Abstract:
A method for one of approving and denying a credit offering to a borrower is disclosed. The method includes calculating a probability of default rating of the borrower and calculating a loss given default rating for the borrower. The method also includes integrating the probability of default rating and the loss given default rating with other information relating to the credit offering to produce a credit memorandum and automatically outputting the credit memorandum to a user so that the user can recommend one of approval and denial of the credit offering.

Description:
CROSS-REFERENCE TO RELATED APPLICATIONS 
     The present application is a continuation application, and hereby claims the benefit of priority, under 35 U.S.C. §120, to U.S. patent application Ser. No. 11/143,701, filed on Jun. 2, 2005, entitled “SYSTEMS AND METHODS FOR CREDIT MANAGEMENT RISK RATING AND APPROVAL,” the entire disclosure of which is hereby incorporated by reference herein. 
    
    
     BACKGROUND 
     Entities in the financial services industry often must assess the risk of loss when extending credit or loaning money to another entity. For example, lenders often develop risk rating methodologies that assign risk values to borrowers or potential borrower so that the lender can assess whether a transaction should be approved and, if so, on what terms the transaction should proceed. Such rating methodologies are often ad hoc in nature and are subject to non-uniformity across various business units in an entity. Also, the results of such rating methodologies are often subject to interpretation by those who are responsible for approving a transaction or those who are responsible for assigning a risk value to a transaction or a proposed transaction. Further, when a risk rating is assigned to a borrower or potential borrower, the ratings are not seamlessly transmitted or presented along with other information relating to the credit offering via, for example, a credit offering document, to a person for approval or denial. 
     SUMMARY 
     In various embodiments, the present invention is directed to a method for one of approving and denying a credit offering to a borrower. The method includes calculating a probability of default rating of the borrower and calculating a loss given default rating for the borrower. The method also includes integrating the probability of default rating and the loss given default rating with other information relating to the credit offering to produce a credit memorandum and automatically outputting the credit memorandum to a user so that the user can recommend one of approval and denial of the credit offering. 
     In various embodiments, the present invention is directed to a system. The system includes a user computer and a server in communication with the user computer via a network, the server configured to execute software instructions to: 
     calculate a probability of default rating of a borrower; 
     calculate a loss given default rating for the borrower; 
     integrate the probability of default rating and the loss given default rating with other information relating to a credit offering to produce a credit memorandum; and 
     automatically output the credit memorandum to a user so that the user can recommend one of approval and denial of the credit offering. 
     In various embodiments, the present invention is directed to an apparatus. The apparatus includes means for calculating a probability of default rating of a borrower and means for calculating a loss given default rating for the borrower. The apparatus also includes means for integrating the probability of default rating and the loss given default rating with other information relating to a credit offering to produce a credit memorandum and means for automatically outputting the credit memorandum to a user so that the user can recommend one of approval and denial of the credit offering. 
     In various embodiments, the present invention is directed to a computer readable medium having stored thereon instructions which, when executed by a processor, cause the processor to: 
     calculate a probability of default rating of a borrower; 
     calculate a loss given default rating for the borrower; 
     integrate the probability of default rating and the loss given default rating with other information relating to a credit offering to produce a credit memorandum; and 
     automatically output the credit memorandum to a user so that the user can recommend one of approval and denial of the credit offering. 
    
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
       Further advantages of the present invention may be better understood by referring to the following description taken in conjunction with the accompanying drawings, in which: 
         FIG. 1  is a diagram illustrating a credit approval process according to various embodiments of the present invention; 
         FIG. 2  is a diagram illustrating a process for determining a probability of default rating according to various embodiments of the present invention; 
         FIG. 3  illustrates an embodiment of an example of qualitative questions that may be asked when a borrower is an automobile dealership; 
         FIG. 4  illustrates an embodiment of non-financial questions that may be asked when a borrower is an automobile dealership; 
         FIG. 5  illustrates an embodiment of an example of qualitative questions that may be asked when a borrower is a healthcare entity; 
         FIG. 6  illustrates an embodiment of non-financial questions that may be asked when a borrower is a healthcare entity; 
         FIG. 7  illustrates an embodiment of an example of qualitative questions that may be asked when a borrower is an industrial entity; 
         FIGS. 8A-8B  illustrate an embodiment of non-financial questions that may be asked when a borrower is an industrial entity; 
         FIG. 9  illustrates an embodiment of non-financial questions that may be asked when a borrower is an individual; 
         FIG. 10  illustrates an embodiment of factor weights that may be used; 
         FIGS. 11A through 11E  illustrate answer options corresponding to each of the factors shown in  FIG. 10  and the score allocation for each answer option; 
         FIG. 12  is a diagram illustrating a process for determining a probability of default rating according to various embodiments of the present invention; 
         FIG. 13  is a diagram illustrating a process for determining a loss given default (LGD) rating according to various embodiments of the present invention; 
         FIGS. 14A-14B  illustrate an example of assigned collateral LGD ratings based on a grid that combines collateral types with loan to value ratios for each facility; 
         FIG. 15  illustrates an example of the inputs and calculated values for a hypothetical LGD derivation is illustrated; 
         FIG. 16  illustrates an embodiment of a system in which the methods described herein may be implemented; 
         FIGS. 17 through 76B  are computer screen shots illustrating an example of an implementation of the present invention; 
         FIGS. 77 through 91B  are computer screen shots illustrating an example of an implementation of a process for generating a loss given default according to various embodiments of the present invention; and 
         FIGS. 92 through 104B  are computer screen shots illustrating an example of an implementation of a process for generating a probability of default rating according to various embodiments of the present invention. 
     
    
    
