Capital Assets Weekly Comments

Jerry Hubbard, and Lester Coleman
"Hidden" Loan Portfolio Activity

Many depository lenders only have access to monthly trial balance and delinquencyreports on their various loan portfolios, and their loan servicing software simply cannotproduce detailed analytics such as those available on the investment portfolio. These trialbalance reports indicate that, in the aggregate, the single-family mortgage, auto, andHELOC portfolios are only changing by nominal amounts from month to month. Whilethis is accurate, the rest of the story is that there frequently is a great deal of “hidden”portfolio activity occurring that does not appear on a monthly trial balance. Currentproduction lending frequently adds lower yielding loans with a higher risk profile, whereasthe majority of prepayments are of higher note rate loans with a lower risk profile. Thenet effect is to increase the portfolio’s risk profile and lower the yield. The ability topinpoint where and how this is happening can help you develop strategies to maintainprofitability without increased relative risk.

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