Riverside County s Credit Union LOAN POLICY Revised 11/22//99 ==================================================================== INTRODUCTION

Transcription

1 INTRODUCTION Riverside County s Credit Union (RCCU) considers the making of loans to members to be the most important element of our operation. In order to protect the credit union s asset quality, emphasis must be placed on these functions: Underwriting, Quality and Consistency. CREDIT SCORE SYSTEM Riverside County s Credit Union contracted with The Center for Financial Studies (CFS) to create and implement an empirically and statistically sound credit scoring system. The Center for Financial Studies (CFS) sampled the loan portfolio of current, delinquent and charged off loans. They identified and placed a weighted value on six factors, which were deemed predictive of repayment. These factors are unique to the borrowers of RCCU and were the most statistically important when evaluating paying versus non-paying loans. CFS has provided us with charts that illustrate the spread between paying and non-paying loans as well as odds charts for both secured and unsecured loans. The information will allow management to re-evaluate current pricing strategies and make recommendations based on the predicted probability of repayment. The VP of Operations along with the AVP Lending and Sales will use the odd charts to set pricing for both secured and unsecured loans. CFS has agreed to perform evaluations on the scorecard every six months and a revalidation annually. Their findings will assist management in evaluating the effectiveness of the new card and factors. In addition, reports generated from the data processing system will monitor the performance of the card and the pricing guidelines. The credit union reserves the right to discontinue the credit-scoring program at anytime. RCCU strictly adheres to both the letter and the spirit of the Equal Credit Opportunity Act (Regulation B). LOAN PRICING RCCU prices loans based on a credit score derived by a customized statically valid model. Odds charts provided by The Center for Financial Studies (CFS) developed to support the score model are used to establish RCCU s pricing structure. Risk pricing is monitored monthly and adjustments will be made on actual performance of the loan portfolio. Any changes to loan pricing are approved by the Board of Directors. LOAN APPROVAL AUTHORITY Upon recommendation from the Department Manager, the Credit Manager or CEO will grant lending authority to individuals with limits commensurate with their ability and experience. Separate authority limits will be given for secured, unsecured and real estate loans. 1

2 AGGREGATE LOAN LIMITS: RCCU established the following aggregate loan limits any one individual and/or family can have with the credit union. Family is defined as a marital couple and all dependent children, either residing in the home or away at school. For an individual to receive the maximum loan allowed under this policy, the request would have the approval of more than (1) individual. Maximum Unsecured- $50,000 Maximum Secured- $150,000 Maximum Real Estate- $350, MOTOR VEHICLE LOANS Automobiles and Trucks-NEW and USED - RCCU makes loans to members for the purpose of purchasing and/or refinancing automobiles and trucks. The terms of repayment for such loans may extend to 72 months. The credit union will finance up to 100% of the purchase price, including tax, license and other applicable costs. Terms may be extended to accommodate the member s election of optional insurance products. The credit union reserves the right to determine the acceptability of the collateral offered to secure the loan. 2. MOBILE HOME LOANS RCCU will finance the purchase and/or refinance of mobile homes in accordance with third party investor requirements. Third party investors such as Countrywide, Members Home Source and CU Mortgage Corporation will provide requirements in their user manuals. 3. MOTOR HOMES, TRAVEL TRAILERS AND CAMPERS RCCU will finance the purchase and/or refinance of motor homes up to a maximum term of 180 months. The credit union will finance up to 100% of the purchase price including tax, license and other applicable costs. Terms may be extended to accommodate the member s election of optional insurance products. The credit union reserves the right to determine the acceptability of the collateral offered to secure the loan. 4. AUTO LEASING RCCU will finance the leasing of new and used vehicles at interest rates that are identical to our usual risk-based pricing structure. RCCU will contract with a third party provider to facilitate the leasing process. 5. AUTO EQUITY LOANS RCCU may lend any amount within the limits approved for new and used auto financing, to members for the purpose of executing an Auto Equity Loan. These loans will be made in 2

3 accordance with State and Federal Laws. All applicable real estate rules and regulations apply. A courtesy lien will be place on the member s real property for each Auto Equity Loan. 6. UNSECURED LOANS/VISA RCCU grants unsecured loans based on credit and the borrowers ability to repay the debt. The maximum amount any one member can receive in unsecured from RCCU is $45, STUDENT LOANS RCCU grants student loans under the terms and conditions of our lender Great Lakes. 8. HOME EQUITY LOANS RCCU will make loans to members based upon the equity value of real estate owned by the member, within the following guidelines. 8.1 OPEN END LINE OF CREDIT (HELOC) 8.1(a) Owner Occupied Property The maximum loan to value ratio (LTV) cannot exceed 100% of the property s established value, less any outstanding liens. 8.1(b) Non-Owner Occupied Property The maximum loan to value ratio (LTV) can not exceed 70% of the property s established value, less any outstanding liens. RCCU abides by the business lending guidelines in which members cannot borrower in excess of $50,000 if using the funds for home improvement on a rental property or any other business purpose. Amounts in excess of $50,000 will be granted in conjunction with RCCU s business policy. 8.1(c) RCCU will not accept less than second lien position on real estate secured loans. (Exception: If RCCU is currently in second position, a third lien in RCCU s name is acceptable.) 8.1(d) The maximum loan amount for loans in this category is $100, CLOSED END HOME EQUITY FIXED RATE 8.2(a) Owner Occupied Property The maximum loan to value ratio (LTV) cannot exceed 100% of the property s established value less any outstanding liens. 8.2(b) Non-Owner Occupied Property The maximum loan to value ratio (LTV) can not exceed 70% of the property s established value, less any outstanding liens. RCCU abides by the business lending guidelines in which members cannot borrower in excess of $50,000 if using the funds for home improvement on a 3

