Active Risk Management Tips for Residential Lending: Economic Data Has Reflected a Slowing in Some Residential Markets from Their Heyday a Year Ago. in This Article, the Authors Suggest Some Proactive Measures for Relationship Managers and Credit Officers to Reduce the Potential for Future Surprises
Haddock, Henry, DiLorenzo, Frank, The RMA Journal
As you sail through your daily routine, you want to believe that yesterday's assumptions will apply today and tomorrow. It's a nice thought, but it's not reality, and you don't want yesterday's triumph to be tomorrow's disaster. Here are 10 tips intended to see you through good times and bad.
1. Elevate issues early. Be proactive as early in the cycle as possible. Discussions with customers as well as a review of quarterly financials and inventory can provide early indications of trends. You don't want Loan Review, bank examiners, or your boss to be the first ones to identify issues in your portfolio.
2. Be mindful of the risk rating. The status quo might not be the status quo any longer. If the risk has changed, recognize it with appropriate grade changes.
3. Keep a list handy. Periodically check on a short list of the credits to watch. Are they in compliance with covenants? Are the spec homes selling? Any signs of pre-sale fallout? Again, if there's a problem, knowing earlier is always better than knowing later.
4. Plan now for upgrade or payoff. For loans that have marginally passing grades, now is the time to develop a strategy that will allow them to be upgraded or paid off. Lack of a plan one way or the other is inadvisable.
5. Document review. For loans that fall into the above category, take a few moments to re-review your loan documents. Identifying gaps in the documentation now can prevent unpleasant surprises later.
6. Be realistic. If you think that real estate values for certain property types or markets might not be at the same level as they were when the appraisals were originally obtained, now is a good time to obtain current appraisals to find out. …