Best Practices in Delinquency Management. The Art of Collections SACCA Congress. Quality Credit Unions for Everyone

Transcription

1 Best Practices in Delinquency Management The Art of Collections 2008 SACCA Congress October 24, Banjul, The Gambia by Jean Thiboutot with support from Jesus Chavez Sr. Quality Credit Unions for Everyone

2 Agenda Effective Collection Program Written Lending Policies Written Collection Policies Written Collection Procedures Education of Members Selection and Training of Personnel Identification of Delinquent Loans The Collection Department Methods of Managing Delinquency Model Credit Union Guidelines on Collections

3 Introduction 1. The numbers and amounts of bad debts are increasing; 2. Laws are being or already passed to protect the debtor; 3. More difficult to recover collateral and overdue payments; 4. The art of collections, must operate within A complex web of statutes, regulations and judicial standards, While working on efficiency, organization and aggressiveness of a debt collection program. 5. A good collection department is more than one, which complies with existing legal standards or board policy. It collects money.

4 Results of High Delinquency Cooperative operations that are affected by high delinquency: CAPITAL LIQUIDITY SERVICES IMAGE

5 RESULTS OF HIGH DELINQUENCY Lowers liquidity resulting to credit rationing, external credit dependence, reduced ability to provide services that members want and need Lowers profitability resulting to diminishing ability to provide for operational costs including staff wages and slow build-up of institutional capital

6 RESULTS OF HIGH DELINQUENCY Negative reaction from the members, possible loss of good members, losing credibility affecting the image of the cooperative No liquidity, no capital, another lost cooperative!

7 Why the need to analyze loans? Credit is the main line of the coop s s business How well a coop manages its loan portfolio depends on how efficient the analysis is

8 Loans in the coop are part of the financial statement classified as EARNING ASSETS. Since loans should be repaid and considered earning loans should remain as such.

9 WOCCU promotes: An ideal PEARLS financial structure of - 95% productive assets composed of loans (70-80%) and liquid investments - 5% unproductive assets

10 Loan Portfolio Analysis measures: product performance profitability risk policy effectiveness market preferences

11 A sample tool and its indicators: Coop Name LOAN PORTFOLIO ANALYSIS Amount Current Non-Del. 1 Day-1 Mo. 1-3 Months 3-6 Months 6-12 Months >12 Months Granted Balance AA A B C D E Totals Distribution of Current Balance Total Delinquent Loan Portfolio 0% 0% 0% 0% 0% 0% 0 PERCENTAGE OF DELINQUENT LOAN PORTFOLIO REQUIRED LOAN LOSS ALLOWANCES Percent of Allowances Required Amount of Allowances by Range Percent of Allowances by Range TOTAL REQUIRED LOAN LOSS ALLOWANCES DELINQUENCY CATEGORIES 0% 0% 0% 0% 0% 0% % 0% 0% 0% 0% 0 EXCHANGE RATE 50.00

12 Loan Portfolio Analysis Tool provides a summary of: granted loan amount current loan balance non-delinquent and delinquent portfolio by range required provisions

13 WOCCU promotes: Loan Loss Provisioning of 100% for delinquent loans of more than 12 months 35% for delinquent loans of months

14 Importance of Loan Portfolio Analysis: determines risk exposure and measures profitability Loan Volume is Too Low Loan Volume is Too High Earning Potential is not Maximized Liquidity is Potentially Low High Collection Rate = Low Delinquency Ratio = High Profitability Ratio

15 Effective Collection Program Must have 3 fundamental goals: 1. The reduction of losses due to delinquency. 2. The reduction of losses due to bankruptcy (insolvency) of the member. 3. The protection of the credit union from undue exposure to liability.

16 Effective Collection Program 1. Has an effective written collection policy and procedures. 2. Low delinquency are one of the best means of sustaining a sound financial condition. 3. Provides quality of member services. 4. This applies to any size credit union, whether it is staffed by volunteers or a paid professional staff.

