How to Calculate Delinquency

A loan portfolio is only as good as the loans it holds. Monitoring loans which are 30, 60 and 90 days past due provides lenders with insight into future loan loss and the reserves needed to account for the loss. Measuring the dollar amount of delinquent loans in a portfolio is a common way to measure loan loss potential. Most delinquency rates compare the number of delinquent loans to the total number of loans in the portfolio.

Access delinquency data. The lender should be able to access detailed payment behavior over the life of each account.

Segment portfolio. The lender or portfolio manager should develop a segmentation schema that is driven by variables which explain variance in credit losses and delinquencies. These segments should apply to both secured and unsecured loans.

Label the segments. The segments that apply to secured lending are loan to valuation ratio, the borrower's employment and type of collateral. The key drivers for unsecured portfolios are sub-product type, age of account and source (originator). Add others if they apply.

Review definition of delinquency. Delinquency is the percentage of accounts which are at least 30 days past due.

Divide the dollar value of delinquent loans in the portfolio by the dollar value of loans in the portfolio.

Calculate delinquency. For example, let's say your portfolio is $2,000,000 and delinquent accounts are valued at $200,000. The delinquency percentage is $200,000 / $2,000,000 or 10 percent.

Interpret the results. In our example, 10 percent of the loan portfolio is past due at least 30 days on their account. Use the segmentation data gathered in Step 2 to pull more information out of your ratio. What is the ratio if you look at only secured loans or loans past due for 90 days?



About the Author

Working as a full-time freelance writer/editor for the past two years, Bradley James Bryant has over 1500 publications on eHow, and other sites. She has worked for JPMorganChase, SunTrust Investment Bank, Intel Corporation and Harvard University. Bryant has a Master of Business Administration with a concentration in finance from Florida A&M University.

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