     DESCRIPTION 
     It is to be understood that the figures and descriptions of the present invention have been simplified to illustrate elements that are relevant for a clear understanding of the present invention, while eliminating, for purposes of clarity, other elements. Those of ordinary skill in the art will recognize, however, that these and other elements may be desirable. However, because such elements are well known in the art, and because they do not facilitate a better understanding of the present invention, a discussion of such elements is not provided herein. 
     As used herein, the term “borrower” includes any type of individual, entity, or the like, that has applied for or is contemplating applying for a loan, line of credit, etc. and any extensions, renewals, etc. of any loan, line of credit, etc. Such loans, lines of credit, etc. may be of any type and may be secured or unsecured. As used herein the term “lender” includes any type of individual, entity, or the like that acts on behalf of itself or an individual, entity or the like in deciding whether to grant a borrower&#39;s request. Examples of lenders include banks, thrift entities, mortgage lenders, financial services entities, brokers, loan originators, etc. 
     As used herein, the term “probability of default” is a value, whether numeric or otherwise, that measures a likelihood, or probability, that a borrower will default on a loan, line of credit, etc. In various embodiments, the probability of default is computed using a scorecard model that may include, for example, both financial and non-financial modeling. 
       FIG. 1  is a diagram illustrating a credit approval process according to various embodiments of the present invention. At step  10 , the process starts by, for example, a user logging into a secure credit approval system via, for example, a network such as a local area network (LAN), a wide area network (WAN), or the Internet. At step  12 , the identity of the borrower and the relationship between the borrower and the lender are obtained through entry by the user via, for example, a user interface. At step  14 , the particulars of the credit offering to be approved (or rejected) are obtained through entry by the user via, for example, a user interface. 
     At step  16 , a probability of default (PD) rating of the borrower is calculated as described hereinbelow. At step  18 , a loss given default (LGD) rating is calculated as described hereinbelow. At step  20 , the documents associated with the credit offering are prepared and at step  22  the credit offering is submitted to the appropriate personnel for approval (or rejection). In various embodiments, the documents prepared at step  20  include one or more the ratings (i.e., the PD rating and the LGD rating) and other information relating to the credit offering such as information that was entered at step  14 . In various embodiments, the documents are prepared automatically and are automatically submitted for approval at step  22 . In various embodiments, at least one of the documents created at step  20  is a credit memorandum document. In various embodiments, such credit memorandum may be a unitary document, either in hardcopy or electronic format (e.g., as a pdf document). Also, in various embodiments the credit memorandum may include extraneous information relating to the credit offering such as, for example, pictures of a construction site and other documents relating to the construction site (e.g., architectural documents, excavation documents, etc.) when the credit offering relates to construction financing. 
     In various embodiments, the offering may be created after the probability of default rating and/or the loss given default rating are calculated. 
       FIG. 2  is a diagram illustrating a process for determining a probability of default rating according to various embodiments of the present invention. At step  30 , financial information and non-financial information are received relating to the borrower. In various embodiments, the information is gathered using questions that are qualitative and multiple choice questions with answer options ranging from A-F, with each question or a group of questions corresponding to a factor. Each answer option is assigned a score, where a larger score corresponds to a worse condition, and therefore to a higher probability of default by the borrower. For example, answer option A, corresponding to the best possible answer, may be allotted a score of 1. The score allocation to the “worst” answer option may depend upon the weight assigned to the particular question, with the more important factors having the larger maximum scores. 
       FIG. 3  illustrates an embodiment of an example of qualitative questions that may be asked when the borrower is an automobile dealership and  FIG. 4  illustrates an embodiment of non-financial questions that may be asked when the borrower is an automobile dealership.  FIG. 5  illustrates an embodiment of an example of qualitative questions that may be asked when the borrower is a healthcare entity and  FIG. 6  illustrates an embodiment of non-financial questions that may be asked when the borrower is a healthcare entity.  FIG. 7  illustrates an embodiment of an example of qualitative questions that may be asked when the borrower is an industrial entity and  FIGS. 8A-8B  illustrate an embodiment of non-financial questions that may be asked when the borrower is an industrial entity.  FIG. 9  illustrates an embodiment of non-financial questions that may be asked when the borrower is an individual. 
     By way of example, a scorecard consists of three factors F1, F2 and F3, with weights of 50%, 30% and 20% respectively and the total score allocated on a scale of 1000 points. In this case, F1 will be allocated a maximum score of 500 points, while the remaining two factors will have maximum scores of 300 and 200 points, respectively. If answer option D corresponds to the worst answer in all three factors, then the total score when all three answers are D is the sum of 500, 300 and 200 (i.e., 1000) points. If all three answers are A, which corresponds to the best answer option, then the total score is 1+1+1=3. Therefore, for any given borrower, the score can range from 3 to 1000, with 3 being the best possible score and 1000 being the worst. 
     Examples of financial factors in various embodiments are as follows: 
     F1. Cashflow/Debt Service 
     F2. Liquidity 
     F3. Comparative Liquidity 
     F4. Leverage 
     F5. Diversity of Revenue Generation Mix 
     F6. Revenue Trend over the Past Three Years 
     F7. Profitability 
     F8. Growth in the Past Three Years 
     Examples of non-financial factors in various embodiments are as follows: 
     NF1. Economic Stability of Sector 
     NF2. Access to Alternative Funding Sources 
     NF3. Management Financial Performance During Adverse Conditions 
     NF4. How has the client responded to situations of financial distress? 
     NF5. Covenant Compliance 
     NF6. The borrower&#39;s track record in meeting cashflow projections provided to lenders or earnings estimates publicly provided over the past three years 
     NF7. Management Experience 
     NF8. Timeliness of Financial Reporting 
     Various embodiments may include factors that are specific to certain sectors. For example, the following factors may be considered for education institutions (E1-E3) or governmental entities (G1-G2): 
     E1. Enrollment Trends over the past Three Years 
     E2. Level of Tuition Discounting 
     E3. Ability to Increase Tuition 
     G1. Population Growth Trend 
     G2. Wealth Indicators 
     As discussed hereinabove, a total score is obtained by combining the information from the factors in a ratio, with some factors receiving more weight than others.  FIG. 10  illustrates an embodiment of factor weights that may be used. As can be seen in  FIG. 10 , because neither profitability nor growth is considered relevant while evaluating either educational institutions or governmental entities, these factors are not assigned any weight for the sectors. Similarly, in the embodiment shown in  FIG. 10 , the weights from NF6 and NF7 were reassigned to the sector specific factors. While NF8 is not considered an issue for educational institutions, covenant compliance is considered less relevant for government entities. The answer options corresponding to each of the factors shown in  FIG. 10  and the score allocation for each answer option is illustrated in  FIGS. 11A through 11E . 
     As described hereinabove, in various embodiments each answer option for each question has a corresponding score. At step  32 , the scores are added to obtain a total score on a 1000-point scale, with a higher score corresponding to a higher probability of default. However, not all questions may be relevant or applicable to the borrower being rated. Apart from sector-specific questions, many questions may have “Not Applicable” as one of the answer options. If such an answer option is selected for a given question, then the question is ignored in the final calculation of the score. The total score is determined by summing the scores of the remaining questions and scaling appropriately. 
     As an example, suppose a scorecard consists of three factors F1, F2 and F3 with weights 50%, 30% and 20% respectively. If F3 is not applicable to a particular borrower, the scores from F1 and F2 are summed. The sum of scores is then divided by 80% (=100%-20%) to give the total score. Once the total score has been determined, a rating along a 16-point rating scale may be obtained by looking up the score in a calibration table as shown in Table 1 to arrive at the preliminary probability of default. 
     
       
         
               
             
               
               
               
             
               
               
               
             
           
               
                 TABLE 1 
               
             
             
               
                   
               
               
                 Calibration Table 
               
             
          
           
               
                 Rating 
                 Minimum Score 
                 Maximum Score 
               
               
                   
               
             
          
           
               
                 1 
                   
                 50 
               
               
                 2 
                 51 
                 90 
               
               
                 3 
                 91 
                 159 
               
               
                 4 
                 160 
                 243 
               
               
                 5 
                 244 
                 292 
               
               
                 6 
                 293 
                 341 
               
               
                 7 
                 342 
                 389 
               
               
                 8 
                 390 
                 437 
               
               
                 9 
                 438 
                 467 
               
               
                 10 
                 468 
                 497 
               
               
                 11 
                 498 
                 527 
               
               
                 12 or Worse 
                   
                 528 
               
               
                   
               
             
          
         
       
     
     In various embodiments, any borrower with a total score of 528 or greater is assigned a generic rating of “12 or Worse.” In various embodiments, the rating assigned is not differentiated in the lower quality ratings, as the scorecard cannot differentiate the specific conditions that differentiate a credit beyond this point. 
     At step  34 , the process determines whether any warning signals are present that would give rise to modification of the preliminary probability of default to create the process probability of default  36 . In various embodiments, the warning signals are conditions that do not appear in, for example, the financial statements of the borrower, either because they are not considered material to the financial situation of the borrower or because they are relatively recent. The warning signals may also escape consideration through the non-financial assessment of the borrower or may be so rare in occurrence that they are difficult to incorporate into the preliminary probability of default analysis at step  32 . 
     As used herein, the term “warning signals” includes uncommon situations that highlight potential credit vulnerabilities. Such warning signals may provide a structured way to view recent elements that might change the assessment of the borrower&#39;s creditworthiness, and capture additional elements that are not captured in the non-financial questions as presented at step  30 . The warning signals may also serve as a checklist of potential risks for the borrower. The warning signals do not necessarily mean that a default is imminent, but in various embodiments server as a list of signals that could lead to credit quality issues. The warning signals do not always apply to all borrowers and even for those for whom they apply, their impact is different. 
     Once a preliminary rating is generated, a user may determine which warning signals are present and select those warning signals. In various embodiments, different sets of warning signals are presented to the user depending on the entity type of the borrower (e.g., individual, automobile dealer, financial institution, health care provider, etc.). Examples of warning signals are as follows: 
     1. Involuntary and/or unexpected changes in senior/critical management or ownership. 
     2. Significant contingent liabilities. 
     3. Negative information from reliable third parties (e.g. bad press). 
     4. Chronic overdrafts. 
     5. Information critical to the appropriate evaluation of the borrower is missing. 
     6. Management succession is a concern. 
     7. Inappropriate statement quality for size of financial institution. 
     8. Material reporting error from entity to bank. 
     9. Resignation or removal of CPA. 
     10. Material fraud or embezzlement at entity. 
     11. Significant disruptions due to labor strikes. 
     12. Unavailability of insurance. 
     13. External catastrophic event. 
     14. Loss of significant customer/source of revenue (over 25% of revenue). 
     15. Recent sector-wide or institution-specific regulatory action. 
     16. Inordinate pension liabilities. 
     17. Currently undergoing or expected merger integration/major reorganization. 
     18. Changes to reporting pattern. 
     19. Payment default within the past three years. 
     20. Excessive reliance on manual administrative procedures/outdated management information systems. 
     21. Bank line usage is of concern. 
     In various embodiments, the user assesses the effect of each selected warning signal. The presence of a single signal may not create a fundamental change in the quality of the borrower. If a signal is very powerful, and has a high potential to send the borrower to default, this might be an indication that the preliminary probability of default is no longer relevant. In that case, the user may estimate how the preliminary probability of default should be adjusted, depending on the severity of the warning signal. In various embodiments, each significant or “extremely adverse” warning signal suggests at least a one level downgrade. 
     There may be cases in which there are multiple marginal warning signals that do not differ significantly from the assessment accompanying the preliminary probability of default. However, if three or more signals appear, it might be an indication that the preliminary probability of default is no longer valid. 
     In various embodiments, a user may describe how the warning signals affect the general assessment of the borrower&#39;s credit quality, and propose a change to the preliminary probability of default to arrive at the process probability of default  36 . In various embodiments, such a change may be constrained to, for example, two rating levels. 
     At step  38 , overrides may be used to validate the quality of the process probability of default  36  to arrive at the final probability of default  40 . The override process allows for specific considerations for individual borrowers or portfolios, the details of which are known by the user. In various embodiments, any overrides must be clearly explained by elements not covered elsewhere in the process. 
       FIG. 12  is a diagram illustrating a process for determining a probability of default rating according to various embodiments of the present invention. At step  50 , the process determines whether the borrower has one or more public debt ratings (e.g., a Moody&#39;s rating, a Fitch rating, an S&amp;P rating, etc.). The determination may be made, for example, by accepting input from the user as to whether the borrower has one or more public debt ratings. At step  52  the rating(s) are entered by, for example, the user. At step  54 , the public debt rating(s) are converted to a scaled value to be used by the process. For example, the following scale in Table 2 may be used to convert Moody&#39;s ratings. 
     