17 Effective Collection Program Benefits of Effective Collections: Procedures include: 1. Cash flow and funds provided to make additional loans and to improve member services. 2. A high level of interest income will be maintained. 3. Improved financial condition of your credit union - reserves and earnings will not be drained to offset collection problem loans.

18 Essential Elements Of delinquency Control 1. Written lending policies, 2. Written collection policies and procedures, 3. Education of members, 4. Selection and training of personnel, 5. Identification of delinquent loans (adequate and timely management information system), 6. Correct computation of delinquency, 7. Schedule (report) of delinquent loans to be reported to the board of directors, 8. Documentation, documentation, documentation. 9. Controlling delinquency. 10. Knowledgeable collectors in the laws and regulations and authority to enforce credit union policy and procedures.

19 Effective Collection Program Essential Elements Of Delinquency Control 11. Constant and consistent collection actions. 12. All collection information should be in one place. 13. Knowledgeable collectors of collections available outside of the credit union. 14. Collection activity should continue after a loan has been charged off. 15. Loan protection and disability insurance can improve the amount collected. Loan protection pays the loan should the borrower die and disability insurance makes the loan payments if a member is disabled due to an accident.

20 Written Lending Policies Principles of safety and soundness require that the board of directors establish written policies for loans and lines-of-credit consistent with the relevant bylaws, and other applicable laws (rules) and regulations of the applicable country. Credit committees and loan officers with strict lending policies, can discourage all but a select few from applying for loans, Few delinquencies is preferred occasionally while serving the members. Lending policies should establish criteria for conditions where collateral is required.

21 Written Lending Policies 1. The types of loans to be granted; 2. The maximum amount to be loaned on each type of loan to an individual or regarding a specific loan category in the aggregate; 3. The maturity limits on each type of loan; 4. The collateral requirements on each type of secured loan; 5. Market based interest rates

22 5 C s imbedded in Credit policy 1. CAPACITY to repay 2. CHARACTER (member s reputation) 3. CAPITAL (steady Asset & Savings Growth) 4. CONDITIONS (economy) 5. COLLATERAL It is a means of gaining control over some of the borrowers assets or capital

23 Written Collection Policies The principles of safety and soundness require the board of directors to establish and supervise an effective loan collection program. The collection policy should define the following: The objectives, Personnel involved, Procedures, and. The means of measuring and controlling delinquency.

24 Written Collection Policies The collection policy should define the following: 1. Who is responsible for collecting the loans? Are they the same people who make loans? 2. When a loan is considered delinquent (normally 7 to 10 days of the 1 st missed payment. 3. Frequency of a delinquency report to the board (monthly). 4. What information is contained in the delinquency report? 5. When the delinquent borrower will be contacted after a missed payment and the types of contact used (letters, personal contact, phone calls).

25 Written Collection Policies The collection policy should define the following: 6. Documenting the collection efforts of the collector. 7. When the borrower should be contacted again if there is no response and what should be done in this situation. 8. When the co-maker will be contacted (normally after the 1 st missed payment). 9. The need for all collection information, contacts, promises to pay, etc., to be placed in writing. 10. When collateral will be repossessed.

26 Written Collection Policies The collection policy should define the following: 11. How collateral will be sold after repossession and the documentation of the bids and the sale required. 12. When loans can be extended or refinanced. a. Loan extensions are an extension of the payment date and are to be used for unexpected emergencies such as: death in the family, hospitalization, family crisis, payroll problems, etc. b. Refinanced loans should be granted based on the 5 Cs credit, collateral, character, conditions of the loan, capacity to repay). c. If the loan is co-made, the co-maker must sign the extension form. d. Under no circumstances, are refinances used to reduce delinquency

27 Written Collection Policies 13. When loans will be charged-off and recoveries accounted for. 14. Who will analyze delinquent loans and how often 15. Delinquency fees and when to stop accruing interest on delinquent loans (after 2 months delinquent). 16. Do collectors receive a commission for loans collected? If yes, how is commission paid and monitored. Who is going to pay? ways to remove a loan from a delinquency list: a. Pay the loan current. b. Charge the loan off, or c. Change the terms with a loan, or refinance.

