No one is perfect Borrowers. Why? Because each Borrower has their own set of risks.underwriter, credit officer, senior credit officer, loan reviewer, regulator, and the list goes on.
When dealing with lending out someone else's money, it is guaranteed that each of the Borrower's risks is scrutinized differently by each person who has a stake in that credit (or loan/exposure). There are guidelines set by each institution that "guides" each individuals thought process about the loan request (typically called a credit policy), however, each individual underwriter/reviewer will have their own take on what they feel is critical and subject to further analysis.
Each Borrower's loan request is put through a subjective evaluation before money is lent. The key word here is subjective. What is the appropriate debt service coverage, loan to value, debt to tangible net worth, structure, covenant, etc.? All subjective - granted there are best practices, but nonetheless, subjective. The loan request is subject to industry comparison, subject to regulation, subject to individual thought process, etc. Once this is understood, the Borrower can begin to understand a bank's underwriting process.
Once all information related to the loan request is obtained, an analyst will typically crunch the numbers and begin underwriting the deal. Once the analysis is completed it is typically reviewed by at least three additional parties. For a smaller bank, the reviewers may include the Credit Manager and/or Senior Credit Officer. Once reviewed, depending on the size of the credit, it will need to be approved by the Senior Credit Officer, Approval Officers (i.e. Division President and CEO), and/or a Loan Committee. Once the loan is approved, it then needs to make its way through the bank's Loan Review division. At periodic intervals the loan package will be reviewed by regulators such as the FDIC. Just from this example, the number of individuals looking at and scrutinizing the Borrower's loan request is almost in the double digits.
With so many individuals reviewing a single deal, whose jobs are to be critical of the Borrower's loan request, it is easy to see why there is no such thing as a perfect Borrower.
When dealing with lending out someone else's money, it is guaranteed that each of the Borrower's risks is scrutinized differently by each person who has a stake in that credit (or loan/exposure). There are guidelines set by each institution that "guides" each individuals thought process about the loan request (typically called a credit policy), however, each individual underwriter/reviewer will have their own take on what they feel is critical and subject to further analysis.
Each Borrower's loan request is put through a subjective evaluation before money is lent. The key word here is subjective. What is the appropriate debt service coverage, loan to value, debt to tangible net worth, structure, covenant, etc.? All subjective - granted there are best practices, but nonetheless, subjective. The loan request is subject to industry comparison, subject to regulation, subject to individual thought process, etc. Once this is understood, the Borrower can begin to understand a bank's underwriting process.
Once all information related to the loan request is obtained, an analyst will typically crunch the numbers and begin underwriting the deal. Once the analysis is completed it is typically reviewed by at least three additional parties. For a smaller bank, the reviewers may include the Credit Manager and/or Senior Credit Officer. Once reviewed, depending on the size of the credit, it will need to be approved by the Senior Credit Officer, Approval Officers (i.e. Division President and CEO), and/or a Loan Committee. Once the loan is approved, it then needs to make its way through the bank's Loan Review division. At periodic intervals the loan package will be reviewed by regulators such as the FDIC. Just from this example, the number of individuals looking at and scrutinizing the Borrower's loan request is almost in the double digits.
With so many individuals reviewing a single deal, whose jobs are to be critical of the Borrower's loan request, it is easy to see why there is no such thing as a perfect Borrower.
1 comments:
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