Lesson 25 of 25 · 7 min
Capacity, a line and a clock: a repossession and a margin call
Capacity, a line and a clock govern a repossession the same way they govern a margin call.
This lesson closes the track and closes Block 5 by putting a repossession next to a margin call. Track 1 lesson 8 is the securities version. Track 22 lesson 23 is the car version. Both have the same three parts. Capacity is what the collateral can support. A line is the test that is applied. A clock is how fast the recovery runs: hours on a securities line, weeks on a car, months on a house.
Track 9 lesson 1's invented securities book. Collateral $604,000, threshold 68 percent, permitted balance $604,000 × 0.68 = $410,720. Actual balance $418,300. Shortfall $7,580. Sale-to-cure at 0.32 is $7,580 ÷ (1 − 0.68) = $23,687.50. The line is 68 percent. The clock, on a securities line, can be hours. Capacity is the $410,720 the $604,000 can support at that threshold.
Pellbridge Servicing's invented car book, the figures Track 22 lesson 23 already used. Balance $19,840, mark $16,200, missed payment day 0, taking day 22. No cure window in this invented agreement. Capacity is what a $16,200 mark can support. The line is the due date and, behind it, LTV already above 100 percent. The clock is 22 days because the car can be moved. The shortfall after a later sale is a deficiency, the leftover Track 22 lesson 24 named. The rules that govern taking, sale and deficiency vary by state, and a reader's own situation belongs with a qualified professional.
Same three parts on both books. Hours, weeks or months is the only unit that changed. Block 5 has been the everyday version of Block 1's capacity, line and clock.
Key terms
- Capacity
- What the collateral can support at the stated test. $410,720 on the securities book; the $16,200 mark on the car.
- Line
- The test: 68 percent maintenance, or a due date sitting on an LTV already above 100 percent.
- Clock
- Hours on a securities line, weeks on a car, months on a house. Recovery speed, priced on day one.
Worked example
The same three parts, two books
Illustrative figures scaled down so the arithmetic is followable; they are not the reported amounts. Securities: collateral $604,000, threshold 68 percent, balance $418,300. Car: balance $19,840, mark $16,200, miss day 0, taking day 22. Rules vary by state.
- Securities capacity
- $410,720
- Securities shortfall and sale-to-cure
- $7,580 / $23,687.50
- Car capacity against the mark
- $16,200
- Car clock
- Day 0 to day 22
- Shared three parts
- Capacity, a line, a clock
$604,000 × 0.68.
$418,300 − $410,720; then $7,580 ÷ 0.32.
The print the loan already exceeds.
No cure window in this invented agreement.
Hours against weeks. The house, earlier, was months.
The securities book sells $23,687.50 to cure a $7,580 shortfall. The car is taken on day 22. Same three parts. Different unit of time.
Check yourself
On the invented securities book, collateral is $604,000 at a 68 percent threshold and the balance is $418,300. What is the shortfall, what sale-to-cure is required, and what are the same three parts on the invented $19,840 car taken on day 22?
Capacity, a line and a clock govern a repossession the same way they govern a margin call — Track 1 lesson 8 is the securities version of Track 22 lesson 23. Open What a margin call actually is, procedurally →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.