28 Written Collection Procedures should include the following: 1. The objectives making the recovery in cash, not the collateral, establishing the reason for the delinquency, and a repayment plan. 2. Who is responsible for working the delinquent loans on a daily basis? 3. How often a delinquency report is produced (weekly). 4. What type of contact (letters, phone calls, personal contacts) will be used and when. 5. When the 1 st, 2 nd, and 3 rd contacts are to be made after the missed payment(s). Combination of phone calls & personal contacts.

29 Written Collection Procedures 6. Establish a collection card for the delinquent borrower when the 1 st contact is made which includes all actions taken to collect the loan (documenting the collection efforts). a. The documenting process is in case someone else (volunteer, new employee, board member) assists in collections, the history of the member is known on one collection card. (A sample of a collection card next!)

30 Sample Collection Card Page 1 ATTACHMENT #4 SAMPLE DELINQUENT BORROWER COLLECTION CARD DELINQUENT BORROWER COLLECTION CARD Member Name Account # Address Name of Co-signer Telephone Number Account Number of Co-signer Place of Employment Address of Co-signer Employment Address Employment Telephone Telephone Number of Co-signer Original Amount of Loan Name of Co-signer's Employer Loan Purpose Employer's Address Original Loan Maturity (date) Employer's Telephone Number Original Loan Period (in months) Member Share Balance Frequency of Payments Co-signer's Share Balance Form of Loan Payment: Collateral Description (Payroll deduction, cash) Collateral Value Location of Collateral Condition of Collateral Observations Description of any modifications to the original loan contract

31 Sample Collection Card Page 2 COLLECTION PROGRESS AND INFORMATION Date of Collection Action Type of Collection Action Taken Results from Actions taken and any Observations Date of Next Action

32 Written Collection Procedures 7. How the collection card system is to be organized (by day of the month). The best collection programs follow-up daily. 8. What is done and what type of contact is used when there is no response after the contact(s). 9. Immediate follow up after a missed promise to pay or a collection letter in which the borrower did not respond. Constant and consistent follow up is the key the squeaky wheel gets the grease. a. The member will always pay the institution that asks for their payments rather than the one that never requests payment.

33 Written Collection Procedures 10. Co-signer to receive all the contacts, calls, and collection notices that the borrower receives. 11. Collection procedures will have specifics for making loan extensions, loan refinances and repossessing collateral. 12. Collection staff must be allowed to collect after-hours and on weekend. a. Collections should not only be performed during the workday but also after working hours and on weekends.

34 Education Of Members 1. The collection of a loan begin prior to the member obtaining the loan proceeds. 2. If the credit union attempts to advise the member of their responsibilities on the repayment of the loan, after they have obtained the proceeds of the loan, it is too late. 3. All of the specifics and responsibilities need to be spelled out in person to the member prior to the loan proceeds being advanced.

35 Education Of Members When loan is granted, the member and co-maker reminded of the following: 1. Their obligation is to repay the loan in accordance with terms of the note, and 2. The money they are borrowing belongs to the members; 3. Members are to notify credit union if their financial situation changes or if the member has problems meeting the repayment schedule. 4. If loan is repaid by payroll deduction, members instructed that the credit union is accepting repayment of the loan by payroll deduction for their benefit, but it is still their responsibility to ensure that payments are made on time.

36 Selection And Training Of Personnel Collectors must: 1. Must be given the necessary authority so that they can collect the loans. 2. Receive and review the delinquency report on a weekly basis. 3. Start collection procedures - send collection letters, make phone calls, and/or personal contacts 7 to 10 days after the missed payment. 4. Review the collection card file daily 1 st thing each morning. a. Find the members that have promised to make payments and follow up to ensure that payments have been made. b. If not follow-up with a personal phone call to find out why the payment was not made.

37 Selection And Training Of Personnel 5. IMMEDIATELY, contact all delinquent borrowers in which no payment or arrangement has been made. Constant and consistent follow up is key to successful collections. 6. Have as objectives a. To be repaid in cash, b. establish the reason for delinquency c. A realistic repayment schedule that takes the borrower s cash flow in mind, the value and life of the collateral, and the impact on the credit union.

