Losses

If an End Borrower defaults and the Credit Originator's recovery falls short, the loss is borne within that Lending Strategy, in Priority Ranking order: the most junior option first, then Mezzanine, then the more senior options. Recoveries, if any, are applied in the reverse order. Losses in one Lending Strategy do not affect another. Whether a loss reaches your loan, and how far, depends on the position of your Lending Option in the Priority Ranking.

Before a loss reaches any lender, it is absorbed in a set order: first from the Credit Originator's excess spread (the margin it earns on the strategy's loans above what it pays to lenders), then from lenders' interest, and only then from lenders' principal.

How a loss is recorded against your loan. A shortfall is first treated as an unrealised loss: the Credit Originator has concluded a loss is likely, but its recovery action is still running. If an unrealised loss reaches your loan, it reduces your Loan Balance, and a separate non-transferable record of it is placed in your Digital Wallet alongside your loan record. That record is your claim on any recovery. If the Credit Originator later recovers funds, they are applied to those records and your Loan Balance is restored to that extent. Once recovery efforts are exhausted, any amount still unrecovered becomes a realised loss.