4 198781 0 83421 2492 0 284693 287169 0
5 198781 0 83421 2492 0 284693 2476 0
6 198781 0 83421 2492 0 2476 0 282217
7 198781 0 83421 2492 0 0 0 566910
8 198781 0 83421 2492 0 0 0 851603
9 198781 0 83421 2492 0 0 0 1136297
10 198781 0 83421 2492 0 0 0 1420990
11 99390 0 83421 2492 0 0 0 1606292
12 99390 0 83421 2492 0 0 0 1791595
13 99390 0 83421 2492 0 0 0 1976898
14 99390 0 83421 2492 0 0 0 2162201
15 99390 0 83421 2492 0 2252310 2252310 4599814
16 99390 0 83421 2492 2759888 185303 2067008 1839925
17 99390 0 83421 2492 114995 185303 1881705 1724930
18 99390 0 83421 2492 114995 185303 1696402 1609935
19 99390 0 83421 2492 114995 185303 1511099 1494939
20 99390 0 83421 2492 114995 185303 1325797 1379944
21 99390 0 166841 2492 229991 268723 1057073 1149953
22 99390 0 166841 2492 229991 268723 788350 919963
23 99390 0 166841 2492 229991 268723 519626 689972
24 99390 0 166841 2492 229991 268723 250903 459981
25 99390 0 166841 2492 76664 250903 0 401138
26 99390 0 166841 2492 76664 0 0 593198
27 99390 0 166841 2492 76664 0 0 785258
28 99390 0 166841 2492 76664 0 0 977318
29 99390 0 166841 2492 76664 0 0 1169378
30 99390 515044 166841 2492 76664 0 0 1876481
3975610 515044 3336830 74760 4599816 1425941 0 1876481
This page is actually a copy of two consecutive daily
cash flow screens. We included it in this manner to show how the daily
cash flows could be reconciled to the other output screens.
1. Day - Day of the month on which transactions
take place.
2. Regular The daily total of all P&I payments
received from mortgagors who were current at the beginning of the current
month. (Backup screen 8 P&I Regular Payments)
3. Delinq The daily total of all P&I payments
received from any delinquent account coming good during the month. (Backup
Screen P&I Regular Payments)
4. Prepay The daily P&I total received from
all loans paying off from any loan state. (Backup Screen P&I Regular
Payments)
5. Foreclosure The amount of funds being repaid
into the advance account as a result of loans completing foreclosure during
the month. Funds received should bring the advance amounts for those loans
to zero. The funds may come from:
a. Investors
b. Insurance Companies as a result of PMI payments
c. Federal insurance agencies as a result of MIP premiums.
(Backup Screen 8.D.4 Foreclosure Adjustment
6. Total Clearing The daily amount of investor
remittance checks that have cleared the bank account. The investors may
not all cash their checks at the same time. As a result the remittances
may clear the bank on any day of the month from the day the check was mailed
through to the last day of the month. The remittance clearing pattern is
set up by the user in Chapter 4 Remittance Processing.
7. Repay The amount that is repaid to the Advance
Account. The program assumes that the advance is repaid from any available
cash in the Bank Balance (Col 9). It is possible for the Bank Balance to
be positive and still not have the advance account repaid. The investor
may require that the funds for the total remittance be available even though
the remittances checks have not been received by the bank. This causes
a positive advance and a positive bank balance.
8. Advance The daily amount of the P&I Advance
needed to keep the Bank Balance from becoming negative. The program assumes
that the money is drawn as needed to keep the Bank Balance from going negative
(Overdrawn) and is paid back from any available funds in the Bank Balance.
The advance account could be borrowed funds or funds advanced from the
companies own account.