38 Selection And Training Of Personnel 7. With personal contacts ask: how and who will make the payment, when will the payment be made, and for how much. 8. Place all collection information on the collection cards, which have been organized by the day of the month: letters and date sent, promises to pay, information about co-signers, etc. All information should be in one place, on this collection card. 9. Contact the co-signer every time the borrower is contacted. Use them to assist with the collections of the loan.

39 Selection And Training Of Personnel 10. If the borrower is unwilling to work with the credit union, use other available alternatives such as: collection agencies, lawyers, bailiffs, and repossession. 11. Follow through on any actions that are disclosed to the borrower. Do not make idle threats. 12. Collect loans not only during working hours, but also after work and on weekends. 13. Start collections on the most recent delinquent accounts and large balance accounts. a. When a loan becomes delinquent an immediate response can make the difference between collecting and not collecting.

40 Selection And Training Of Personnel 14. Below are the percentages that show the longer the loan becomes delinquent and the probability on collecting becomes less. Past due in Days Recovery Rate 30 days 95% 60 days 89% 90 days 80% 120 days 70% 240 days 50% 360 days 10% 15. Collectors through their actions establish the culture and the member s attitude towards timely loan repayment!

41 Management And Officials Must: 1. Use collectors and lawyers instead of volunteer collection committees. 2. Give collectors the authority needed to collect loans. 3. Ensure that the workload is distributed fairly among collectors and that collectors have the necessary transportation to make collection contacts. 4. Analyze the causes of delinquency, and make changes in the lending process as needed. 5. Approve all loan extensions and refinances. Under no circumstances are these to be used to reduce delinquency.

42 Management And Officials Must: 6. Increase collection staff immediately if there is a rapid increase in delinquency! 7. Charge off all loans when they are determined to be uncollectible. They are no longer assets of the credit union. However, collections should continue on these loans. 8. Adequately fund the Allowance for Loan Loss for all potential and current loan losses. a. For any delinquent loan that has been refinanced and becomes late again (> 1 month), they should be provided for in the Allowance for Loan Loss account.

43 Management And Officials Must: Make Collections easier by: 1. Obtaining all necessary information on the loan applications (how the member can be found personal and credit references, street address, telephone numbers, place of employment, supervisor s name, etc.) 2. Determine borrower creditworthiness. 3. Verify the income, debt and credit references. 4. Establish a credit bureau or informal system with other local credit unions. 5. Loan interviews should be conducted for all loans that pose a risk to the credit union.

44 Management And Officials Must: Make Collections easier by: 6. Do not over lend on collateral ask for additional security or co-borrower. 7. All co-signers should have a financial position that is stronger than the borrower. The same information obtained for the primary borrower should be obtained for the co-signer. 8. Loan terms should not exceed the useful life of the collateral. 9. All delinquent borrowers should be contacted early and often. The borrower must understand you are serious about collecting.

45 Successful Collections: 1. Do not threaten delinquent borrowers. Credit union must do what they say they are going to do. 2. Have accurate management information system MIS to measure delinquency accurately. 3. Charge competitive loan rates and terms so the credit union can attract quality borrowers. Charge different interest rates on loans depending on the risk involved (i.e., longer the maturity the higher the interest rate; older the collateral the higher the interest rates). 4. Smaller loans should be granted to new borrowers so they can establish a credit history with the credit union. 5. Have established written quarterly goals for the delinquency and charge off ratios. a. Management and employees should be appraised based on the attainment on these goals. 6. Require adequate insurance on all collateral

46 Successful Lenders: 1. Know their borrowers, 2. Maintain close contact with borrowers (frequent payments, visit businesses, through other services offered), 3. Provide appropriate credit products, 4. Offer competitive rates and terms. 5. Are fanatical about collecting on delinquent loans.