       
         
               
               
               
             
               
               
               
             
           
               
                   
                 TABLE 2 
               
               
                   
                   
               
               
                   
                 Moody&#39;s Rating 
                 Scale Equivalent 
               
               
                   
                   
               
             
             
               
                   
               
             
          
           
               
                   
                 Aaa 
                 1 
               
               
                   
                 Aa1 
                 1 
               
               
                   
                 Aa2 
                 1 
               
               
                   
                 Aa3 
                 1 
               
               
                   
                 A1 
                 2 
               
               
                   
                 A2 
                 2 
               
               
                   
                 A3 
                 2 
               
               
                   
                 Baa1 
                 3 
               
               
                   
                 Baa2 
                 4 
               
               
                   
                 Baa3 
                 5 
               
               
                   
                 Ba1 
                 6 
               
               
                   
                 Ba2 
                 7 
               
               
                   
                 Ba3 
                 8 
               
               
                   
                 B1 
                 9 
               
               
                   
                 B2 
                 10 
               
               
                   
                 B3 
                 11 
               
               
                   
                 Caa or lower 
                 12-16 
               
               
                   
                   
               
             
          
         
       
     
     By way of further example, the following scale in Table 3 may be used to convert S&amp;P senior unsecured ratings: 
     
       
         
               
               
               
             
               
               
               
             
           
               
                   
                 TABLE 3 
               
               
                   
                   
               
               
                   
                 S&amp;P Rating 
                 Scale Equivalent 
               
               
                   
                   
               
             
             
               
                   
               
             
          
           
               
                   
                 AAA 
                 1 
               
               
                   
                 AA+ 
                 1 
               
               
                   
                 AA 
                 1 
               
               
                   
                 AA− 
                 1 
               
               
                   
                 A+ 
                 2 
               
               
                   
                 A 
                 2 
               
               
                   
                 A− 
                 2 
               
               
                   
                 BBB+ 
                 3 
               
               
                   
                 BBB 
                 4 
               
               
                   
                 BBB− 
                 5 
               
               
                   
                 BB+ 
                 6 
               
               
                   
                 BB 
                 7 
               
               
                   
                 BB− 
                 8 
               
               
                   
                 B+ 
                 9 
               
               
                   
                 B 
                 10 
               
               
                   
                 B− 
                 11 
               
               
                   
                 CCC or lower 
                 12-16 
               
               
                   
                   
               
             
          
         
       
     
     By way of further example, the following scale in Table 4 may be used to convert Fitch senior unsecured ratings: 
     
       
         
               
               
               
             
               
               
               
             
           
               
                   
                 TABLE 4 
               
               
                   
                   
               
               
                   
                 Fitch Rating 
                 Scale Equivalent 
               
               
                   
                   
               
             
             
               
                   
               
             
          
           
               
                   
                 AAA 
                 1 
               
               
                   
                 AA+ 
                 1 
               
               
                   
                 AA 
                 1 
               
               
                   
                 AA− 
                 1 
               
               
                   
                 A+ 
                 2 
               
               
                   
                 A 
                 2 
               
               
                   
                 A− 
                 2 
               
               
                   
                 BBB+ 
                 3 
               
               
                   
                 BBB 
                 4 
               
               
                   
                 BBB− 
                 5 
               
               
                   
                 BB+ 
                 6 
               
               
                   
                 BB 
                 7 
               
               
                   
                 BB− 
                 8 
               
               
                   
                 B+ 
                 9 
               
               
                   
                 B 
                 10 
               
               
                   
                 B− 
                 11 
               
               
                   
                 CCC or lower 
                 12-16 
               
               
                   
                   
               
             
          
         
       
     
     In various embodiments, other types of public debt ratings can be used for an initial assessment of credit quality. 
     At step  56 , the user can validate the scaled rating so that the rating reflects the current conditions of the borrower. For example, the public debt ratings might not be up-to-date, and, therefore, represent a picture that is no longer accurate. Also, validation of the rating may be desirable if the public debt rating was not a senior unsecured debt rating. Three broad criteria for validation may be included: timeliness; material changes in financial criteria since the last rating; and agreement on the evaluation of non-financial aspects. In various embodiments, if the borrower has been put on “negative watch” by the public rating agency, the user may downgrade the borrower one level. 
     In various embodiments, a user may assess whether there has been a material change in, for example, any of the following elements: leverage, cash flow, revenues/profit, liquidity and asset quality. In various embodiments, a user may compare the public rating agency assessment of management, industry characteristics and stability, company characteristics, for international banks—country risk and ownership characteristics (such as the support of the parent government), and any other elements used in the assessment. To do so, the user may review the inputs used by the rating agencies to rate the borrower, and to assess its current validity. 
     After the scaled rating is validated at step  56 , the preliminary probability of default rating  58  results. 
     If at step  50  it is determined that the borrower does not have a public debt rating, the process advances to step  60 . For those companies that do not have a public debt rating, the initial rating is obtained using financial and non-financial modeling. The financial modeling is based on previous financial statements. However, given that the financial statements present a backward look, it may be desirable to couple the financial information with other elements that capture the prospects of the borrower and other aspects that are not covered by the borrower&#39;s financial statements. 
     At step  60 , a financial model score is entered. The financial model score may be generated using, for example, Moody&#39;s RiskCalc™ default model. Such an analysis provides an assessment of the creditworthiness of the borrower. The output of the default model is a probability of default that may be converted, using a logarithmic transformation, into a score. For example, in various embodiments financial scores from 1-500 are calculated such that 0.01% (1 bp) corresponds to a score of 1 and 20% (2000 bps) corresponds to a score of 500. In various embodiments, the output of the default model may be assigned in line with the Moody&#39;s ratings for those rated Aaa-Baa1 for ratings 1-3. 
     In various embodiments, the equation for the transformation is:
 
 RC=α*βS   (1)
 
where:
 
RC=the default model probability of default (expressed in basis points); S=Score (1-500 scale); α and β are calculated by equating 1 bp to 1 point and 2000 bps to 499 points.
 
     At step  62 , qualitative non-financial information is obtained by the process via, for example, obtaining answers to a series of questions posed to the user. The non-financial information may have five identically weighted factors that capture, by way of example, the following elements: 
     1. Economic stability of the industry; 
     2. Stability of the company&#39;s earnings; 
     3. Alternative sources of financing; 
     4. Quality of management performance during adverse business conditions; and 
     5. Management response to financial distress. 
     Information may also be collected for the following three other factors: 
     1. Company liquidity. 
     2. Covenant compliance. 
     3. Track record in meeting estimates. 
     In various embodiments, each scored question has an equal number of points assigned (100), and the distribution of points for each answer is based on the default rate observed for each answer in the development sample. 
     At step  64 , the rating is generated. A total score between 0 and 1,000 is generated, where 0 is the best possible score, and 1,000 is the worst. The score is the result of adding the scores generated by the financial and non-financial modeling. Each model is equally weighted, with a total of 500 points each. The score provides a single grade that may be mapped to, for example, a 16-level master scale. In various embodiments, a ratings scale that ranges from 1 to 11 is used, and a generic rating is used for ratings 12 through 16. 
     After the preliminary probability of default rating  58  is created, the process advances to step  66  where warning signals are evaluated as described hereinabove with respect to  FIG. 2 . 
     At step  68 , it is determined whether the borrower has a default frequency, such as, for example, a Moody&#39;s Expected Default Frequency™ (EDF) credit measure. An EDF is based on the analysis of equity prices, not on fundamental analysis. The EDF is usually more recent than the agency rating, providing, therefore, a more recent assessment of the borrower. As such, an EDF generated, when available, can be used as a double check for the preliminary probability of default rating  58 . 
     If the borrower has an EDF, at step  70  the user determines if the EDF is appropriate by analyzing, for example, general stock market trends, EDFs of peers to the borrower. For example, if the overall stock market has been subject to extreme pressure by recent news, the EDF for the borrower might be capturing general market volatility, unrelated to the borrower&#39;s performance. Under these circumstances, the user may disregard the EDF at step  70 . If no obvious element is affecting the EDF, its output will be consistent with the preliminary rating if it falls, for example, within the following ranges as illustrated in Table 5: 
     
       
         
               
               
               
             
               
               
               
               
               
             
               
               
               
               
               
             
           
               
                   
                 TABLE 5 
               
             
             
               
                   
                   
               
               
                   
                   
                 EDF 
               
             
          
           
               
                   
                 PD Rating 
                 MIN 
                 MAX 
                   
               
               
                   
                   
               
             
          
           
               
                   
                 1 
                 0.02 
                 0.18 
                   
               
               
                   
                 2 
                 0.04 
                 0.28 
                   
               
               
                   
                 3 
                 0.16 
                 0.42 
                   
               
               
                   
                 4 
                 0.19 
                 0.54 
                   
               
               
                   
                 5 
                 0.29 
                 0.66 
                   
               
               
                   
                 6 
                 0.43 
                 0.91 
                   
               
               
                   
                 7 
                 0.55 
                 1.27 
                   
               
               
                   
                 8 
                 0.67 
                 2.09 
                   
               
               
                   
                 9 
                 0.92 
                 3.89 
                   
               
               
                   
                 10 
                 1.28 
                 6.27 
                   
               
               
                   
                 11 
                 2.35 
                 14.50 
                   
               
               
                   
                 12-16 
                 6.28 
                   
                   
               
               
                   
                   
               
             
          
         
       