Chapter 5 P&I Average Advance Line 10
Chapter 5 P&I Biggest Advance Line 11
9. Bank Balance The P&I Advance Account which
earns interest during the month. (Chapter 5 P&I Average P&I Balance
Line 9)
Portfolio Simulation
Financial Results Before Debt Service
Tax Rate Expensed + Amortized = Total
Purchase Price : 2,500,000 7,500,000 10,000,000
Conversion Cost : 160,000 40,000 200,000
Total : 2,660,000 7,540,000 10,200,000
Tax Savings : 0.3500 931,000 931,000
Net Initial Cost 9,269,000
Simulation Per : 348 Months Expected Loan Life: 150.08 Month
Pay Back : 6.5 Years Economic Duration : 5.39 Years
Present Value : 10,805,389 2.161% Discount Rate A/T: 8.00%
Net Initial Cost: 9,269,000 1.854% Nominal IRR : 11.04%
Net Present Val : 1,536,389 Modified IRR : 6.80%
BreakEven Price: 12,098,311 2.420%
Balance : 500,000,000 Loans: 10,000 Serv Fee: 0.440%
Avg Bal : 50,000 Rate : 11.000% Maturity: 348 Month
1. Total Purchase Price The program uses both the portion expensed and the portion amortized to calculate the first year tax savings. For tax purposes a portion of the purchase price may be expensed in the first year.
Total Price = Portion Expensed + Portion Amortized
2. Purchase Price The fraction of Purchase Price that is expensed and the fraction that is amortized.
Chapter 3 Fraction Purchase Price Expensed
Chapter 4 Purchase Price as Fraction of Balance
Chapter 4 Purchase Price in Dollars
3. Conversion Cost The amount of the Conversion Cost that is expensed immediately. The amount that remains is amortized over a schedule selected by the user.
Chapter 4 Conversion Cost Amount
Chapter 3 Fraction Conversion Cost Expensed
Chapter 3 Amortization of Purchase and Conversion
4. Total Purchase Price Total Purchase Price in Dollars.
5. Tax Rate The Marginal Tax Rate of the firm, during
the period of portfolio conversion, used in the analysis. (Chapter 3 Tax
Rate)
6. Tax Savings This is the dollar value of the tax savings
which resulted from expensing a portion of the purchase price in the first
year after the conversion. In our example the firm saved 35% of the total
of the amount of price expensed and the conversion cost:
Tax Savings = 35% x (Price Expensed + Conversion Cost
Expensed)
7. Net Initial Cost This is the Purchase Price less the
first year tax savings.
8. Months of Simulation This tells the user how many months
were used in the simulation. It is important that before using these results
you are certain that the analysis was run for as long as any loans exist
in the portfolio. We suggest you use 360 months for the final analysis.
9. Expected Loan Life This is the Expected Average Loan
Life based on the months simulated and the life of the loans at the beginning
of the portfolio. (Chapter 4 Payoff Probability) The expected (or average)
life of a loan is found by:
a. Multiplying each month in which the loan might terminate
by the probability the loan will terminate in that month. In Example A,
Month 3 (3) is multiplied by the probability of termination (.25). This
is the total of the loans paying off and the loans completing foreclosure.
Column 3 = 3 x .25 = .75
b. The sum of these multiplications is the Expected Loan
Life.
Example: Expected Loan Life
A B
Month 1 2 3 1 2 3
1 .25 .75 .25 .1 .9 .1
2 .25 .50 .50 .2 .7 .4
3 .25 .25 .75 .3 .4 .9
4 .25 0 1.0 .4 0 1.6
Average Life 2.5 3.0
(in Months)
Column 1 Probability of Termination
Column 2 Probability that loan will exists
Column 3 Column 1 x Month
In example A the Expected Loan Life is 2.5 months. In
example B the Expected Loan Life is 3.0 months.
10. Present Value The present value, in Dollars, of the
discounted cash flows generated by the portfolio using the firm's discount
rate (shown in Chapter 5.D Line 19). The cash flows have been adjusted
for income tax and amortization of the Purchase Price. The present value
is also given as a fraction of the original portfolio loan balance.
