--- title: "Run the book: a tool-by-tool teardown" url: https://lendriskanalytics.com/insights/run-the-book.html publisher: LendRisk Analytics kind: Case study description: "One blinded $40M subprime auto book, run through all six LendRisk Analytics tools in sequence. Every input, every output, every decision, from 'you look compliant' to a covenant breach six months out, the three dealers causing it, the deal to decline, and the next bad dealer stopped at the door." html: https://lendriskanalytics.com/insights/run-the-book.html --- # Run the book: a tool-by-tool teardown [← All insights](https://lendriskanalytics.com/articles.html) Vol · 06 Case study · Tool-by-tool · 11 min read Blinded walkthrough # Run the book. [Anatomy of a Toxic Book](https://lendriskanalytics.com/insights/toxic-book.html) told the story. This is the operation, the same blinded $40M book, run through all six tools in sequence, every input and every output shown. It starts at *“you look compliant”* and ends six months from a cash sweep, with the three dealers causing it named, one deal declined on the math, and the next bad dealer stopped at the door before a single loan is funded. The book · blinded composite $40M Senior warehouse line 2,000 Active loans · 18 dealers 9.6% NCO · annualised 574 Weighted-avg FICO Every monthly compliance certificate this lender sends its warehouse bank comes back green. Loss is under the cap, delinquency is under the trigger, FICO is above the floor. The CFO believes the book is fine. We are going to run it through six tools, in the order a lender actually faces the problem, and watch “fine” come apart. 1 Tool 05 · Portfolio Risk Calculator Where do we stand against the thresholds our bank is watching? Three numbers off the servicing system, loss rate, severe lates, weighted FICO, scored 0 to 100 against warehouse covenant bands. Portfolio Risk Calculator Live Inputs Loss rate · NCO 9.6% Severe lates · 90+ DPD 4.2% Borrower quality · FICO 574 Composite score 61 / 100 Watch closely Band 0-39 Healthy Band 40-69 Watch · you are here Band 70-100 Action NCO 9.6% ** WARN 90+ DPD 4.2% ** WATCH FICO 574 ** WATCH 560-590 The read **Compliant, but in the warning band, not the healthy one.** A 61 says every covenant has headroom today, yet nothing is comfortable. NCO carries most of the score (it is the 40-point lever), and FICO at 574 sits inside the 560-590 watch zone, not safely above it. This is the number that lets a CFO say “we’re fine.” It is a snapshot. It has no slope. So we ask the next question. [Run it yourself →](https://lendriskanalytics.com/tool.html) 2 Tool 06 · Covenant Breach Projector At our current rate of change, where are we headed, and when? Same metrics, plus how fast each is moving per month, plus the actual covenant caps in the facility agreement. The tool returns the first metric to break and the months of runway left. Covenant Breach Projector · 18-month horizon Live Where you are · rate of change NCO 9.6% Δ +0.65 / mo 90+ DPD 4.2% Δ +0.30 / mo FICO 574 Δ −3 / mo Covenant caps NCO 13.5% · DPD 6.0% · FICO 560 Projection 6 months runway First to break NCO @ 13.5% Second 90+ DPD @ 6.0% · also mo 6 Consequence Cash sweep · advances frozen Why this is the one that lands Your warehouse bank runs this on your tape every month. Most lenders never run it on themselves. The calculator said 61, compliant. The projector says the slope under that 61 puts NCO through its 13.5% cap in **month 6**, and a cash sweep starves new originations exactly when you’d need liquidity to recover. The bank’s surveillance team already sees this trajectory. The gap between the snapshot and the slope is the whole game. [Tricolor](https://lendriskanalytics.com/insights/tricolor.html) was inside covenant the quarter it failed. The read **Six months, not “someday.”** The level is fine; the rate of change is not. Something is steepening the slope. A book-wide retrenchment would strangle the healthy paper to fix a problem we haven’t located yet. So before we touch anything, we find *what* is bending the curve. [Run it yourself →](https://lendriskanalytics.com/covenant.html) 3 Tool 04 · Dealer Scorecard Who is bending the curve, and which relationships do we pull? Break the same tape down by originating dealer. Rank all 18 not by volume but by what predicts loss: net charge-off, early payment default, severe-late rate, and a composite health score. Dealer Scorecard · 18 dealers ranked Live Bottom 3 dealers · flagged Dealer N Score 18 · NCO 16.4% Dealer H Score 22 · NCO 15.1% Dealer C Score 24 · NCO 14.8% Network median Score 71 · NCO 7.7% What the 3 carry Share of book 22% Share of severe lates 51% EPD rate 28% · 3.9× network Cohort skew 2023-H2 · 72-mo paper Three dealers out of eighteen originate **22% of the book but 51% of the severe lates.** Their early-payment-default rate, borrowers missing inside the first three payments, the cleanest signal of a bad deal at inception, runs **3.9× the network.** That is not a macro problem or a servicing problem. It is origination quality at the source: paper impaired the day it was written. Pull those three out and the remaining fifteen dealers are better than benchmark. The action **Pause new originations from Dealers C, H, and N; put existing paper on enhanced watch.