MBL 2700 Business Loan Collection

Transcription

1 MBL 2700 Business Loan Collection Effective: September 2011 Departments Impacted List areas of the Credit Union (departments/branches) affected by the procedure. Introduction The Introduction section contains a summary of the procedure and any policy information. The actual steps for the procedure are not included in this section. Procedure COLLECTION PROCEDURES BUSINESS SERVICES DEPARTMENT MONITORING Regular monitoring and follow-up on delinquent loans is one of the most important tools for early detection of potential problem loans. Good follow-up on delinquencies, early detection of problem loans and development of action plans will result in a safer portfolio with minimized losses. Oftentimes it is the lender who develops early action plans that achieve the highest payback potential. Delinquent loan reports are to be reviewed at least weekly by Business Services staff. Current practice is to review past due loans in the course of the department weekly meeting. In any situation where the delinquency appears to be any more than routine missed payments or the loan appears to have potential for further collection issues the following should be performed: o Verify that our documentation is correct (including entity documentation and authorized signers) o Recalculate collateral value as accurately as possible with available information (REVAL, Broker Price Opinion, etc) o Verify that adequate insurance is in force covering loan collateral o Attempt to acquire current financial information from the borrower. o If credit reports in file are not relatively current the handling officer should obtain and review updated personal and business credit reports o Assess loan to determine if loan is properly graded (Risk Rating) See MBL Loan monitoring process: o A weekly Delinquent Loans Report is run on Friday evenings. This report displays all past due Business and Commercial Real Estate Loans. The report is separated into 6 sections: 4+ Months Past Due, 3 Months Past Due, 2 Months Past Due, 1 Month Page 1 of 8

2 Past Due, Past Due and a break down of past due amounts based on delinquency and collateral code. Included in this report is: Account Number, Minor, Borrower Name, Phone, Days Delq, Months Delq, Risk Rating, Amount DQ, Paid To Date, Last Trans Date and Balance Due. o A copy of the report is pulled by the Business Loan Collections Manager and ed to all Business Services Staff. o This report is reviewed each Monday morning at the regularly scheduled Business Services Department meeting. The meeting is attended by Chief Credit Officer, Business Services Department Head, Business Loan Collections Manager, Underwriters, Relationship Managers and all other business services staff. o Status updates for each loan are communicated to the group and plans are established as needed. It is also in this meeting that duties for calling on past due accounts are assigned, primarily based on relationship manager. Those accounts without a relationship manager are generally handled by the Business Loan Collections Manager. Notes are taken at the meeting by the Business Loan Collections Manager. o Notes are then made in our collections module (Akcelerant) by the Business Loan Collections Manager weekly or as needed based on the individual borrower s stutus. o On a monthly basis a Problem Loan Meeting is convened at which the status and plans for all loans graded 4-7 are communicated to the group, establishing a consensus among the management team. Those who regularly attend the meeting include: Chief Financial Officer, Chief Credit Officer, VP Collections, Business Services Department Head, Asset Liability Manager and Business Collections Manager. For those loans that are participated to other lenders, where North Island Credit Union is the lead lender, regular status updates are communicated to the participants via . Most often this is done as the information is received and sent by the Business Services Department Head. * * * SUGGESTED PRACTICES BASED ON DELINQUENCY Loans less than 30 days past due: Reminder notices are generated and automatically mailed to the borrower: o For Commercial Real Estate Loans after 10 days DQ o For Non-Real Estate Products after 15 days DQ As needed routine reminder and courtesy calls will be performed on an ongoing basis by the Business Loan Collections Manager or an assigned staff member starting when the loan is 10 to 15 days past due. If the staff member making these calls receives information that the borrower may present an increasing risk of loss or if the borrower cannot be contacted the loan should be referred either to the relationship officer or to the Business Loan Collections Manager for handling. If the past-due account is part of a larger relationship it may be beneficial for the account handling officer to contact the borrower to bring the loan(s) current. Page 2 of 8