11. Discount Rate This is the firm's After Tax discount
rate which is entered in the firm section of the program. (Chapter 3 Discount
Rate)
12. Modified Internal Rate of Return (MIRR) the Modified
IRR assumes that the firm's reinvestment rate will be different from the
IRR. The cash flows generated by the portfolio are assumed to be reinvested
at the reinvestment rate. (Chapter 3 Reinvestment Rate)
13. Nominal Internal Rate of Return (IRR) The discount
rate that would make the net initial investment equal to zero. The nominal
IRR assumes that funds generated by the investment are reinvested at a
rate equal to the nominal IRR. The cash flows used to calculate the nominal
IRR are shown in Chapter 5 Monthly Earnings line 19.
Net Present Value = Present Value Original Investment
NPV = 0
The program will not calculate an IRR when the following
conditions exist:
a. The NPV is negative. This would mean that the Net Initial
Cost (Line 7) is higher than the present value (Line 10). The analysis
may not have been run for the entire amortization period of the portfolio.
This could cause both of these conditions to occur.
b. The Equity Invested (5.J Line 9) is negative. This
happens when the entire portfolio purchase is financed using debt. The
first year tax savings results in a negative net initial cost.
c. The cash flow turns from positive to negative and then
turns positive again. This may result in two IRR's and would prevent the
program from determining a single IRR.
14. Economic Duration This is the weighted average life
of the investment using the present value of the cash flow as the weights.
It is a measure of the change in the present value for a change in the
discount rate.
Present
Example: Year Value (Yr X PV)
1 X 100 = 100
2 X 150 = 300
3 X 25 = 75
6 275 475
Duration = 475/275 = 1.73 Years
In this example, if the discount rate increases by 1% then the present value of the portfolio will decrease by 1.73%.
Discount Rate = 8.0% > 9.0%
Present Value = 2.15% X (1 .0173) = 2.11%
In this example the discount rate changed 1% from 8% to
9%. The present value of 2.15% will decrease by 1.73% to 2.11%.
15. Break-even Price This is the maximum price you would
pay be willing to pay for the portfolio you are evaluating. If you pay
an amount greater than the break-even price the net present value of the
investment will be negative. Two other events occur when you pay the break-even
price. First, the net present value should be zero. Next, the IRR rate
of return should equal the discount rate at the break-even price.
When you are working with the break-even price keep in
mind that the total price for a portfolio will be the break-even price
plus the conversion cost. If you have significant conversion costs your
present value may be greater than your break-even price. When you add conversion
cost to the break-even price that is equal to the actual cost of the portfolio.
Portfolio Simulation
Financial Results Return on Equity
a. b. c.
Tax Rate Expensed + Amortized = Total
Purchase Price : 2,500,000 7,500,000 10,000,000
Conversion Cost : 160,000 40,000 200,000
Total : 2,660,000 7,540,000 10,200,000
Tax Savings : 0.3500 931,000 931,000
Net Initial Cost: 9,269,000
Less Borrowed Funds: 7,500,000
Equity Invested : 1,769,000
Simulation Period: 348 Months Expected Loan Life: 150.08 Mon
Pay Back : 6.2 Years Economic Duration : 5.39 Yrs
Pres Val to Equity: 2,695,480 0.539% Equity Discount : 15.00%
Equity Invested : 1,769,000 0.354% Nominal ROE : 29.18%
Net PV to Equity : 926,480 Modified ROE : 9.04%
Balance : 500,000,000 Loans : 10,000 Serv Fee : 0.440%
Avg Bal : 50,000 Rate : 11.000% Maturity : 348 Mth
This analysis assumes that the borrowed funds (interest
and principal payments) are netted from the cash flows before the present
value of the cash flows is calculated. The discount rate used for this
analysis is the equity discount rate entered n the firm section. The
equity discount is the return on investment that the owners (stockholders)
of the business require to invest their funds in the company. See Chapter
5 PreDebt Valuation for a detailed discussion of items not covered in this
section.
2. Purchase Price The price paid for the portfolio.
3. Conversion Cost The total dollar amount of the Conversion
Cost.