47 Identification Of Delinquent Loans 1. The first step in any collection program is the computation of delinquency and identification of the delinquent borrowers. 2. Data processing systems and some accounting machines automatically calculate delinquency and generate reports, which provide an aged history of delinquent accounts. All other credit unions must compute the amount of delinquency and prepare a schedule manually. 3. How to Compute Delinquency -There are several methods available for computing delinquent loans. The discussions on the computation of delinquency that follow fall into two broad categories.

48 Identification Of Delinquent Loans Delinquency Calculations: This method is used by credit unions that have a manual accounting system and calculate the interest owed and collected and maintain the information on Individual Share and Loan Ledgers. This method can be utilized for both level payment and non-level payment loans.

49 Identification Of Delinquent Loans Delinquency Calculations: The following procedures should be followed: 1. Run an amortization on the loan with the loan, interest rate, maturity and payments. a. Sight-check to compare the unpaid balance of the loan with the balance shown on the amortization schedule. 2. Determine the amount in arrears. Subtract the amount for the specified date from the unpaid balance of the loan. 3. Count number of delinquent payments. The arrears divided by the amount of the scheduled monthly payment - determine number of installments missed. a. A part of an installment missed is considered to be a whole installment missed.

50 Identification of Delinquent Loans Delinquent Loan Report A report is prepared monthly and given to the board of directors, this report is called - Schedule of Delinquent Loans It should provide sufficient information to classify delinquent loans on a monthly basis A copy of the monthly schedule should be kept on file.

51 Delinquent Loan Report At a minimum the delinquency report include : 1. Member s account number, 2. Name of the borrower, 3. The date the loan was made, 4. The original amount of the loan, 5. The current loan balance of each delinquent loan, which indicates the age of the delinquency (the amount shown should be the unpaid balance of each loan is the total unpaid principal, 6. How delinquent the loan is, 7. The date of last payment (excluding savings transfers) should be entered in the designated columns for each delinquent loan.

52 Delinquent Loan Report FRM3C DELINQUENT SUMMARY UNPAID CATEGORIES NUMBER BALANCES Amt in Allow. Loan Loss Amt in Allow. Loan Loss SAVINGS AND CREDIT COOPERATIVE INC. del < 2 mos 0.0% $ - 2 < 3 MOS 35.0% $ 3 < 6 MOS 35.0% $ SCHEDULE OF DELINQUENT LOANS 6 < 12 MOS 35.0% $ 12 MOS & OVER 100.0% $ AS OF: TOTALS $ ORIGINAL Loan UNPAID BALANCES OF LOANS DELINQUENT DATE OF ACCOUNT NAME OF BORROWER DATE OF AMOUNT Refinanced 1 MOS TO 2 TO LESS 3 TO LESS 6 TO LESS 12 MONTHS LAST NUMBER LOAN OF LOAN (yes/no) < 2 MOS THAN 3 MONTHS THAN 6 MONTHS THAN 12 MONTHS AND OVER PAYMENT SHARE BALANCE COMMENTS TOTAL UPAID BALANCES OF DELINQUENT LOANS $0.00 $0.00 $0.00 $0.00 TOTAL NUMBER OF DELINQUENT LOANS

53 Analysis Of Delinquency Report The delinquency report should be analyzed with the following in mind: 1. The trend of the number and the total loan amount in each category. 2. The total number of delinquent loans, 3. The original date of when the loan was granted. 4. Who granted the delinquent loans? (Perhaps the credit committee or loan officers are granting a lot of delinquent loans). 5. Are there enough collectors in the office and in the field to handle the level of delinquency? 6. Are lawyers and collections agencies being used appropriately?

54 The Collection Department 1. A good collection department must be the right mix of procedures, policy and people; 2. The procedures must be effective (and legal); 3. The policy must be realistic and humane, and 4. The people performing the collections must be special.

55 The Collection Department A good collection officer is a master of time, self-control and persistence. They must know the following: 1. When to push (and when not to) and. 2. How to pursue their quarry without personal anger, 3. How to negotiate a fair repayment arrangement, and. 4. How to recognize a loss when they see one so that valuable time will not be wasted before the account is turned over to an attorney.

