Washington Bankers Association



Lending Case StudyOverviewPortfolio Characteristics:10% mortgage lending30% indirect auto20% other consumer lending25% commercial lending15% small business lendingExamination Information:The last few examinations have produced very clean results for the institution. The exams have focused on mortgage lending coming through the retail channel.Examiners highlighted the bank’s thorough fair lending training for the lending staff.At the exit meeting for the last exam, the examiners mentioned some concern over the large increase in the institution’s indirect auto lending channel.Loan Program Information:Mortgage represents 1 underwriting center with 12 loan officers and 6 underwriters. 8 of the loan officers and 4 of the underwriters have been with the bank one year or less. One loan officer is originating over 80% of the monthly mortgage loan volume. Approximately 95% of the mortgage loans originated are sold to investors. Consumer represents centralized underwriting with 1 underwriting center with 3 loan officers and two underwriters. Retail and Commercial is decentralized with 1 consumer loan officer and 1-3 commercial loan officers in each of the 25 branch offices. Underwriting is in the process of being centralized for Retail. Commercial underwriting is decentralized with 1 underwriter in each of the 25 offices.Pricing for Consumer and Retail lending is centralized. Commercial lending has flexible pricing guidelines. Mortgage has investor based pricing. Indirect Auto pricing is set by the dealerships based on pricing guidelines.New technologies including loan origination systems are being implemented to streamline current manual processes.HMDA declines are 2% of HMDA originations.The Bank Holding Company has purchased a mortgage entity that will be part of the bank. The goal is to completely incorporate the personnel, brand, systems, and policies and procedures within 2 years.The indirect auto lending portfolio became a management focus 2 years ago. They have hired a manager from major Auto Finance Corporation who will be implementing many of the same procedures that have been implemented at the consumer finance company.The marketing department has been tasked with creating new products on the credit and deposit side to increase revenues 20% over the next 2 years. They have decided to target the baby boomer market in their area.Questions from a Banker’s perspective:Risk AssessmentFrom a banker’s perspective, what are the areas of risk you can identify in the case study?NotesWhat are the three primary areas that need to be addressed and what steps would you take to assess the overall risks?Once the risk assessments are completed, what will you do with them?Action PlanDescribe your action plan to address your three primary areas of risk. NotesWithin the organization, who should be involved? Who should be notified?What roles do Internal Audit and Compliance play?Questions from an Examiner’s perspective:Risk Assessment & Action PlanFrom an examiner’s perspective, what are the areas of risk you can identify in the case study?NotesWhat types of risk assessments should be performed by the agency?What actions are possible by the agency? ................
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