4. Total Portfolio Price
a. Total Expensed Purchase Price + Conversion Amount
b. Total Amortized Purchase Price + Conversion Amount
c. Total Portfolio Price Purchase Price + Conversion Amount
5. Tax Rate The firm's Marginal Tax rate for the period
following the conversion.
6. Tax Savings The first year Tax Savings from the expensed
portion of the Portfolio Price.
7. Net Initial Cost The Portfolio Price less the first
year tax savings.
8. Less Borrowed Funds The amount of money that the firm
borrows to finance this portfolio. (Chapter 4 Debt Financing)
9. Equity Invested The Borrowed Funds are subtracted from
the Net Initial Cost to give the Equity Invested in the portfolio. The
Net present value for this Chapter is determined by using this amount as
the original investment.
10. Length of Simulation This should be greater than the
amortization period of the portfolio. Chapter 4 Amortization)
11. Expected Loan Life The expected average loan life
of the portfolio. (Chapter 5 Prepayments)
12. Present Value The present value in dollars and as
a fraction expressed as a percentage of the original portfolio balance.
It is calculated after the debt service has been subtracted from the monthly
cash flows. The cash flows are shown in Chapter 5 Debt Repayment Line 13.
13. Discount Rate In the debt chapter of the analysis
this is the equity discount rate or the rate that is required by the owners
of the firm in return for investing their capital in the firm. The program
assumes that the cash flows in this chapter have the debt service already
taken into consideration. (Chapter 3 Equity Discount)
14. Modified Internal Rate of Return The Modified IRR
assumes that the firm's reinvestment rate will be different from the calculated
IRR, and that the cash flows generated by the portfolio will be reinvested
at the reinvestment rate. Chapter 5 Debt Repayment Line 9 shows the cash
flows to be used in the calculation. (Chapter 3 Reinvestment Rate)
15. Nominal Internal Rate of Return (IRR) This is the
Internal rate of Return of the investment that would make the Net present
value of the investment, adjusted for first year tax savings, equal to
zero. The nominal IRR assumes that funds generated by the investment are
reinvested at a rate equal to the nominal IRR. The cash flows used to calculate
the nominal IRR are shown in Chapter 5 Earnings line 19.
Net Present Value = Original Investment Present Value = 0
NPV = 0
16. Economic Duration The Weighted Average Life of the Investment using the present value of the cash flow as the weighted average factor.
GROUP SIMULATION Screen {S70}
Group Simulation
Definition
File Definition
Calculation
Simulate Months
Results
Generate Reports
Loan Status
Earnings
P&I Float
Impounds
Debt Repayment
Cash Flows (Daily)
Valuation
With Debt
Budget Summary
Quit this Menu
The Group Consolidation will add different portfolio segments
together and analyze the combined segments as a single portfolio. You define
which segments you want in the group by using the file definitions screens
in this section.
The same portfolio segments can be used in many group
definitions. There is no limit to the different groups that you can define.
The program will combine a maximum of sixty portfolios in a single consolidation.
Each group definition you create can be saved to a disk
file and be reused at a later date. You must SAVE the definition in order
to be able to access it at a later date. The KAL II model does not save
any of your data automatically.
The program goes through the following process during
the group simulation:
1. The portfolio valuation analysis is performed for each
portfolio in the group. A new, temporary summation file is created and
the results of each portfolio valuation are added to this summation file.
2. After all segments have evaluated the program determines
the consolidated amortization schedule. This schedule may be different
than the sum of the individual schedules depending on which method was
selected for the amortization of the initial investment.
The FASB method will almost always result in an amortization
schedule which does not equal the sum of the individual segment amortization
schedules. The program considers the accumulated cash flow in the determination
of the annual portion of the purchase price to amortize each year.
3. The P&I account balances are determined separately
for each portfolio. During the P&I Review the program then subtracts
out the advances for the individual P&I accounts that are combined.
The P&I advances are then recomputed for the combined account balances.