3 Results of calls will be documented in Akcelerant and/or the Conversation Log for each specific borrower and maintained on the Business Services K drive. Results will also be discussed with the Business Services Department Head at the weekly staff meeting. Loans 30 days or more past due: Generally these borrowers should be contacted by either the relationship officer or the Business Loan Collections Manager to assess the ongoing credit quality of the loan. In the absence of firm commitments to bring the loan(s) current the handling officer is to develop an adequate action plan for resolving the delinquency or exiting the credit. If no response has been received from the borrower, it may be prudent to send a personalized letter to the borrower addressing the delinquency. Any loan that becomes more than 30 days past due should be examined to determine proper grading See MBL A written assessment is not required unless a downgrade is thought to be prudent. Results of calls will be documented in Akcelerant and/or the Conversation Log for each specific borrower and maintained on the Business Services K drive. Results will also be discussed with the Business Services Department Head at the weekly staff meeting. Any other loans to borrower should be examined to determine viability of those credits. Determination should be made whether covenant breaches warrant freezing of any available lines of credit and the borrower advised in writing. Loans 60 days or more past due: Ongoing communication with borrower should continue via in-person, telephone and in writing. Generally these borrowers should be contacted by either the relationship officer or the Business Loan Collections Manager to assess the ongoing credit quality of the loan. Action plan is to be formulated for the delinquent borrower with discussion with the Business Services Department Head and/or the Business Loan Collections Manager. o Action plans could include: Loan Workout Arrangements (Troubled Debt Restructure) Interest Only Extended Amortization Interest Rate Reduction Catch Up Payment Plan Generally interest only accomodations would be made for short term solution for a period of 3-12 months. This option would provide for amortization periods outside normal guidelines possibly up to 40 years. If warrented, a below market rate may be offered for a short period. The absolute minimum rate for workout plans is set by the Chief Financial Officer. If a borrower has fallen behind in payments and cash flow now supports the payments, it may be appropriate to distribute the past due amount evenly over the next several months. This amount would be added to the normal payment each month until caught Page 3 of 8

4 up. A/B Notes This option includes dividing the original note and deed of trust into two separate notes and liens. The "A" note, which would be in the senior lien position, would generally fit into normal underwriting guidelines with regard to DCR and LTV and could be argued to have no actual impairment. The junior lien would be the B note, which would likely be under collateralized and/or unsupported by current cash flows. This portion is likely impaired and reserved for appropriately, in some cases the "B" portion may be charged off and handled either as a collection item or essentially forborne, with the possibility of collection when the collateral is liquidated. Depending on the situation, it may be appropriate at this point for a new handling officer and/or Business Loan Collections Manager to take the lead. Communications and action plans will be documented in Akcelerant and/or the Conversation Log for each specific borrower and maintained on the Business Services K drive. Results will also be discussed with the Business Services Department Head at the weekly staff meeting. Loan grade should be assessed for correctness. Downgrade as appropriate. A 4 Watch Risk Grade or worse would be appropriate except in highly unusual circumstances where the Credit Union does not consider the credit to meet the characteristics of a 4 and a satisfactory action plan is in place. Any other loans to borrower should be examined to determine viability of those credits. Determination should be made whether covenant breaches warrant freezing of any available lines of credit and the borrower advised in writing. In addition to the communication with the borrower the following may need to be performed: o Verify that our documentation is correct (including entity documentation and authorized signers) o Verify collateral value as accurately as possible. A site visit by North Island staff (or appropriate contractor) may be appropriate to inspect the condition of the collateral For loans secured by Real Estate one of the following may be appropriate: 1. An updated REVAL with current operating income & expenses and applying a reasonable CAP Rate given the current conditions. 2. A Broker Price Opinion 3. Residential Comparables, if applicable For loans secured by other than real estate one or more of the following may be appropriate: 1. For equipment loans, a survey of like equipment for sale 2. A review of business assets listing including current accounts receivable aging, if available Page 4 of 8