     
     In various embodiments, if the EDF is outside this band, the preliminary rating will be the nearest rating for which the EDF fits within the allowed band. For example, if a borrower had a Moody&#39;s Baa2 implying a 4 probability of default rating, the rating would not change as long as its EDF were between 0.19% and 0.54%. However, if the borrower had a 0.75% EDF, the borrower would be downgraded to 6; if it were 1.00%, the rating would be a 7 to reflect the warning created during the EDF generation. In various embodiments, if there is a discrepancy, the user has the discretion to choose which rating to use: the preliminary rating  58  or the rating from the EDF process. The resulting rating is a process probability of default rating  72 . 
     At step  74 , the user may override the process probability of default rating  72  if desired. At step  76 , it is determined if the process probability of default rating  72  is 12 or worse. If not, the process probability of default rating  72  becomes a final probability of default rating  78 . If the process probability of default rating  72  is worse than 12, at step  80  the user may determine which specific rating the borrower should receive using, for example, a set of guidelines. 
     The techniques and methods described hereinabove in conjunction with  FIGS. 2 and 12  may be used to calculate a probability of default of a borrower in the real estate industry. In such embodiments, a preliminary process probability of default value is determined using four different weightings depending on the type of borrower. The financial component and non-financial components are identically weighted for three types of borrowers, and the financial component is given a greater weight (60%) for REIT/Pool borrowers because of the better financial reporting of such borrowers. In various embodiments, scorecards include loan-to-value and/or debt service coverage are important factors. 
     In such embodiments, the qualitative criteria may have substantial variations between different types of borrowers due to the different characteristics that determine risk. 
     The answers for each qualitative question are labeled A through E, which in various embodiments have points assigned by the following in Table 6: 
     
       
         
               
               
               
             
           
               
                   
                 TABLE 6 
               
               
                   
                   
               
               
                   
                 Answer 
                 Points 
               
               
                   
                   
               
             
             
               
                   
                 A 
                 1 
               
               
                   
                 B 
                 2 
               
               
                   
                 C 
                 3 
               
               
                   
                 D 
                 4 
               
               
                   
                 E 
                 5 
               
               
                   
                   
               
             
          
         
       
     
     In various embodiments the weights for each element and the distribution between the financial and non-financial components are presented below in Table 7: 
     
       
         
               
               
               
               
               
               
             
           
               
                 TABLE 7 
               
               
                   
               
               
                 Factor 
                 Resid. Tract 
                 Project 
                 Const./Afford. 
                 REIT 
                 Pool 
               
               
                   
               
             
             
               
                 Loan-to-Value 
                   20% 
                 10% 
                 10% 
                 25% 
                 25% 
               
               
                 Debt Service 
                   
                 40% 
                 20% 
                 35% 
                 35% 
               
               
                 Coverage 
                   
                   
                   
                   
                   
               
               
                 Pre-Leasing 
                   
                   
                 20% 
                   
                   
               
               
                 Incentive of Equity 
                  7.5% 
                   
                   
                   
                   
               
               
                 Provider 
                   
                   
                   
                   
                   
               
               
                 Remaining mos to 
                   15% 
                   
                   
                   
                   
               
               
                 Repay at-risk $ 
                   
                   
                   
                   
                   
               
               
                 Sales Price 
                  7.5% 
                   
                   
                   
                   
               
               
                 Percentage 
                   
                   
                   
                   
                   
               
               
                 Total Financial 
                   50% 
                 50% 
                 50% 
                 60% 
                 60% 
               
               
                 Market Conditions 
                 12.5% 
                 10% 
                 10% 
                   
                   
               
               
                 Completion/ 
                 12.5% 
                   
                 10% 
                   
                   
               
               
                 Construction Risk 
                   
                   
                   
                   
                   
               
               
                 HISTORY OF  
                   5% 
                   
                   
                   
                   
               
               
                 CREDIT 
                   
                   
                   
                   
                   
               
               
                 RELATIONSHIP 
                   
                   
                   
                   
                   
               
               
                 Project  
                   5% 
                   
                   
                   
                   
               
               
                 Capitalization 
                   
                   
                   
                   
                   
               
               
                 Sponsor Financial 
                   15% 
                   
                   
                   
                   
               
               
                 Capacity 
                   
                   
                   
                   
                   
               
               
                 Access to External  
                   
                   
                   
                 10% 
                 10% 
               
               
                 Capital 
                   
                   
                   
                   
                   
               
               
                 Sponsor Capacity/  
                   
                 10% 
                 10% 
                   
                   
               
               
                 Access to External  
                   
                   
                   
                   
                   
               
               
                 Capital 
                   
                   
                   
                   
                   
               
               
                 Diversity of  
                   
                   
                   
                 10% 
                 10% 
               
               
                 Borrower&#39;s Assets 
                   
                   
                   
                   
                   
               
               
                 Covenant  
                   
                   
                   
                 10% 
                 10% 
               
               
                 Compliance Fund 
                   
                   
                   
                   
                   
               
               
                 Investment 
                   
                   
                   
                   
                   
               
               
                 Strategy/Stage in 
                   
                   
                   
                   
                 10% 
               
               
                 LC 
                   
                   
                   
                   
                   
               
               
                 Bank Line Usage 
                   
                   
                   
                 10% 
                   
               
               
                 Equity 
                   
                 10% 
                 10% 
                   
                   
               
               
                 Percent Recourse 
                   
                 10% 
                 10% 
                   
                   
               
               
                 Stability of NOI:  
                   
                 10% 
                   
                   
                   
               
               
                 Rollover 
                   
                   
                   
                   
                   
               
               
                 Total Non-Financial 
                   50% 
                 50% 
                 50% 
                 40% 
                 40% 
               
               
                   
               
             
          
         
       
     
     In various embodiments, for those borrowers engaged in the residential tract development business the following ranges for quantitative factors are used as illustrated in Tables 8-10: 
     
       
         
               
               
               
               
             
               
               
               
             
               
               
               
               
               
               
               
             
               
               
               
               
               
               
               
             
           
               
                   
                 TABLE 8 
               
             
             
               
                   
                   
               
               
                   
                   
                   
                 Loan to Value 
               
             
          
           
               
                   
                 Home Construction 
                 Site Improvement 
               
             
          
           
               
                   
                 &gt; 
                 &lt;= 
                 Rating 
                 &gt; 
                 &lt;= 
                 Rating 
               
               
                   
                   
               
             
          
           
               
                   
                 0.0% 
                 40.0% 
                 1 
                 0.0% 
                 40.0% 
                 1 
               
               
                   
                 40.0% 
                 50.0% 
                 2 
                 40.0% 
                 45.0% 
                 2 
               
               
                   
                 50.0% 
                 60.0% 
                 3 
                 45.0% 
                 50.0% 
                 3 
               
               
                   
                 60.0% 
                 65.0% 
                 4 
                 50.0% 
                 55.0% 
                 4 
               
               
                   
                 65.0% 
                 70.0% 
                 5 
                 55.0% 
                 60.0% 
                 5 
               
               
                   
                 70.0% 
                 75.0% 
                 6 
                 60.0% 
                 65.0% 
                 6 
               
               
                   
                 75.0% 
                 80.0% 
                 7 
                 65.0% 
                 70.0% 
                 7 
               
               
                   
                 80.0% 
                 82.5% 
                 8 
                 70.0% 
                 72.5% 
                 8 
               
               
                   
                 82.5% 
                 85.0% 
                 9 
                 72.5% 
                 75.0% 
                 9 
               
               
                   
                 85.0% 
                 87.5% 
                 10 
                 75.0% 
                 77.5% 
                 10 
               
               
                   
                 87.5% 
                 90.0% 
                 11 
                 77.5% 
                 80.0% 
                 11 
               
               
                   
                 90.0% 
                 92.5% 
                 12 
                 80.0% 
                 85.0% 
                 12 
               
               
                   
                 92.5% 
                 95.0% 
                 13 
                 85.0% 
                 90.0% 
                 13 
               
               
                   
                 95.0% 
                 100.0% 
                 14 
                 90.0% 
                 100.0% 
                 14 
               
               
                   
                 100.0% 
                   
                 15 
                 100.0% 
                   
                 15 
               
               
                   
                   
               
             
          
         
       
     
     
       
         
               
               
               
               
             
               
               
               
               
               
               
             
               
               
               
               
               
               
             
           
               
                 TABLE 9 
               
             
             
               
                   
               
               
                 Approved/Unimproved 
                   
                 Unapproved 
                   
               
             
          
           
               
                 &gt; 
                 &lt;= 
                 Rating 
                 &gt; 
                 &lt;= 
                 Rating 
               
               
                   
               
             
          
           
               
                 0.0% 
                 30.0% 
                 1 
                 0.0% 
                 2.5% 
                 1 
               
               
                 30.0% 
                 35.0% 
                 2 
                 2.5% 
                 5.0% 
                 2 
               
               
                 35.0% 
                 40.0% 
                 3 
                 5.0% 
                 10.0% 
                 3 
               
               
                 40.0% 
                 45.0% 
                 4 
                 10.0% 
                 20.0% 
                 4 
               
               
                 45.0% 
                 50.0% 
                 5 
                 20.0% 
                 30.0% 
                 5 
               
               
                 50.0% 
                 55.0% 
                 6 
                 30.0% 
                 40.0% 
                 6 
               
               
                 55.0% 
                 60.0% 
                 7 
                 40.0% 
                 50.0% 
                 7 
               