This new balance allows for the effects of sharing a common P&I account.
The advances and the resulting costs of advances may be different for the
combined accounts due to the fact that the individual accounts can advance
from the combined P&I bank balance.
If there are no accounts to be combined then do not run
the P&I review part of the simulation. It will have no effect since
no advantage is received from combing P&I accounts.
The portfolio section does not produce a five year budget.
If you want to have a budget for a single segment, set the segment up in
a group definition file that has only that segment listed in the group.
The program will go through the same steps in consolidation and you will
have the budget summary. Most of the reports are available in both sections
of the program. The group section doses not have access to the backup or
rate screens. These screens can only be used in the portfolio section.
The group consolidation has many functions in addition
to the determination of the combined value.
Examine the monthly P&I,T&I accounts
This review examines the daily and monthly cash balances.
If you are using your cash balances to offset a warehouse account the reports
will show how much cash is need or is available for each day of the month.
Annual Cash Flow Cycle
The annual cash flow cycle can be very difficult to determine.
The Model is an effective tool to analyze the monthly mortgagor collection
and investor/escrow remittances . The Model uses this information to determine
how much cash is available during each month of the year.
Portfolio Planning
The most important questions in loan servicing always
seem to revolve around the servicing cost per loan. The Model will simulate
the financial effects of different processing costs and report these changes
in terms of dollars and cents. The cost savings from additional expenditures
can be immediately converted into profit or loss.
You may want to look at which combination of segments
produces the greatest value. A sale of a portion of the portfolio may cause
the allocated fixed costs to change significantly. The effects of changes
are easily and quickly examined by the Model.
Project the results of a sales/purchase strategy
The KAL II Model can be used to show production, purchases
and sales. This is the most effective means of investigating different
strategies in a quick and efficient manner.
Five Year Budget Summary
In Chapter 4 we discussed the "When Become Active"
switch. The switch's primary function is to start portfolios at different
times in the future. The budget summary is then a reflection of your anticipated
future growth plans. The Model will also prepare a monthly budget based
on these plans. The net effect is the Model provides you the ability to
forecast based on simulated conditions. These conditions reflect loan delinquencies,
segment servicing costs and anticipated changing economic and firm conditions.
GROUP FILE DEFINITION Screen {S710}
Group File Definition
> Change Data
Display File Names
Erase File
Load File
Make New File
Save File
Quit Menu
This is the same file definition screen that was discussed in Chapter 2 System Environment. All functions work the same as the other four definition screens. Review Chapter 2 to use these file functions.
CHANGE DATA Screen {S711}
Title: GNMA I Example
* File Name * File Name * File Name * File Name
A GNMAEX
B ARMEX
* Mark all portfolios which share one P&I account with any
character. Use a different letter for each P&I account
that is shared. Keep groups together.
This is the title of the group of portfolio segments that
will be consolidated into a single simulation. Always use a name that can
be easily remember or identified. A copy of the screen using the DOS print
screen key can be very helpful in recalling the configuration of each group
definition.
This is the file name of a portfolio segment that was
created earlier. All portfolio definitions should be complete and previously
valued. This insures that the consolidation will run correctly.
The asterisk is used to mark all portfolios which share
one P&I account. Any character can be used. It is possible to have
three or more portfolio segments that share a single P&I account. In
this case use an "A" to signify those accounts that share a common
account. Use a different letter for each P&I account that is shared.
Keep all groups that share P&I accounts together.
We have used two files in this example to show how the
definition is created. Both files will be consolidated into one group portfolio.
However, the GNMA portfolio will use one P&I account and the ARM loans
will use another. This prevents the advance accounts from being commingled.
The GNMA account is denoted with an "A". The ARM account is denoted
with a "B".
Combine Portfolios Through Month 360
Review P&I Advance Through Month 360
For the sake of speed you may only wish to look at a few
months of group valuation data. Enter the number of months that you would
like to view the valuation for. If you are only interested in the five
year budget forecast then you would want to enter (60) or five years.
