Late payments
When a borrower misses a payment, the servicer works with the borrower toward a cure. [TBD: when a loan is classed as late]Impairment
If full repayment is in doubt, the loan can be impaired: its carrying value in NAV is written down to reflect the expected recovery. [TBD: impairment policy]Default and enforcement
If a default is not cured, the first lien may be enforced under local law and the property sold to repay the loan. Enforcement takes time and costs money, and recoveries can be less than the amount owed. [TBD: enforcement process]How losses are absorbed
- Recovery from the borrower and the property.
- First-loss reserve. Part of protocol fees builds a reserve inside the vault that absorbs losses first.
- NAV. Losses beyond the reserve reduce NAV, so they are shared by all shUSD holders in that vault.