4 rental property or any other business purpose. Amounts in excess of $50,000 will be granted in conjunction with RCCU s business policy. 8.2(c) RCCU s will not accept less than second lien position on real estate secured loans. (Exception: If RCCU is currently in second position, a third lien in RCCU name is acceptable. 8.2(d) The maximum loan amount for loans in the category is $100, CLOSED-END HOME EQUITY VARIABLE RATE 8.3(a) Owner Occupied Property The maximum loan to value ratio (LTV) can not exceed 100% of the property s established value, less any outstanding liens. 8.3(b) Non-Owner Occupied Property The maximum loan to value ratio (LTV) can not exceed 70% of the property s established value, less any outstanding liens. RCCU abides by the business lending guidelines in which members cannot borrower in excess of $50,000 if using the funds for home improvement on a rental property or any other business purpose. Amounts in excess of $50,000 will be granted in conjunction with RCCU s business policy. 8.3(c) RCCU will not accept less than second lien position on real estate secured loans. (Exception: If RCCU is currently in second position, a third lien in RCCU s name is acceptable.) 8.3(d) The maximum loan amount for loans in this category is $100, IMPROVED LAND 8.4(a) Maximum loan to value ratio (LTV) cannot exceed 60% of the properties established value, less any outstanding liens. 8.4(b) RCCU will only record in first position. 8.4(c) RCCU will finance improved land for purchase only. (Exception: If property has no liens; the credit union will consider accepting the loans as collateral. 8.5 REAL PROPERY VALUATION POLICY All appraisals performed for real estate secured transactions will be completed in a manner consistent with procedures established by RCCU and in a format acceptable to RCCU. All appraisals will be performed in accordance with applicable state and federal laws. 4

5 9. FIRST TRUST DEED (MORTGAGE) LOANS RCCU will originate and fund the purchase and/or refinance of home mortgages in accordance with the secondary market or third party investor requirements. The investor will supply policy and procedures for loans in this category (examples: FannieMae, FreddieMac, and Members Home Source). 10. OTHER COLLATERAL At the credit union s discretion, other collateral may be offered for the purpose of securing a loan. Interest rates and terms will be commensurate with collateral. 11. SHARE SECURED AND SHARE CERTIFICATE SECURED LOANS 11.1 Members may borrow up to 100% of the available funds in either their Regular Share account and/or their Share Certificates on deposit with RCCU Perfecting RCCU s Security Interest California Statutes give RCCU a statutory lien on deposits held by members in their share account. On the basis of this authority, it is rare that any additional means will need to be employed to secure the credit union s interest. However, in cases where RCCU can identify an unacceptable level of risk to its security position, RCCU may utilize any other legal means, which might be necessary to specifically identify our security interest in the shares pledged. 12. BUSINESS LOAN POLICY 12.1 Loans for business purposes made to individuals and in excess of $25,000 may be granted in accordance with applicable state and federal law. The President/CEO or the Credit Manager must approve all such loans Loans to non-natural persons, such as organizations, associations and businesses, may be made in accordance with applicable federal and state regulations, and shall not exceed any amount which is prohibited by regulation or, in the opinion of management, is not considered to be safe and sound These loans will be made for the purpose of capital infusion, real estate purchase, refinance or improvement, leasehold improvements equipment purchase or agricultural purposes Trade Area is defined as Riverside County, California. The business receiving the funds will primarily provide service in Riverside County Qualified members or member groups are those who live, go to school, regularly do business or worship within Riverside County. 5

6 Members prohibited from obtaining business loans from the credit union include: Any member of the Board of Directors who is compensated as such RCCU s President/Chief Executive Officer Any Assistant President, Vice President, or Chief Financial Officer (Comptroller) Any associated member or immediate family member of anyone listed above Aggregate Member Business loan limit is the lesser of 1.75 times the credit union s net worth utilizing Generally Accepted Accounting Principals or 12.25% of the credit union s total assets. (GAAP defines net worth as all reserves less allowance for loan loss) The maximum percentage of assets invested in a particular category or type of business loan will be defined by the Asset Liability Committee (ALCO) and communicated to the Board of Directors The maximum aggregate threshold for any one member or group of associated members is 15% of the credit union s reserves (GAAP Definition) or $100,000 whichever is greater. All loans in excess of $1,000,000 will require the concurrence of the Board of Directors Each request will be analyzed to determine the borrower s ability to repay the loan. This analysis will include past payment history and likelihood of future ability to repay. The determination will include the analysis of: Balance Sheet Cash Flow Income Statement Tax Returns and other tax data Analysis of leveraging Comparison with industry average or similar analysis Business credit report and/or consumer credit report Business loan monitoring shall include, but will not be limited to the submission of annual financial statements and tax returns and the renewal of security agreements and lien documentation as required by statute The President/CEO or Credit Manager will ensure that a qualified individual, who meets the minimum requirements as stipulated through 6