The group simulation takes longer to run than does the
portfolio simulation. If you do not have any combined P&I accounts
then enter zero in this field. When zero is entered in this field the model
will not run the P&I review. If you are only interested in the five
year budget then enter (0) in this field.
Each of the following screens is explained in Chapter 5 Portfolio Valuation. The screens contain reports for the consolidated portfolio.
Generate Reports Screen {S73}
Loan Status Screen {S74}
Earnings Screen {S75}
P&I Float Screen {S76}
Impounds Screen {S73}
Debt Repayment Screen {S78}
Cash Flows (Daily) Screen {S79}
Valuation Screen {S710}
With Debt Screen {S711}
Monthly Budget Report
1. Month 1 2 3
2. Servicing Revenues 269323 279445 279820
3. less Operating Cost 100024 99013 98699
4. Operating Income 269323 279445 279820
5. less Fixed Costs 20833 20833 20833
6 less Amortization 62833 62833 62833
7. less Interest 62500 62500 62500
8. Income Before Tax 23132 34265 34954
9. less Income Tax 8096 11993 12234
10. Net Income 15036 22273 22720
11. Cash Flow 77869 85106 85554
12. Principal Paid 0.00 0.00 0.00
13. Number of Loans 10000 9922 9844
14. First Period (0) Every (1) Months/Years (M/Y)
This screen is only available when the group simulation
is run.
1. Month/Year Period of time that the screen balances
will represent. The column balances are either for a month or for a year.
If you have selected an interval other than one (1) the program does not
accumulate the missing periods. The program only shows the amounts for
the period of one month or one year.
2. Servicing Revenues The total servicing revenues for
the period. The detail breakdown of these costs is shown in the printed
report for this section.
3. Operating costs The total costs of the servicing operation.
The printed report shows the detail breakdown.
4. Operating Income Servicing Revenue less servicing costs.
The breakdown is shown in Chapter 5 Earnings Line 15.
5. Fixed Costs The monthly portion of the annual Fixed
Costs as entered by the User in Chapter 3 Fixed Costs, Interest and Amortization.
To view the individual cost breakdown see Chapter 6.I Budget Reports.
6. Amortization The combined amortization from Chapter
3 and the amortization calculated for the portfolios being analyzed.
7. Interest Paid This is the combined interest from Chapter
3.J Fixed Costs and the interest on the new debt from portfolios being
purchased using debt financing.
8. Income Before Tax The income tax calculated on this
line will be different than in the prior Chapters. This is due to the fact
that the additional interest and amortization is included from Chapter
3. These additional charges will act to reduce both income and taxes.
9. Income Tax The income tax which is determined after
all amortization and interest (Existing and New) is expensed.
10. Net Income The income which is remaining after all
amortization and interest (Existing and New) is expensed.
11. Cash Flow This cash flow will be different than the
sum of the individual portfolio cash flows due to the inclusion of the
fixed cost, interest and amortization from Chapter 3.
12. Principal Paid The total of all principal payments
from any type of debt, new or existing.
13. Number of Loans The remaining number of loans in the
combined portfolio.
14. Status Line (See the prior menu on Earnings for a
complete explanation)
Five Year Budget Summary
Annual Budget 1 2 3 4
Servicing Revenues 3188791 3020039 2923373 2743263
less Operating Cost 1171858 1134725 1131114 1024066
Operating Income 2016933 1885314 1792258 1719197
less Fixed Costs 250000 250000 250000 250000
less Amortization 754000 754000 754000 754000
less Interest 750000 687500 625000 562500
Income Before Tax 262933 193814 163258 152697
less Income Tax 92026 67835 57140 53444
Net Income 170906 125979 106118 99253
Cash Flow 924906 879979 860118 853253
Principal Paid 625000 625000 625000 625000
Number of Loans 9147 8565 8009 7487
First Period 0 Every 1 Months/Years Y
The annual budget report is available for the first five years.