               
                 60.0% 
                 62.5% 
                 8 
                 50.0% 
                 55.0% 
                 8 
               
               
                 62.5% 
                 65.0% 
                 9 
                 55.0% 
                 60.0% 
                 9 
               
               
                 65.0% 
                 70.0% 
                 10 
                 60.0% 
                 65.0% 
                 10 
               
               
                 70.0% 
                 75.0% 
                 11 
                 65.0% 
                 70.0% 
                 11 
               
               
                 75.0% 
                 80.0% 
                 12 
                 70.0% 
                 80.0% 
                 12 
               
               
                 80.0% 
                 90.0% 
                 13 
                 80.0% 
                 90.0% 
                 13 
               
               
                 90.0% 
                 100.0% 
                 14 
                 90.0% 
                 100.0% 
                 14 
               
               
                 100.0% 
                   
                 15 
                 100.0% 
                   
                 15 
               
               
                   
               
             
          
         
       
     
     
       
         
               
               
               
               
             
               
               
               
             
               
               
               
               
               
               
               
               
               
             
               
               
               
               
               
               
               
               
               
             
           
               
                 TABLE 10 
               
             
             
               
                   
               
               
                 Equity (% of Policy 
                 Remaining Months 
                   
                   
               
             
          
           
               
                 Requirement) 
                 For At-Risk Dollars 
                 Sales Price (%) 
               
             
          
           
               
                 &gt; 
                 &lt;= 
                 Rating  
                 &gt;= 
                 &lt; 
                 Rating 
                 &gt; 
                 &lt;= 
                 Rating 
               
               
                   
               
             
          
           
               
                  0% 
                  0% 
                 15 
                 — 
                 3 
                 1 
                  0% 
                  74% 
                 15 
               
               
                  0% 
                  25% 
                 14 
                 4 
                 6 
                 2 
                  75% 
                  79% 
                 14 
               
               
                  25% 
                  50% 
                 13 
                 7 
                 9 
                 3 
                  80% 
                  82% 
                 13 
               
               
                  50% 
                  75% 
                 12 
                 10 
                 12 
                 4 
                  83% 
                  86% 
                 12 
               
               
                  75% 
                  80% 
                 11 
                 13 
                 18 
                 5 
                  87% 
                  89% 
                 11 
               
               
                  80% 
                  85% 
                 10 
                 19 
                 24 
                 6 
                  90% 
                  92% 
                 10 
               
               
                  85% 
                  90% 
                 9 
                 25 
                 30 
                 7 
                  93% 
                  95% 
                 9 
               
               
                  90% 
                  95% 
                 8 
                 31 
                 36 
                 8 
                  96% 
                  97% 
                 8 
               
               
                  95% 
                 105%  
                 7 
                 37 
                 39 
                 9 
                  98% 
                 102% 
                 7 
               
               
                 105% 
                 115%  
                 6 
                 40 
                 42 
                 10 
                 103% 
                 105%  
                 6 
               
               
                 115% 
                 126%  
                 5 
                 43 
                 45 
                 11 
                 106% 
                 108% 
                 5 
               
               
                 126% 
                 135%  
                 4 
                 46 
                 48 
                 12 
                 109% 
                 110% 
                 4 
               
               
                 135% 
                 150%  
                 3 
                 49 
                 60 
                 13 
                 111% 
                 115% 
                 3 
               
               
                 150% 
                 175%  
                 2 
                 61 
                 70 
                 14 
                 116% 
                 120% 
                 2 
               
               
                 175% 
                 200%  
                 1 
                 71 
                 1,000 
                 15 
                 121% 
                 130% 
                 1 
               
               
                   
               
             
          
         
       
     
     In various embodiments, the following are used for hotel borrowers as illustrated in Table 11: 
     
       
         
               
               
               
               
             
               
               
               
               
               
               
               
               
             
               
               
               
               
               
               
               
               
             
           
               
                 TABLE 11 
               
             
             
               
                   
               
               
                 Loan to Value 
                   
                 Debt Service Coverage 
                   
               
             
          
           
               
                 &gt; 
                 &lt;= 
                 Rating 
                 Hotel 
                 &gt;= 
                 &lt; 
                 Rating  
                 Hotel 
               
               
                   
               
             
          
           
               
                 0.0% 
                 35.0% 
                 1 
                 4 
                 — 
                 0.90 
                 15 
                 15 
               
               
                 35.0% 
                 45.0% 
                 2 
                 5 
                 0.90 
                 0.95 
                 14 
                 14 
               
               
                 45.0% 
                 50.0% 
                 3 
                 6 
                 0.95 
                 1.00 
                 13 
                 14 
               
               
                 50.0% 
                 55.0% 
                 4 
                 8 
                 1.00 
                 1.10 
                 12 
                 14 
               
               
                 55.0% 
                 60.0% 
                 5 
                 9 
                 1.10 
                 1.20 
                 11 
                 13 
               
               
                 60.0% 
                 65.0% 
                 6 
                 10 
                 1.20 
                 1.30 
                 10 
                 13 
               
               
                 65.0% 
                 67.5% 
                 7 
                 11 
                 1.30 
                 1.35 
                 9 
                 12 
               
               
                 67.5% 
                 70.0% 
                 8 
                 12 
                 1.35 
                 1.40 
                 8 
                 12 
               
               
                 70.0% 
                 75.0% 
                 9 
                 12 
                 1.40 
                 1.50 
                 7 
                 11 
               
               
                 75.0% 
                 80.0% 
                 10 
                 13 
                 1.50 
                 1.60 
                 6 
                 10 
               
               
                 80.0% 
                 82.5% 
                 11 
                 13 
                 1.60 
                 1.75 
                 5 
                 9 
               
               
                 82.5% 
                 85.0% 
                 12 
                 14 
                 1.75 
                 2.00 
                 4 
                 8 
               
               
                 85.0% 
                 90.0% 
                 13 
                 14 
                 2.00 
                 2.25 
                 3 
                 6 
               
               
                 90.0% 
                 95.0% 
                 14 
                 14 
                 2.25 
                 2.50 
                 2 
                 5 
               
               
                 95.0% 
                   
                 15 
                 15 
                 2.50 
                   
                 1 
                 4 
               
               
                   
               
             
          
         
       
     
     In various embodiments, the following are used for construction and affordable housing borrowers as illustrated in Table 12: 
     
       
         
               
               
               
               
               
             
               
               
               
               
               
               
               
               
               
               
               
             
               
               
               
               
               
               
               
               
               
               
               
             
           
               
                 TABLE 12 
               
             
             
               
                   
               
               
                 Loan to Value 
                   
                 Debt Service Coverage 
                   
                 Pre-Leasing 
               
             
          
           
               
                 &gt; 
                 &lt;= 
                 Rating 
                 Hotel 
                 &gt;= 
                 &lt; 
                 Rating 
                 Hotel  
                 &gt;= 
                 &lt; 
                 Rating 
               
               
                   
               
             
          
           
               
                 0.0% 
                 35.0% 
                 1 
                 4 
                 — 
                 0.90 
                 15 
                 15 
                   
                  0% 
                 15 
               
               
                 35.0% 
                 45.0% 
                 2 
                 5 
                 0.90 
                 0.95 
                 14 
                 14 
                   
                  0% 
                 14 
               
               
                 45.0% 
                 50.0% 
                 3 
                 6 
                 0.95 
                 1.00 
                 13 
                 14 
                  0% 
                  10% 
                 13 
               
               
                 50.0% 
                 55.0% 
                 4 
                 8 
                 1.00 
                 1.10 
                 12 
                 14 
                  10% 
                  25% 
                 12 
               
               
                 55.0% 
                 60.0% 
                 5 
                 9 
                 1.10 
                 1.20 
                 11 
                 13 
                  25% 
                  35% 
                 11 
               
               
                 60.0% 
                 65.0% 
                 6 
                 10 
                 1.20 
                 1.30 
                 10 
                 13 
                  35% 
                  45% 
                 10 
               
               
                 65.0% 
                 67.5% 
                 7 
                 11 
                 1.30 
                 1.35 
                 9 
                 12 
                  45% 
                  50% 
                 9 
               
               
                 67.5% 
                 70.0% 
                 8 
                 12 
                 1.35 
                 1.40 
                 8 
                 12 
                  50% 
                  55% 
                 8 
               
               
                 70.0% 
                 75.0% 
                 9 
                 12 
                 1.40 
                 1.50 
                 7 
                 11 
                  55% 
                  60% 
                 7 
               
               
                 75.0% 
                 80.0% 
                 10 
                 13 
                 1.50 
                 1.60 
                 6 
                 10 
                  60% 
                  70% 
                 6 
               
               
                 80.0% 
                 82.5% 
                 11 
                 13 
                 1.60 
                 1.75 
                 5 
                 9 
                  70% 
                  80% 
                 5 
               
               
                 82.5% 
                 85.0% 
                 12 
                 14 
                 1.75 
                 2.00 
                 4 
                 8 
                  80% 
                  90% 
                 4 
               
               
                 85.0% 
                 90.0% 
                 13 
                 14 
                 2.00 
                 2.25 
                 3 
                 6 
                  90% 
                  95% 
                 3 
               
