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Task 2 Report – Loan Origination Process

Underwriting

 

Task #2:	Clearly define how to manage the process, including measuring results against expectations and routine and ongoing evaluation of policies and procedures.
Task Force Members:	PB, JD, PH, DW

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Executive Summary

The underwriting process is more defined by default due to the level of non-process requirements in the task of rendering a credit decision.  However, this does not preclude us in believing that there is no room for improvement nor change to help strengthen the overall process of closing loans.

Current weaknesses in the process are:

1.      The lack of common goals amongst all team members.  Understanding that once a loan is approved, it should be every member’s goal to get that loan closed and on the books of XYZ.

2.      Presenting clear, concise documentation for other parties to rely on for their job function.

3.      General understanding of how the other components in the loan process are intertwined and dependent upon each other.

 

 

I.                   Objective

 

Credit Underwriting has the primary task of analyzing potential borrowers of XYZ to see if they warrant an extension of credit by XYZ.  Secondarily, the underwriting function is to oversee that these extensions of credit are documented and closed in an expedient and prudent fashion and meet the standards set out by XYZ and SBA.

 

II.                Measurements

The credit underwriter is responsible to make independent credit decisions irrespective of the sales goals of the organization.  This is not to be misconstrued with prompting the transactions to close in a timely fashion after credit approval has been garnished.

 

A.                 Qualitative – assessment of the analysis and preparation of well-defined credit write-ups.

 

1.                  Post Approval Reviews – provide management with this assessment to the quality of the credit write-up, within a short time period from actual approval.

2.                  Risk Rating Accuracy – provides management with a clearer understanding loan portfolio risk and the quality of deals being underwritten.  This is associated with the Post Approval Reviews.

3.                  Delinquency Trends – provide an analysis of the quality of deals placed on XYZ’s balance sheet.

4.                  Charge Offs  -provides a post-mortem on previously  approved and closed loans.

 

B.                 Quantitative – set goals that are attainable and clearly defined.

 

Underwriters have the responsibility to turn around pending credit decisions within a short time frame.  The quick turnaround increases customer service and tends to lead to more transactions moving to closure.

Based on prior knowledge, we would expect an underwriter to complete upwards of 8 – 10 credit decisions per month.  Historical numbers for the first 5 months indicate numbers far below this range, however, due to the lack of information on loans reviewed and subsequently declined or withdrawn prior to decision, the historical numbers are conservative.

Also, based on the size of the transaction and the level of analysis required for smaller transactions, typically the turnaround times should increase when reviewing small (<$250,000) loans.

 

C.                  Clearly Communicated Credit Decisions – based on feedback from team members, assess the quality of credit write-ups to help meet the closed loan goals of the overall team.

When underwriting, clearly communicate the approval or decline so the recipient of the information can easily follow the recommendation.

¨                  LSA need to be clearly written;

¨                  Loan conditions should be attainable by borrower

 

D.                 Teamwork Building – utilize the team concept in moving the deals through the process.  A deal is not completed until it is completely funded.  Responsibility resides within the whole team in achieving the goal.

 

III.             Assessment

 

¨                  Assessment of the performance of the individual underwriters and teams as a whole need to be conducted on a quarterly basis formally.

¨                  Periodic coaching sessions with individual personnel and small groups should be on-going.

¨                  Allow for implementation of added duties, such as construction loan analysis prior to closing, prior to judgement of process.