56 The Collection Department The internal, administrative policies of a collection department play an important role in shaping and improving staff performance. Punctuality, Organization - strict procedures for handling files, Weekly meetings to iron out problems, talk off frustrations and express gripes, and. Periodic review of staff performance can, when taken together, create an atmosphere of professionalism conducive to good results.

57 Methods of Collecting Delinquent Loans Setting Up and Handling of Files When a collection file is opened, all of the relevant information must be in it, including the following: 1. Copies of the note, 2. Security agreement, if any, 3. Previous correspondence to or from the debtor in connection with the delinquent indebtedness, 4. And any special information that may aid collection effort (such as a comment from a board member that the debtor is ill, unemployed, etc.).

58 Methods of Collecting Delinquent Loans The collection officer should verify accuracy of the balance, the amount in arrears, and the payment record. File arranged for ease of reference, with documents and correspondence chronologically arranged on one side, and a running diary or contact information sheet on the other. Everything that occurs in the course of the collection effort should be noted in the file, dated and initialed.

59 Methods Of Collecting Delinquent Loans Collectors Approach to Borrowers Explore the circumstances of the debtor. 1. Try to determine the reasons for nonpayment without making negative assumptions about the debtor. 2. Chances are great that the debtor s problem is real, and that the debtor is not attempting to evade payment. 3. Once you know the reason for nonpayment, consider alternatives offer the debtor, such as refinancing, reduced payments, credit counseling, etc. Let the debtor know that their dilemma is resolvable, and that you will help.

60 Methods Of Collecting Delinquent Loans Initial Contact Whether your initial contact is by letter, telephone or in person, remember, never resort to personal insult, threats or angry tirades. First of all, such conduct would expose to the credit union to unnecessary liability. Secondly, the first impression the debtor receives will often shape the entire relationship. If you turn the debtor off immediately, that is what he will do to you.

61 Methods Of Collecting Delinquent Loans Let the debtor know: 1. You are a professional. 2. You are willing to help. 3. You are taking action and will take any and all measures possible to collect the debt.

62 Methods Of Collecting Delinquent Loans 1. Impressions must be made simultaneously, in your attitude, in the tone of your message, in the suggestions you make. 2. Start off with an expression of concern, state the problem frankly, get right to the point, and express your willingness to help.

63 Methods Of Collecting Delinquent Loans Subsequent Contacts Escalate your message quickly if a debtor fails to satisfactorily respond, be sure to wait no longer than that to send a second message. 1. Consistency and following through on what you say is an important part of the overall message you want to convey. 2. In your second letter, say only what you mean. Mean everything you say. 3. Continue to avoid threats and insults. Make a concrete suggestion for resolving the problem.

64 Methods Of Collecting Delinquent Loans If the debtor fails to answer, do what you said, when you said you would, do it. If you think it s too early to bring suit, or recovering collateral, phrase the letter differently, and If it is not answered, direct your attorney to send a letter on his stationery giving the debtor a final opportunity to contact the credit union. Many debtors respond at this point.

65 Methods Of Collecting Delinquent Loans 1. Partial Payments may be an effective means of assisting a debtor in bringing up an arrearage. 2. Some debtors fall behind in the transition from one job to another, or in times of illness or other time-limited hardship. 3. Partial or reduced payments take the pressure off the debtor while allowing the credit union to continue collecting something.

66 Methods Of Collecting Delinquent Loans 4. Partial payment arrangement, be sure in writing to make it clear that the arrangement is not a precedent and that it is being extended purely because of the temporary hardship faced by the debtor. 5. Include in the letter the date beyond which payments shall resume in their full amount.

67 The Decision For Legal Collection Criteria to take legal collection action. Factors include: 1. Have effective in-house techniques been exhausted? 2. Can the debtor be found or be served? 3. Are there sufficient assets to satisfy the judgment? 4. If the loan is secured, is the collateral worth retrieving? 5. Can attorneys fees and costs be recovered from the debtor? 6. Are any defenses available to the debtor?