               
                 90.0% 
                 95.0% 
                 14 
                 14 
                 2.25 
                 2.50 
                 2 
                 5 
                  95% 
                 100% 
                 2 
               
               
                 95.0% 
                   
                 15 
                 15 
                 2.50 
                   
                 1 
                 4 
                 100% 
                   
                 1 
               
               
                   
               
             
          
         
       
     
     In various embodiments, the following are used for pool and REIT borrowers as illustrated in Table 13: 
     
       
         
               
               
               
               
             
               
               
               
               
               
               
             
               
               
               
               
               
               
             
           
               
                 TABLE 13 
               
             
             
               
                   
               
               
                 Loan to Value 
                   
                 Debt Service Coverage 
                   
               
             
          
           
               
                 &gt; 
                 &lt;= 
                 Rating 
                 &gt;= 
                 &lt; 
                 Rating 
               
               
                   
               
             
          
           
               
                 0.0% 
                 20.0% 
                 1 
                 — 
                 1.00 
                 15 
               
               
                 20.0% 
                 30.0% 
                 2 
                 1.00 
                 1.05 
                 14 
               
               
                 30.0% 
                 40.0% 
                 3 
                 1.05 
                 1.10 
                 13 
               
               
                 40.0% 
                 45.0% 
                 4 
                 1.10 
                 1.20 
                 12 
               
               
                 45.0% 
                 50.0% 
                 5 
                 1.20 
                 1.30 
                 11 
               
               
                 50.0%  
                 55.0% 
                 6 
                 1.30 
                 1.35 
                 10 
               
               
                 55.0% 
                 60.0% 
                 7 
                 1.35 
                 1.40 
                 9 
               
               
                 60.0% 
                 65.0% 
                 8 
                 1.40 
                 1.50 
                 8 
               
               
                 65.0% 
                 67.5% 
                 9 
                 1.50 
                 1.60 
                 7 
               
               
                 67.5% 
                 70.0% 
                 10 
                 1.60 
                 1.75 
                 6 
               
               
                 70.0% 
                 75.0% 
                 11 
                 1.75 
                 2.00 
                 5 
               
               
                 75.0% 
                 80.0% 
                 12 
                 2.00 
                 2.25 
                 4 
               
               
                 80.0% 
                 85.0% 
                 13 
                 2.25 
                 2.50 
                 3 
               
               
                 85.0% 
                 90.0% 
                 14 
                 2.50 
                 3.00 
                 2 
               
               
                 90.0% 
                   
                 15 
                 3.00 
                   
                 1 
               
               
                   
               
             
          
         
       
     
     In various embodiments, the following warning signals may be considered for real estate borrowers: 
     1. Death of Founder. 
     2. Significant increase in discretionary compensation, distributions, and/or dividends to principals. 
     3. Significant changes in strategy, management personnel, of decision-making that gives the bank concern over the future direction of the company. 
     4. Deteriorated relationship between management and bank. 
     5. Sponsor is developing a product type or a project size that he has not completed to date. 
     6. Fraud or embezzlement has occurred. 
     7. Transactions between parent company, subsidiaries, or affiliates are not at arm&#39;s length. 
     8. Significant exposure through investments, key suppliers or key customers. 
     9. Use of subject financing for purposes other than those delineated in the transaction. 
     10. Material reporting error by company to a bank 
     11. Change in CPA. 
     12. Significant legal action. 
     13. Loss of a major tenant or tenants aggregating &gt;=10% of consolidated rental revenue. 
     14. Loss of a major anchor or tenant, regardless of its contribution to the income stream—in a retail property, for example, the loss of a shadow anchor. 
     15. Quality of overall tenancy has deteriorated to a level that creates the potential for marked instability in the cash flow. 
     16. For retail properties, sales levels are insufficient to support the underlying rents. 
     17. Leasing/absorption activity is substantially behind plan. 
     18. Significant variances between physical and economic occupancy. 
     19. Recent change in primary banking relationship. 
     20. Negative information form reliable third-party reports (e.g. appraisal, environmental, inspecting architect, site surveys etc.). 
     21. Chronic Overdrafts. 
     22. Chronic late payment on scheduled principal/interest. 
     23. Construction risk is significant and/or development costs of all assets under construction or with significant lease-up remaining (i.e. 25% or more of the space) exceed the following limits (based upon the full amount of the budget): 
     A) &gt;20% of portfolio value with acceptable market risk/pre-leasing; or 
     B)&gt;10% of portfolio value with: 
     i) significant market risk; or 
     ii) concentration in a single development asset. 
     24. Work stoppages or material delays in construction. 
     25. Trade payables have been accumulating and/or mechanics liens have been filed. 
     26. Bank has stepped into the ownership position of the project. 
     27. For a REIT/Pool: Liquidity. 
     28. FFO Payout Ratio exceeds 90%. As much as possible use calculations provided within quarterly certificates. 
       FIG. 13  is a diagram illustrating a process for determining a loss given default (LGD) rating according to various embodiments of the present invention. At step  100 , the facilities at issue are identified. 
     As used herein, a loss given default (hereinafter “LGD”) grade, or rating, for a loan, set of loans, etc. is the percentage of exposure the lender expects to lose in the event the borrower defaults on an obligation. In various embodiments, the LGD rating is based on two factors: collateral and guarantees. In various embodiments, separate LGD grades are calculated; one based on collateral and the other based on guarantee and the better of the two is assigned to all credit facilities that are cross-collateralized and/or cross-guaranteed. 
     LGD ratings represent losses in the event of a default and are equal to one minus the recovery rate. In various embodiments, the LGD rating is represented in the form of an alphabetic rating that ranges from A to H, where A-rated facilities are expected to have the highest recovery rates in the event of a default and H-rated facilities are expected to have the lowest. When combined with a numeric probability of default rating, users of embodiments of the present invention are able to develop a combined expected loss rate for each facility. 
     In various embodiments, a recovery value is assigned to each piece of collateral and the LGD rating is the inverse of the recovery rate.  FIGS. 14A-14B  illustrate an example of assigned collateral LGD ratings based on a grid that combines collateral types with loan to value ratios for each facility. The example illustrated in  FIGS. 14A-14B  shows forty-two collateral types identified and grouped into seven categories. For the example illustrated in  FIGS. 14A-14B , the base LTV ratio for each of the classifications is assumed to be 100% and groups are created above and below this ratio. 
     As used herein in conjunction with calculation of the LGD, “Loan Amount (LoanAmt)” means the available amount for business credit, direct hard exposure (DHE) for all other businesses and “collateral amount (ColAmt)” means net eligible amount—(prior lien amt/advance rate). The LoanAmt, the ColAmt, and the collateral type (ColTyp) are inputs to the LGD calculation process as determined at step  102 . In various embodiments, there are separate inputs for each loan amount and each collateral type/amount for all cross-collateralized facilities. 
     The following factors are derived based on the type of collateral: collateral recovery rate (ColRecRat); base loan to value (BaseLTV); and minimum LGD (MinLGD). The following parameters are calculated in the LGD calculation process: recovery amount (RecAmt); recovery rank (RecRnk); adjusted recovery amount (AdjRecAmt); secured amount (SecAmt); total adjusted recovery amount (TotAdjRecAmt); weighted average minimum LGD (WAMLGD); LGD rate (LGDRat); and LGD grade. In the process, RecAmt, AdjRecAmt, and RecRnk are calculated for each piece of collateral. 
     At step  104 , the recovery amount is calculated. The recovery amount is the dollar value of expected recovery for each piece of collateral if it stood alone.
 
 RecAmt =MIN[( ColrecRat )( ColAmt ),(1−Min LGD )(Loan Amt )]
 
     The recovery rank assigns a numeric rank to each piece of collateral based on the collateral recovery rate, in descending order so that the collateral with the highest recovery rate is ranked first. In various embodiments, if two pieces of collateral have the same recovery rate, the first one entered gets the lowest rank, and each subsequent entry with that recovery rate gets successively higher ranks. 
     The adjusted recovery amount is a systematically assigned value equal to the recovery amount starting with the best recovery rank, until the sum of the adjusted recovery amounts exceeds the sum of all loan amounts. The final piece of collateral required to do so is reassigned an adjusted recovery amount so that the sum of the adjusted recovery amounts is equal to the sum of all loan amounts. Any remaining pieces of collateral are assigned an adjusted recovery amount of zero. In other words, the best pieces of collateral use up their potential recovery amounts until no more collateral is required to cover the loan. 
     Calculation of the adjusted recovery amount for a piece of collateral, in various embodiments, is as follows:
         1: Sum all recovery amounts whose corresponding recovery rank is smaller than the recovery rank of the collateral for which the calculation is being made.   2: Subtract the value generated in step 1 from the sum of all loan amounts associated with this set of collateral.   3: If the value from step 2 is less than or equal to zero, then the adjusted recovery amount for this piece of collateral is zero.   4: If the value from step 2 is greater than zero, then the adjusted recovery amount is the minimum of the recovery amount for this piece of collateral and the value in step 2.       