** The healthy fifteen keep funding. Re-run the projector with the toxic feed removed and the monthly NCO slope flattens from +0.65 to **+0.22**, runway extends past the 18-month horizon, the breach is gone. The targeted cut protects roughly **140 bps of yield** and restores about **$1.8M of covenant headroom** versus a blunt book-wide pullback. Attribution is what lets you use a scalpel instead of a sledgehammer. [Run it yourself →](https://lendriskanalytics.com/dealers.html) +0.65 → +0.22 Monthly NCO slope, after the cut ~140 bps Yield protected ~$1.8M Headroom restored 4 Tool 01 · Deal Underwriter Dealer H just sent a deal for approval. Do we fund it? Before we finished pausing Dealer H, a fresh application came through the pipe from exactly that channel. Run the borrower, the vehicle, and the terms. The tool returns a defensible *fund / counter / decline* with the math attached. Deal Underwriter Live The deal FICO 545 DTI 47% Vehicle 2014 SUV · 142k mi Wholesale value $9,800 Amount financed $16,500 · 168% LTV Term · APR · down 72 mo · 21% · $500 The math Probability of default 58% Loss given default 70% Expected loss $6,750 Net profit over life −$1,900 Expected ROA −3.6% · target +4% Default curve peaks months 9-15 DECLINE Negative ROA · collateral outlived by the loan Why decline **This is the loan that builds the toxic cohort.** $16,500 financed against a $9,800 vehicle is 168% LTV before tax and fees. A 72-month term on an eleven-year-old SUV means the collateral reaches the end of its reliable life around month 30 while the borrower still owes for another three and a half years. When the car dies, the payments stop, the default curve peaks at months 9-15, and recovery on a dead high-mileage vehicle is thin. Bad car, bad terms, bad borrower, engineered into a default. The honest *counter* exists, 48-month term, $2,500 down, drop the advance, which lifts ROA to about +1.8%, still thin. At the terms as written, you decline. Fund this and you are hand-building next quarter’s scorecard problem. [Run it yourself →](https://lendriskanalytics.com/underwriter.html) 5 Tool 07 · State Recovery Law Map When the bad paper does default, how much do we actually get back? The defaulted loans in the toxic cohort are spread across Texas, Georgia, and Louisiana. Loss given default is not one number, it changes the moment a loan crosses a state line, because four legal levers change with it. State Recovery Law Map · the four levers Live Louisiana Self-help repo No, court order required Right-to-cure notice Yes Deficiency Allowed Wage garnishment Allowed Texas Self-help repo Yes, fast, no court Right-to-cure notice No Deficiency Allowed Wage garnishment Effectively blocked The read **Two identical defaults, two different recoveries.** Louisiana is the only state with no self-help repossession, you go to court first, which is slower and more expensive, lengthening the loss. Texas lets you repossess fast and skip the cure notice, but effectively blocks wage garnishment, so the deficiency is hard to collect. The same charged-off dollar recovers differently depending on geography, which is exactly why the LGD in Step 4 was a modeled number, not a guess, and why concentration by state belongs in every reserve. [Read the method note →](https://lendriskanalytics.com/repo-map.html) ## The whole job, in one pass. The compliance certificate said the book was fine. Run in sequence, the tools said something the aggregate never could: **six months to a cash sweep, caused by three named dealers, writing loans like the one we just declined, and here is the next bad dealer, stopped before they funded a single contract.** That is the difference between a number you report and the book you actually run. Security is finding the toxic paper. Predictability is seeing the breach before it prints. Attribution is naming the dealer, the vintage, and the deal so you can act with a scalpel. None of it requires a Bloomberg terminal, it requires reading your own tape the way your warehouse bank already reads it. **On the numbers.** This is a blinded, rounded composite assembled to demonstrate the workflow end to end, not a single named client. The book mirrors the synthetic 2,000-loan tape you can drive yourself in the [Portfolio Analyzer](https://lendriskanalytics.com/analyze.html); the dealer names are placeholders. Industry context, the ~6.65% subprime delinquency high, Fitch’s 9.81% net-loss index, the Tricolor collapse, and the state recovery rules, is real and cited in [Anatomy of a Toxic Book](https://lendriskanalytics.com/insights/toxic-book.html) and the [recovery map](https://lendriskanalytics.com/repo-map.html). Not investment, legal, or accounting advice. Keep reading The same frame, applied to a real collapse. This walkthrough uses synthetic data to show how attribution, vintage isolation, and covenant runway fit together. For the real-world version, read how the same lens reads the Tricolor failure. [Read: Anatomy of a Toxic Book →](https://lendriskanalytics.com/insights/toxic-book.html) Independent market research, published for readers studying subprime auto credit. Not investment, legal, or accounting advice. LR LendRisk Analytics Independent market research Continue reading [Vol · 05 · Case study Anatomy of a *toxic book*](https://lendriskanalytics.com/insights/toxic-book.html) [Vol · 04 · Teardown What the *Tricolor* collapse actually says](https://lendriskanalytics.com/insights/tricolor.html)