5 o Verify that adequate insurance is in force covering loan collateral o Attempt to acquire current financial information from the borrower o If credit reports in file more than 6 months old, the handling officer should obtain updated personal and business credit reports If a viable action plan for the credit cannot be formulated the credit should be discussed with Chief Credit Officer, Business Services Department Head, Business Loan Collections Manager and the handling officer at a minimum to determine appropriate direction for collection of past due balances or the entire balance if needed. Consider: o Demand letter o Place for repossession of collateral o Guarantor Demand for Payment o Collect on Assignment of Rents o Consider foreclosure (with assistance of Asset Management Dept) For Loans 90 Days or More Past Due: Continue collection efforts outlined above Credits over 90 days are placed on non-accrual status Assessment should be made if the account remains collectible or if charge off is appropriate. Credit should be downgraded to 6 Substandard or 7 Potential Loss Risk Grade except in unusual circumstances where the Credit Union does not consider the credit to meet the characteristics of a 6 or 7 and a satisfactory action plan is in place. Chief Credit Officer, Controller and Chief Internal Auditor should all be advised on the status of credits which have reached this severity of delinquency. If foreclosure or reposession is being pursued, establish more accurate collateral value. o For loans secured by Real Estate the following may be appropriate: Obtain a Broker Price Opinion Order an appraisal of the property Assign a receiver to manage the property o For loans secured by other than real estate Complete a Collateral Analysis Depending on collateral type, utilize online resources to approximate value of collateral. For Loans Reaching 180 Days Past Due: Generally speaking, a loan reaching 180 days past due should be charged off in accordance with Charge Off Policy # If is determined that charge off is not appropriate (due to foreclosure proceedings, bankruptcy, etc), management is required to adjust the ALLL to account for the estimation of loss on such loans as per that same policy. * * * COMMUNICATION AND REPORTING Page 5 of 8

6 Various methods are in place to ensure issues in our Commercial Loan Portfolio are communicated to the proper channels: Report Frequency Information Communicated Who Receives Delinquent Loans Report Problem Loan Report Board Report Weekly All past due loans Monthly For all Loans Graded 4-7 updated comments, status and plans are discussed at an inperson meeting. Also included is the ALLL reserved for each individual loan. Monthly Chargoffs for the month Potential charge offs for the following month Upgrades & Downgrades of loans Anticipated Upgrades & Downgrades for the following month Reportable Delinquent Loans Problem Loan Report (above) Allowance for Loan Loss Summary (ALLL) Historic Chargeoff Summary Chief Credit Officer Business Services Department Head Business Collections Manager Relationship Manager Business Services Department Chief Financial Officer Chief Credit Officer VP Collections Business Services Department Head Controller Business Collections Manager Board of Directors CEO Chief Financial Officer Chief Operating Officer Controller Chief Internal Auditor Chief Credit Officer * * * REPORTABLE CODES AND DEFINITIONS Status OSI Code Comments Page 6 of 8

7 TDR LWKO Warning Flag Loan Workout Renewal or modification of an MBL where there is a concession 1 based on hardship 2. In other words there is both hardship AND a concession. The loan remains in TDR status until the member has made six consecutive payments on time 3. (Curt & Dan report as TDR as need) Workout (rolls to this status if paid as agreed for six months) LWKO Warning Flag Loans that were at one time TDRs and graduated based on six months of on time payments. MBLs will remain in this status for the remaining life of the loan. The status follows the loan (vs. member) and remains even after there is no longer hardship or the concession(s) have expired and the rate and term have returned to market pricing. Loan Workout Modification MODY Warning Flag Modified Loan Renewals or modification that do not meet the TDR definition for both hardship and concession; however, the renewal/mod violates the policy limit for LTV 4. In most cases if the DCR is outside the policy limits, hardship will be evident and the loan will be likely be considered a TDR. In select cases the property DCR could be below policy, but due to strong global cash flow, the underwriter may determine that there is no 1 Concession is a rate or term that is more generous or liberal than would be given to a member obtaining a new loan where we have the luxury of underwriting and either approving or declining the loan. 2 Hardship is demonstrated deterioration in financial conditions, often decreased cash flow and debt coverage ability, since the loan was originated. 3 On time is within 1 month of the due date. 4 For policy limits for both LTV and DCR, refer to Exhibit C of the MBL Policy. Page 7 of 8

8 hardship and not a true TDR. These loans will also be coded as Modification and reported accordingly. Additional Information: Refer to the Procedure Manual regarding Risk Grading. Controls Include any control steps needed for the procedure. Reference Documents Include the names and/or links to all documents that are related to the procedure. Revision History REVISION DATE DESCRIPTION AUTHOR Approvals NAME TITLE DATE Page 8 of 8