     Formulaically the adjusted recovery amount is: 
     
       
         
           
             AdjrecAmt 
             = 
             
               MAX 
               ⁡ 
               
                 ( 
                 
                   0 
                   , 
                   
                     MIN 
                     ⁡ 
                     
                       ( 
                       
                         recAmt 
                         , 
                         
                           
                             ∑ 
                             LoanAmt 
                           
                           - 
                           
                             
                               ∑ 
                               
                                 recRnk 
                                 = 
                                 1 
                               
                               
                                 recRnk 
                                 - 
                                 1 
                               
                             
                             ⁢ 
                             recAmt 
                           
                         
                       
                       ) 
                     
                   
                 
                 ) 
               
             
           
         
       
     
     The secured amount is the loan amount that would normally be advanced to a borrower given the mix of collateral entered.
 
 SecAmt=Σ [( ColAmt )(Base LTV )]
 
     The total adjusted recovery amount is the sum of all adjusted recovery amounts plus a 35% recovery rate applied to any unsecured portion of the total loan amount.
 
 TotAdjrecAmt=ΣAdjrecAmt+ 0.35(MAX(0,ΣLoan Amt−SecAmt ))
 
     The weighted average minimum LGD is the weighted average of the minimum LGD from each piece of collateral based on the adjusted recovery amount. 
     
       
         
           
             WAMLGD 
             = 
             
               
                 ∑ 
                 
                   ( 
                   
                     
                       ( 
                       AdjrecAmt 
                       ) 
                     
                     ⁢ 
                     
                       ( 
                       MinLGD 
                       ) 
                     
                   
                   ) 
                 
               
               
                 ∑ 
                 AdjrecAmt 
               
             
           
         
       
     
     The LGD rate is calculated at step  106 . In various embodiments, if the collateral type chosen is “unsecured,” the LGD rate is 45%. If the collateral type chosen is “unsecured—structurally subordinated,” the LGD rate is 65%. Otherwise, the LGD rate is the maximum of the LGD rate implied by the total adjusted recovery amount and the minimum LGD rate. 
     
       
         
           
             LGDRat 
             = 
             
               MAX 
               ⁡ 
               
                 ( 
                 
                   
                     
                       
                         ∑ 
                         LoanAmt 
                       
                       - 
                       AdjrecAmt 
                     
                     
                       ∑ 
                       LoanAmt 
                     
                   
                   , 
                   MinLGD 
                 
                 ) 
               
             
           
         
       
     
     At step  108 , the LGD grade is derived using the calculated LGD rate and the following as illustrated in Table 14: 
     
       
         
               
               
               
             
           
               
                   
                 TABLE 14 
               
               
                   
                   
               
               
                   
                 LGD Range 
                 LGD 
               
               
                   
                   
               
             
             
               
                   
                   0%-7% 
                 A 
               
               
                   
                  &gt;7%-12% 
                 B 
               
               
                   
                 &gt;12%-17% 
                 C 
               
               
                   
                 &gt;17%-22% 
                 D 
               
               
                   
                 &gt;22%-28% 
                 E 
               
               
                   
                 &gt;28%-39% 
                 F 
               
               
                   
                 &gt;39%-50% 
                 G 
               
               
                   
                  &gt;51%-100% 
                 H 
               
               
                   
                   
               
             
          
         
       
     
     An example of the inputs and calculated values for a hypothetical LGD derivation is illustrated in  FIG. 15 . 
     In addition to collateral, a facility&#39;s LGD can be affected by third-party guarantees. If a third party, who is of higher quality than the borrower, provides a guarantee to support the facility then the facility&#39;s LGD may improve. At step  110 , a guarantee LGD is derived. Inputs used in deriving the guarantee LGD include borrower PD rating; guarantor PD rating; percent of exposure guaranteed; and type of guarantee (i.e., joint or several—only applicable if multiple guarantors are present). 
     If an exposure is supported by a single guarantor, the difference between the borrower&#39;s PD rating and the guarantor&#39;s PD rating is first determined. That figure along with the percent of exposure guaranteed are used to find the LGD rating on the grid below as illustrated in Table 15: 
     
       
         
               
               
               
               
               
             
           
               
                   
                 TABLE 15 
               
               
                   
                   
               
               
                   
                 Borrower PD- 
                 Full 
                 Partial 
                 Partial 
               
               
                   
                 Guarantor PD 
                 Guarantee 
                 &gt;75% 
                 &gt;50% 
               
               
                   
                   
               
             
             
               
                   
                 7 or More 
                 C 
                 D 
                 E 
               
               
                   
                 5-6 
                 D 
                 E 
                 F 
               
               
                   
                 3-4 
                 E 
                 F 
                 G 
               
               
                   
                 1-2 
                 F 
                 G 
                 G 
               
               
                   
                   
               
             
          
         
       
