Rising above when market conditions get tough There is no shortage of data documenting rising delinquency rates, losses trending upward, and dropping collateral values. The near prime to subprime market has seen the worst performance and has been grabbing the headlines as of late. We have also seen reaction to current market conditions with some…
Lending Policy Pitfalls
Of course you must have loan procedures that provide your lending staff the guidance they need to make sound lending decisions for your institution. However, I suggest your procedures should be structured much like how Captain Barbossa (from Pirates of the Caribbean) views “Parley” – the rules are more like “guidelines.”
In each lending institution, there is always at least one staff member who takes these loan procedures literally. They are the sticklers for procedure; the black and white brigade; the “no gray area there” people. Much time is likely spent coaching them about what makes each loan applicant’s circumstances unique and how to find a way to approve a loan rather than deny a loan request in haste.
But have you ever considered the members of your staff that use your loan procedure to make ill advised loans, just because they can? Just because your loan procedure allows you to go to 50% debt ratio on a 710 Beacon Score, doesn’t mean you should! Does the exception for LTV make sense for this borrower with this collateral for that term? Every deal is unique and one-off. Your underwriters are there to mitigate risk while providing yield. Remind them to look into the deal rather than at it.
All the best,