7 regulation, will analyze all business loans requests. This individual may be an employee of the credit union, an employee of another credit union, an independent contractor or other third party Member business loans will be collateralized in accordance with applicable federal and state regulation Real Estate secured loans will have a maximum loan to value of 80%. Loans in excess of 80% loan to value must be covered by private mortgage insurance. Real estate liens will be in no greater than second position Collateral documentation shall be reviewed for ownership, value and marketability Properly executed security agreements, deed of trusts, UCC filings, ownership certificates shall be obtained to secure the credit union s lien position Collateral will be re-evaluated for value and marketability every three (3) years, or sooner as economic conditions warrant such re-evaluation Other re-evaluation conditions could require obtaining Continuing Guarantees from the principal(s) of non-natural borrower Interest rates and applicable terms will be commensurate with applicable federal and state regulation and will be determined based on the underlying collateral, which secures the loan, and the risk posed to the credit union Collection of past due, delinquent loans shall be monitored be the Loan Servicing Department as supervised by the Loan Servicing Manager adhering to Collection policy Business loans shall be categorized as such and reported in accordance with applicable federal and state regulations. Reserve requirements will be classified and provided for as required by regulation The Board of Directors must review the member business loan annually. 13. MEMBER INSURANCE The credit union offers optional insurance products for the convenience of its members. 7

8 14. MISCELLANEOUS Equal Credit Opportunity Lender - RCCU strictly adheres to both the letter and the spirit of the Equal Credit Opportunity Act (Regulation B), and is an Equal Housing Lender. 15. LOAN SERVICING/COLLECTIONS POLICY Riverside County's Credit Union will work with each member to assist them to protect their credit history while at the same time protect the credit union against any loss or potential loss. We understand that each member and situation is different, therefore, exceptions to the policy may be made based on what is in the best interest of the credit union. Riverside County's Credit Union will only use its own name when engaged in collection activities. We will not collect debts for any other financial institution under a reciprocal agreement. We will engage in collection activities in accordance with the Fair Debt Collection Practices Act and applicable state and federal law. The goal of this Loan Servicing/Collection Policy is to document our collection practices. RCCU is committed to use all legal remedies within our rights at our disposal to collect all amounts due to RCCU COLLECTION POLICY 15.1(a) At the time a loan becomes delinquent and there is reason to believe payment will be delayed, measures will be taken to begin the recovery process. If a share account is brought to a negative status, measures will also be taken to protect the interest of RCCU. All collection efforts will be in accordance with applicable state and federal laws as stated above. 15.1(b) All verbal and written correspondence will be annotated on member s account at the time the communication is made. 15.1(c) An extension agreement to remedy a past due situation may be granted based upon demonstrated need, in instances where unique circumstances exist, and the probability of reoccurrence is minimal. The Loan Servicing Manager or another person designated by the Loan Servicing Manager will review the initial request. The AVP of Lending or VP of Operations will approve. 15.1(d) Request for delinquent account refinances will be considered upon successful completion of payment agreement arranged and approved by the Loan Servicing Department. All loans must be approved by personnel with loan authority. 8

9 15.1(e) Collateral Repossession-Whenever collateral has been used to secure an advance of credit, and delinquency occurs, it is our responsibility to recover that collateral as quickly as may be necessary to protect RCCU from avoidable loss. Our potential loss exposure is far too great to delay action. 15.1(f) Real Property Default Foreclosure-Whenever real property has been used to secure an advance of credit, and delinquency occurs, it is our responsibility to recover through foreclosure proceeding that collateral as quickly as may be necessary to protect RCCU from avoidable loss. Our potential loss exposure is far too great to delay action CHARGE-OFF POLICY 15.2(a) At the discretion of the management of RCCU, legal action may be taken to recover past due loans and such decisions will be dependent upon the amount owed and collateral, if any. 15.2(b) Past due loans will be charged off when the probability of collection of the outstanding loan balance no longer exist and/or the delinquent outstanding balance exceeds 180 days, whichever occurs first. Some loans may not be charged off at 180 days due to the following reasons: 1. Pending credit life/disability claims. 2. Acceptable payment arrangements exist. 3. Other reasons deemed appropriate by management. 15.2(c) Charge Off Approval Process: 1. Loan Servicing Manager will prepare a monthly recommendation for charge off to the Board of Directors. 2. Recommendations will be forwarded to VP of Operations for review and approval. 3. Upon approval by Board of Directors, charged off amounts are posted to the Allowance for Loan Loss General Ledger. 4. General Ledger is reviewed and balanced after posting is completed. 15.2(d) RCCU will report to Internal Revenue Service in 1099C format any non-bankrupt account that is deemed non-collectible. When a negotiated settlement is accepted on any non-bankrupt account RCCU will report any deficiency balance. 9