This Thursday from 1:00pm to 2:00pm ET, Steven Slezak of California Polytechnic State University and will present a webcast entitled "Forestalling Foreclosure: Using @RISK to Analyze Debt Capacity." Webcasts are complimentary, and all are invited. Questions will be addressed at the end of the session.
Professor Slezak will illustrate how even a simple @RISK simulation can provide valuable insights into a complicated financial issue and lead to a strategic solution.
A medical center in rural California secured a 30-year mortgage from a lending agency backed by the U.S. Government. Combined annual principal and interest payments became a burden shortly after the loan was issued due to an unexpected decrease in the center’s net income, leading the borrower to suspend mortgage payments and the lender to begin the default process.
The parties to the loan requested FinEx Company, LLC, provide an analysis of the debt situation, with particular focus on the borrower’s debt capacity from 2010 through the maturity of the mortgage.
The study aimed to identify a minimum level of net income for the center to target, a level which would allow it to maintain sufficient debt capacity to pay off the mortgage. The study also looked at how changing the terms of the loan – interest rate and maturity – by refinancing might contribute a solution.
A simple Excel spreadsheet was used to target the minimum net income level need to support debt capacity for the mortgage at various points of time in the maturity of the mortgage. An uncomplicated @RISK financial risk analysis was then performed to determine the probability that the center would be able to meet that minimum net income level within the next 12 months, and to find out if refinancing would be a viable solution under the circumstances. The @RISK risk analysis simulation helped to determine an optimal strategy.