A more efficient and effective loan review
In the spirit of the season of sharing, I am going to share a secret to a better, more efficient loan review and perhaps, more importantly, a smoother and more efficient exam (at least the credit portion).
A well-maintained credit file.
Sounds simple enough, right? Simple concept but frequently lacking.
As loan reviewers, we enjoy meeting and talking with lenders and staff. This is one of the fun parts of the job and I have met many great and interesting people as a third-party loan reviewer.
However, spending time tracking down loan officers, credit analysts and administrative staff to answer questions, fill in gaps in the credit file and request missing items is not an efficient use of my time or, more importantly, loan personnel time. In a perfect review, I never (or very rarely) should need to bother staff with questions, clarification or requests for missing information.
So how does that happen? It all starts with the credit presentation.
The credit presentation should tell a story. The reader of a well-written credit presentation should have an understanding of the borrower and guarantors and the rationale for making the loan as well as the loan grade just by reading the presentation.
I can’t tell you how many times I have read a credit presentation and looked through the file for an annual review or credit memos and still not understood what the borrower does, the reason for the loan, or justification for the loan grade. That’s when I have to hunt down the loan officer, or someone else, to explain the credit to me, fill in the missing gaps, and provide missing documentation.
The vast majority of loan officers are very well-versed with the borrower and can recite many details not evident in the loan file. That borrower history and knowledge needs to be included in the credit presentation and other file documentation.
The rest of the credit file should be support for the presentation.
The file should be complete and not overflowing with old information no longer germane to outstanding debt. It doesn’t matter if the credit files are paper or imaged, the files should be periodically culled and properly organized. Is it necessary to retain evidence of hazard insurance from ten years ago? How important are those financial statements and tax returns from the turn of the century? Do the paid notes need to be intermingled with the active notes?
The record retention policy of the financial institution must be followed, but older information can be retained in a separate folder (paper or electronic) if needed.
Well maintained files will be even more important moving forward as exams are more remote than ever; we can thank the COVID-19 pandemic for that.
Don’t maintain a well-developed and complete credit file just for a loan reviewer. It will make it easier for everyone who picks uses the file. What happens if that loan officer leaves for whatever reason, and someone else has pick up the credit and continue with the excellent borrower service? Don’t allow a third-party reviewer to start making assumptions trying to fill in the gaps as we all know what happens when someone assumes.
A little more time and effort up front and along the way will save time, effort, and angst in the future.