68 Methods Of Managing Delinquency 1. Accept that most delinquency is caused not by bad borrowers but by credit institutions that have not implemented an effective methodology. 2. Create an image and philosophy that does not consider late payment acceptable. Creating disciplined borrowers is critical to the success of the credit union. 3. Members must value the credit service. Loan products should suit members needs, the delivery process should be convenient, and members should be made to feel that the organization respects and cares about them.

69 Methods Of Managing Delinquency 1. Accept that most delinquency is caused not by bad borrowers but by credit institutions that have not implemented an effective methodology. 2. Create an image and philosophy that does not consider late payment acceptable. Creating disciplined borrowers is critical to the success of the credit union. 3. Members must value the credit service. Loan products should suit members needs, the delivery process should be convenient, and members should be made to feel that the organization respects and cares about them.

70 Methods Of Managing Delinquency 4. There are no bad borrowers only bad loans. a. Make sure loan sizes and terms do not make repayment difficult. Do not base loans on projections, or on the value of the asset, base them on the members capacity to repay. 5. Establish an incentive system that uses both financial and non-financial incentives to encourage on time repayments. a. Borrower - larger loans, follow up loans, interest rebates and access to training (micro-enterprise lending, credit consulting on consumer loans and how to manage their money) b. Disincentives penalty fees, no further access to loans, collection of collateral, and legal action.)

71 Methods Of Managing Delinquency 6. Ensure the benefits of on-time repayment and cost of late repayment far outweigh the benefits of late repayment and cost of on-time repayment. 7. Develop systems that provide information to collectors/field workers that enable them to conduct effective and timely follow-up on loans and to manage their portfolios efficiently. 8. Develop a portfolio information system that enables management to conduct timely and useful analysis of portfolio quality, determine trends in the portfolio over time, and identify possible causes of delinquency.

72 Methods Of Managing Delinquency 9. Effective delinquency follow-up procedures extremely important. 10. Develop a policy that lists the steps to take when a loan becomes past due. a. Examples include holding frequent staff meetings to discuss problem loans, visiting delinquent borrowers, and following-up on promised payments, etc. 11. Establish a target level of acceptable delinquency 12. Establish prudent loan loss reserves and write off policies. 13. Ensure that income and assets are accurately reflected in the financial statements.

73 Analysis of Collection Program COLLECTION PROGRAM CONTROLS 1 Are accurate determinations of delinquency made? 2 Does the board regularly review the monthly delinquency reports? 3 Does the board analyze the delinquency, loss ratio, liquidity and reserve position in relation to one another? 4 Is the Allowance for Loan Losses account adequate? 5 Is the allowance account adjusted regularly as required? 6 Are lending policies revised to control delinquency? 7 Are steps taken to ensure that collection is made on insured loans? (Disability, death, non-filing, etc.) 8 Are loan protection insurance claims and payments handled by a supervisor not involved with approving, disbursing, or collecting loans? 9 Is a register of loan protection claims maintained? 10 Are in-house collection personnel trained and experienced in proper collection procedures? 11 Does management allocate sufficient time for collectors to properly function? 12 Is the collection department staffed for after-hours and weekend contacts? 13 Are persons who approve or disburse loans denied work in the collection department? 14 Are collectors denied access to cash? 15 Are collectors required to use pre-numbered cash received vouchers? 16 Are formal policies in place to determine when legal action, repossession, professional placement and charge-off will occur? 17 Does management periodically review the workload/performance of the collection department? 18 Are timely initial and follow-up contacts made? 19 Are collection cards established for delinquent accounts? 20 Are follow-ups made on all promises for payment? 21 Are skip traces checked with all possible sources? 22 Do tellers have "want lists" of delinquent borrowers? 23 Are debts to be discharged in a bankruptcy checked against those listed by the borrower? 24 Are legal actions, including repossessions, taken on a timely basis? 25 Are cosigners contacted early in the collection process? 26 Are terminating employees provided with exit interviews and payment coupon books? 27 Is counseling routinely offered and provided to borrowers who are responsive, yet continually delinquent? 28 Are extensions and refinancing policies designed to avoid future delinquency? 29 Is the legal collector used when permissible?

74 Thank you for your attention!