     
     If multiple guarantors support an exposure or group of exposures, they are defined as either joint or several. Joint guarantees refer to multiple guarantors who all pledge to support the entire exposure amount. If an exposure has several guarantors, each guarantor only supports a portion of the total exposure amount. In the case of joint guarantors, the guarantor with the strongest PD rating is chosen, and the LGD is determined as though this were the only guarantee. 
     In the case of several guarantors, the percentage of the exposure amounts that each guarantees are summed. This amount is used as the percentage of exposure guaranteed in the grid above. The guarantor PD rating to be used to calculate the difference between the borrower and guarantor PD rating is the weighted average of the guarantors&#39; PD ratings based on each guarantor&#39;s percentage guaranteed. 
     At step  112 , the LGD rating may be overridden based on, for example, the judgment of the user and a final LGD rating  114  for an exposure is the better of its collateral driven LGD and its guarantor driven LGD. 
       FIG. 16  illustrates an embodiment of a system  200  in which the methods described herein may be implemented. A user computer  202  is in communication with a server  204  via a network  206 . The user computer  202  may be, for example, a personal computer or any other type of suitable computing device or computer terminal. The network  206  may be any type of computer network such as, for example, the Internet, a local area network (LAN), a wide area network (WAN), etc. The server  204  may implement the various software code instructions to execute the methods described herein. The server  204  is in communication with a database  208 . The database  208  may store information such as, for example, information relating to borrowers. 
       FIGS. 17 through 76B  are computer screen shots illustrating an example of an implementation of the present invention. The computer screen shots of  FIGS. 17 through 76B  in various embodiments are those presented to a user at the user computer  202 . In  FIG. 17 , a user can log into the system using a user id and a password.  FIGS. 18A-18B  illustrate a default homepage,  FIGS. 19A-19B  illustrate a homepage that a user with originator privileges in the system would see upon login to the system, and  FIGS. 20A-20B  show a homepage that a user with approval privileges in the system would see upon login to the system. The various pages illustrated in  FIGS. 18A through 20B  show the status of various credit offerings and allow a user to navigate throughout the system. 
       FIG. 21  shows recent offering decisions and provides a list of offerings in which a decision was made in a prior time period (e.g., 30 days). The page in  FIG. 21  results when the “recent offering decisions” tab  1000  is selected.  FIGS. 22A-22B  show recent approval decisions and provides a list of offerings in which an approval decision was made in a prior time period (e.g., 30 days). The page in  FIGS. 22A-22B  results when the “recent approval decisions” tab  1002  ( FIG. 22A ) is selected. 
       FIGS. 23A-23B  show a page in which a user can start the creation of a new offering by searching for information relating to the borrower. The page in  FIGS. 23A-23B  results when the “create new offering” tab  1004  ( FIG. 23A ) is selected.  FIGS. 24A-24B  show the results of a search and illustrates borrowers and their offerings.  FIGS. 25A-25B  show another version of a search.  FIGS. 26A-26C  show a summary page that results when an entry is selected from a search page.  FIGS. 27A-27B  show the results when the “reasons for submission” tab  1006  ( FIG. 27A ) is selected to enable the user to select the actions that are to be taken in an offering. The action categories include approval, major modification, and minor modification. 
       FIGS. 28A-28C  show the results when the “select facilities” tab  1008  ( FIG. 28A ) is selected to enable the user to select the facilities/transactions to take action on in the offering.  FIGS. 29A-29B  show the results when the “associate” tab  1010  ( FIG. 29A ) is selected to enable the user to associate selected actions to specific facilities.  FIGS. 30A-30B  show the results when the “transaction information” tab  1012  ( FIG. 30B ) is selected. The screen is dynamically generated and requires input from the user for the increase field  1014 , decrease field  1016 , and/or the proposed maturity expiration date field  1018 , all shown on  FIG. 30B , as appropriate and depending on the user-selected reasons for submission. 
     The screen illustrated in  FIGS. 31A-31B  also shows the result of selecting the “select facilities” tab  1008  ( FIG. 28 ) and is used to enable the capture of syndicated information relevant to the offering. The screen illustrated in  FIGS. 32A-32B  also shows the result of selecting the “select facilities” tab  1008  ( FIG. 28 ) and is used to enable the capture of optional input fields relevant to the offering. The screen illustrated in  FIGS. 33A-33B  also shows the result of selecting the “select facilities” tab  1008  ( FIG. 28 ) and is used to enable the capture of regulatory information relevant to the offering. The screen illustrated in  FIGS. 34A-34B  also shows the result of selecting the “select facilities” tab  1008  ( FIG. 28 ) and is used to enable the capture of supplemental information relevant to the offering. 
     The screen illustrated in  FIGS. 35A-35B  shows the result of selecting the “risk ratings” tab  1020  ( FIG. 35A ) and is used to display the probability of default and loss given default ratings for a borrower. The screen illustrated in  FIGS. 36A-36C  shows the result of selecting the “customer details” tab  1022  ( FIG. 36A ) and provides for customer-specific information relevant to the offering. The screen illustrated in  FIGS. 37A-37B  shows the result of selecting the “exposure” tab  1024  ( FIG. 37A ) and is used to calculate various direct hard exposure (DHE) and direct soft exposure (DSE) values. The screen illustrated in  FIGS. 38A-38B  also shows the result of selecting the “exposure” tab  1024  ( FIG. 38A ) and is used to allow the user to review exposure information for the offering. 
       FIGS. 39A-39B  shows the result of selecting the “policy” tab  1026  ( FIG. 39A ) and is used to display all borrowers and facilities that are part of the offering and the association of a policy to a facility.  FIGS. 40A-40B  also show the result of selecting the “policy” tab  1026  ( FIG. 40B ) and is used to enable the user to associate a facility with a policy or update an existing association.  FIGS. 41A-41B  show the result of selecting the “capture compliance data” tab  1028  ( FIG. 41A ) and is used to display a consolidated list of the compliance sheets that need to be completed for the offering.  FIGS. 42A-42B  also show the result of selecting the “capture compliance data” tab  1028  ( FIG. 42A ) and is used to provide a collection of exception data based on completed compliance sheets.  FIGS. 43A-43B  also show the result of selecting the “capture compliance data” tab  1028  ( FIG. 43A ) and is used to display a summary of exceptions in the offering and the associated exception DHE. 
       FIGS. 44A-44B  show the result of selecting the “LET” tab  1030  ( FIG. 44A ) and is used to prompt the user as to whether loan evaluation tools (LETs) (e.g., profitability models, etc.) are needed.  FIGS. 45A-45C  also show the result of selecting the “LET” tab  1030  ( FIG. 45A ) and is used to allow input of LET profitability data by the user.  FIGS. 46A-46B  also show the result of selecting the “LET” tab  1030  ( FIG. 46A ) and is used to allow input of LET market information by the user. 
       FIGS. 47A-47B  show the result of selecting the “identify approval level” tab  1032  ( FIG. 47A ) and is used to identify the highest level of approval for the offering, indicate if specialized signatories are required, and indicate if the offering is subject to a unique approval structure.  FIGS. 48A-48B  show the result of selecting the “identify approvers” tab  1034  ( FIG. 48B ) and is used to allow the user to search for approvers who are designated as “level 1” approvers.  FIGS. 49A-49B  show the results of the search for Level 1 approvers from  FIGS. 48A-48B .  FIGS. 50A-50B  also shows the result of selecting the “identify approvers” tab  1034  ( FIG. 50B ) and is used to allow the user to search for approvers who are designated as “level 2” through “level 4” approvers. 
       FIGS. 51A-51B  also show the result of selecting the “identify approvers” tab  1034  ( FIG. 51A ) and is used to allow the user to select specialized signatories.  FIGS. 52A-52B  also show the result of selecting the “identify approvers” tab  1034  ( FIG. 52A ) and is used to allow the user to view and edit the approvers selected for an approval team.  FIGS. 53A-53B  show the result of selecting the “identify approvers” tab  1034  ( FIG. 53A ) and is used to allow the user to select specialized signatories.  FIGS. 54A-54B  also show the result of selecting the “identify approvers” tab  1034  ( FIG. 54A ) and is used to allow the user to search for approvers when a unique approval structure is selected and  FIGS. 55A-55B  show the results of the search from  FIGS. 54A-54B . In  FIGS. 56A-56B , the user can confirm selected “highest credit signatory” and “highest line signatory.” The system also provides the capability for users with edit rights to designate alternate approvers. 
       FIGS. 57A-57B  show the result of selecting the “maintain offering team” tab  1036  ( FIG. 57B ) and is used to allow the user to designate who has access to the offering for editing and viewing purposes.  FIGS. 58A-58B  also show the result of selecting the “maintain offering team” tab  1036  ( FIG. 58B ) and is used to allow the user to search for an offering team member, and  FIGS. 59A-59B  shows the results of the search from  FIGS. 58A-58B .  FIGS. 60A-60B  show the result of selecting the “document library” tab  1038  ( FIG. 60B ). The document library may be resident on, for example, the database  208  ( FIG. 16 ) and may be the central repository to manage documents related to offerings. 
       FIG. 61  shows the results of selecting the “generate draft CIS” tab  1040  ( FIG. 60B ) and is used to display a customer information sheet (CIS) based on the date available in the system.  FIGS. 62A-62B  show the results of selected the “generate draft offering” tab  1042  ( FIG. 62B ) and allows the user to generate a draft offering to review prior to submission for approval. 
       FIG. 63  shows the results of selecting the “create from existing” tab  1044  that enables the user to leverage information from a previously approved offering to create a new offering and  FIG. 64  shows search results for existing offerings.  FIGS. 65A-65B  shows an offering summary that is obtained by selecting the “edit offering” tab  1046  ( FIG. 65A ) and presents a high-level overview of the offering. 
       FIGS. 66A-66B  show a screen from which approvers may access credit decision screens.  FIG. 67  shows a screen on which an approver may review and confirm a credit decision and  FIGS. 68A-68B  show a screen on which the highest credit signatory (HCS) affirms that the offering was assigned at the correct approval level and that all required signatures were received.  FIG. 69  enables the user to review the HCS affirmation decision. 
       FIG. 70  shows the results of selecting the “indicate verbal approval” tab  1048  and allows the user to select an offering to verbally approve, as shown in  FIGS. 71A-72B . The user can also select an offering to verbally affirm HCS, as shown in  FIGS. 72A-72B . As shown in  FIGS. 73A-73B , the user can review and confirm a verbal approval and, as shown in  FIGS. 74A-74B , the user can review and confirm a verbal HCS affirmation.  FIG. 75  shows a confirmation of a “decline” of a verbal approval.  FIGS. 76A-76B  shows a screen in which an expanded approval history can be viewed. 
       FIGS. 77 through 91B  are computer screen shots illustrating an example of an implementation of the process for generating a loss given default according to various embodiments of the present invention. The computer screen shots of  FIGS. 77 through 91B  in various embodiments are those presented to a user at the user computer  202  ( FIG. 16 ).  FIG. 77  allows the user to select a borrower and results from selecting the “borrower selection” tab  1050  and  FIG. 78  illustrates a facility summary for the borrower and results from selecting the “facility summary” tab  1052 .  FIG. 79  results from selecting the “PD model selection” tab  1054  and can be used to perform a probability of default analysis. 
       FIG. 80  shows the results of selecting the “maintain rating team” tab  1056  and is used to view and add members to the rating team. When the “add another member” tab  1058  is selected, a search screen appears as shown in  FIG. 81 , the search results of which are shown in  FIG. 82 . A summary of the rating team members is illustrated in  FIG. 83 . 
     The screen in  FIG. 84  allows the user to enter collateral information and evaluate collateral warning signals for each collateral type. The screen illustrated in  FIG. 85  allows for warning signals to be specified and in  FIG. 86 , the user can associate collateral with facilities. The screen in  FIGS. 87A-87B  allows the user to modify the loss given default rating based on collateral warning signals. 
       FIGS. 88A-88B  illustrate a screen in which guarantors may be selected.  FIG. 89  illustrates a screen that presents a summary screen of the collateral so that the user can ensure that the collateral information has been entered correctly and  FIGS. 90A-90B  illustrate a screen that presents a summary screen of the guarantor information so that the user can ensure that the information has been entered correctly. The screen shown in  FIGS. 91A-91B  enables the user to make any final comments relating to the loss given default rating or to override the rating. 
       FIGS. 92 through 104B  are computer screen shots illustrating an example of an implementation of the process for generating a probability of default rating according to various embodiments of the present invention. The computer screen shots of  FIGS. 92 through 104B  in various embodiments are those presented to a user at the user computer  202  ( FIG. 16 ). As shown in  FIG. 92 , the user may search for borrowers and, in the screen illustrated in  FIG. 93 , can select whether the rating is for a probability of default or a loss given default rating. For the screen illustrated in  FIG. 94 , the user can indicate whether the borrower has public debt and can select the proper model type to use. The model type depends on the nature of the borrower. 
     In the screens illustrated in  FIGS. 95 ,  96 A, and  96 B, the user can answer various financial questions relating to the borrower and in  FIGS. 97 and 98  the user can answer various non-financial questions relating to the borrower. In the screen illustrated in  FIGS. 99A-99B , the user can select the applicable warning signals. In the screen illustrated in  FIG. 100 , the user can override the probability of default rating and, when the borrower&#39;s probability of default rating is 12 or worse, the user can enter a value between 12 and 16 on the screen illustrated in  FIG. 101 .  FIGS. 102A through 104B  illustrate a summary of a probability of default rating. 
     In various embodiments of the present invention, the methods and modules described herein are embodied in, for example, computer software code that is coded in any suitable programming language such as, for example, visual basic, C, C++, or microcode. Such computer software code may be embodied in a computer readable medium or media such as, for example, a magnetic storage medium such as a floppy disk or an optical storage medium such as a CD-ROM. 
     While several embodiments of the invention have been described, it should be apparent, however, that various modifications, alterations and adaptations to those embodiments may occur to persons skilled in the art with the attainment of some or all of the advantages of the present invention. It is therefore intended to cover all such modifications, alterations and adaptations without departing from the scope and spirit of the present invention as defined by the appended claims.