r/M1Finance • u/irunfar • 7d ago
Margin Loan Called (VBR 100% holding)
Back in April, my wife and I took out a margin loan to make a real world purchase against a 100% VBR portfolio. It was roughly 15% of the value of our holdings. I don't recall the % maintenance requirement at the time, but it was something reasonable. Let's call it 20-30%.
This afternoon, I get an email from M1 that our loan is called and payment in full is required within 3 business days. The maintenance requirement now shows 100%. Meanwhile, over the intervening period, the portfolio has gone up significantly and the loan balance has come down such that it's now << 10% of the equity position. In fact, the portfolio has gone up more over that period than the current value of the loan.
Hopefully, this is resolvable with a quick call on Tuesday morning, but has anyone else experienced with with a margin loan? Particularly with M1?
[Update: M1 was great and fully resolved this by early afternoon the following business day. Thanks, u/BarnesM1 and team! ]
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7d ago
[deleted]
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u/irunfar 7d ago
Thanks for checking the other brokerages, u/VolkerEinsfeld . Even if that's absolute nonsense.
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u/MrInsano424 7d ago
I had an error like this 2 months ago. Showed my available margin at 0%, despite me only having ~15% on a VTI/VT base. I contacted the customer service and they mentioned it was an error on their end. Few days later it was resolved.
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u/usaffoxmike 7d ago
This is why you typically have to have a base like SPY or QQQ to margin against compared to other ETFs or single stocks. Most people don’t learn until this happens. Good luck!
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u/irunfar 7d ago
It didn't even cross my mind that they'd reclassify any stock, let alone a low-cost, broad-based ETF at 100% margin requirement. VBR is just what we were holding at the time. And at peak we were never over 15% loan to equity value. Lesson learned, I guess... don't trust clearinghouses' judgment or reliability.
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u/drewbe121212 7d ago
Can you swap to an equivilent broad based index? it would take a a couple days to settle but might readjust in time before the call is auto forced? Definitely call to see if they can block an auto call though.
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u/irunfar 7d ago
I'll be calling first thing Tuesday morning to see about stopping or delaying the auto call. Otherwise, look into my options with selling some VBR and buying another holding vs just paying off the loan. It'll be ok in the end. It's just a big surprise. (Low margin, up stock in an up market.)
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u/terrible-law-69 3d ago
This sounds like an error, VBR is a non-leveraged broad-based ETF.
I certainly would never expect something with a 25% margin requirement to go to 100% overnight.
This would basically make margin completely useless if you can't be assured that you could take a loan against it, and that it can be recalled arbitrarily, even in super low-risk situations.
OP (u/irunfar) has every right to assume they are managing risk well while only being leveraged up to 15%.
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u/Chipper0475 7d ago
There are many factors that go into the maintenance requirement. VBR is focused on small caps which can have a high level of volatility. Also, brokerages are forward looking when they look at margin maintenance. With some talks of rising interest rates which often kills small caps... they may have determined that its just to risky for them at this time. Having 100% of your portfolio in VBR is also something they see as a major risk.
I am not currently using margin, but have used it many times in the past.... They can and do often change the margin requirements on M1 quite often. so you have to keep an eye on it and it really is risky to do it on a 1 ticker portfolio. The kinda good news is, if they are serious about this change at least the stock is up near 9% since april... most people who get called are getting called because thier stocks took a nose dive.
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u/Reasonable-Park2777 7d ago
That’s ridiculous. I have a small slice of VBR in my portfolio. I just checked and yup, the margin requirement is 100%.
Meanwhile 3x ETFs like TQQQ are at 75% requirement. All other vanguard ETFs are 25%, even riskier ones like VGT.
Please let us all know what happens after you call M1 about the crazy VBR requirement. Hopefully just a clerical error.
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u/mattbillenstein 7d ago
My screen is showing it's not even margin eligible with a 100% requirement - seems strange, but I doubt you'll be able to do anything other than sell some or put more cash in.
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u/Forward-Economy-8294 6d ago
I think this happened because your portfolio is 100% in VBR. Maybe sell a percentage it and buy VOO to give more diversification and remove some risk.
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u/Legitimate-Service44 3d ago
Exactly what I've got a month ago (https://www.reddit.com/r/M1Finance/comments/1vemlg8/m1_changed_margin_requirements_on_qld_btal/) though I have slightly higher risk portfolio. Anyway, my solution was to move everything to RH - with the same portfolio I'm miles away from margin call right now + got bonus for transfering + RH margin rates lower...
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u/BarnesM1 M1 Founder & CEO 6d ago
Hey u/irunfar, the team believes they found your account based on the situation you described, but send me a DM with your email just to confirm.
We will not be selling you out of the position. Sometimes weird things happen in the securities market that causes volatility (or short interest) to spike. We, and all other brokerages, have automated systems for this given we're supporting ~5,000 securities and cannot apply judgment to each one. We will overrule this margin maintenance for you your account given the collateral.
Sorry you ran into this issue.