Portfolio surveillance

Reporting is about compliance. Surveillance is about catching problems early. Build systems that alert you to issues before they become breaches or defaults.

Building a surveillance framework

Define key metrics

Every portfolio has 5-10 metrics that matter most:

Total delinquency rate
Roll rates (30 to 60, 60 to 90)
Monthly loss rate
Prepayment rate
Concentration metrics
Covenant headroom

Focus on leading indicators, not just lagging ones. Roll rates predict losses 60-90 days before they hit.

Set thresholds

For each metric, define traffic light thresholds:

Green: Normal range, no action needed
Yellow: Elevated, investigate and monitor closely
Red: Immediate action required

Example thresholds:

Metric	Green	Yellow	Red
60+ DQ	<3%	3-4.5%	>4.5%
Roll to 60	<35%	35-45%	>45%
Monthly CNL	<0.5%	0.5-0.8%	>0.8%
Covenant headroom	>20%	10-20%	<10%

Automate alerts

Your systems should notify you when metrics move to yellow or red. Do not rely on someone remembering to check the dashboard.

Effective alerts:

Trigger on threshold breach, not just at month-end
Include context (current value, threshold, trend)
Route to the right person (portfolio manager, not intern)
Escalate if not acknowledged

Monitoring cadence

Daily

Cash position and liquidity
Large payoffs or charge-offs
Funding requests
Exceptions or system issues

Weekly

Collections vs. expectations
New delinquencies
Modification activity
Origination pipeline (if revolving)

Monthly

Full performance review
Covenant testing
Trend analysis
Lender reporting preparation

Quarterly

Deep-dive portfolio review
Origination quality analysis
Strategic performance assessment
Lender meetings and presentations

Benchmarking performance

Against deal assumptions

When you structured the deal, you had base case assumptions for losses, prepayments, and delinquency. Track actual vs. assumed.

Metric	Base Case	Actual	Variance
CDR	4.0%	3.2%	-0.8% (better)
CPR	15%	22%	+7% (faster)
CNL	2.5%	1.8%	-0.7% (better)

Variances help you refine future deal assumptions and identify structural issues early.

Against peers

Compare your performance to:

Public ABS deals in your asset class
Rating agency surveillance data
Industry benchmarks
Peer company disclosures

This context helps you understand whether your performance is originator-specific or market-wide. If you are underperforming peers, you have an execution problem. If everyone is deteriorating, it is a market problem.

Early warning indicators

Catch problems early. These are the warning signs that precede deterioration.

Portfolio-level warnings

Delinquency trend acceleration. Delinquency going from 2% to 2.5% to 3% to 4% over four months is a pattern, not noise. Look at the rate of change, not just the level.

Roll rate deterioration. If your 30-to-60 roll rate jumps from 25% to 35%, more delinquent loans are getting worse instead of curing. This predicts losses 60-90 days out.

Vintage divergence. Recent vintages performing materially worse than older vintages at the same age indicates underwriting drift or adverse selection.

Prepayment spikes. Sudden prepayment increases can signal:

Good: Borrowers refinancing to better rates
Bad: Borrowers taking last cash out before defaulting (common in secured lending)
Neutral: Seasonal patterns

Concentration creep. You were at 12% California, now you are at 14.5%, limit is 15%. Concentrations build gradually until they become problems.

Originator-level warnings

If you are a capital provider, watch your originator for:

Volume changes. Sharp volume declines may indicate competitive pressure or tightening underwriting. Sharp increases may indicate loosening standards to hit targets.

Underwriting drift. Average FICO creeping down, average loan size creeping up, or exception rate creeping up are all warning signs.

Staff turnover. New servicing manager, new CFO, or high turnover in the collections team can precede performance issues.

Financial pressure. Declining originator profitability, covenant tightness on their corporate facilities, or delayed reporting may indicate stress.

Market-level warnings

Sector-wide deterioration. If consumer delinquencies are rising industry-wide, your portfolio will likely follow.

Spread widening. If comparable ABS deals are pricing wider, the market is signaling increased risk.

Rating actions. Negative outlooks or downgrades on peer deals indicate rating agency concern about the sector.

Building an early warning dashboard

Create a single view that shows:

Traffic light status for each key metric
Trend direction (improving, stable, deteriorating)
Days until covenant breach at current trajectory
Comparison to trigger levels

Example dashboard layout:

Metric	Current	Trigger	Status	Trend	Days to Breach
60+ DQ	3.5%	5.0%	Green	Stable	N/A
CA conc	14.2%	15.0%	Yellow	Rising	45 days
Roll 30-60	28%	40%	Green	Improving	N/A
CNL (ann)	2.8%	4.0%	Green	Stable	N/A

Review this weekly. Escalate yellow and red items immediately.

Surveillance review agenda (monthly)

Use this agenda for your monthly portfolio review meeting:

Portfolio performance summary
- Key metrics vs. prior period and vs. triggers
- Traffic light status for each metric
Delinquency analysis
- Bucket trends
- Roll rate analysis
- Vintage comparison
Loss analysis
- Monthly losses and CNL
- Recovery performance
Concentration review
- Status vs. limits
- Trending concentrations
Covenant headroom
- Distance to triggers
- Projected trajectory
Early warning items
- New concerns identified
- Status of prior concerns
Action items
- Required follow-ups
- Escalations needed

Performance reporting - Delinquency, loss, and prepayment metrics
Covenant compliance - Testing and breach management
Ongoing reporting and surveillance - Overview and technology guidance