Assignment # 4
1) One of the most important ways a bank can make sure its loans meet regulatory standards and are profitable is by establishing a written loan policy. A loan policy gives loan officers and the bank’s management specific guidelines in making some loan decisions and in shaping the over all portfolios of the bank. The following are the most important elements of a Written Loan Policy;
1. Statements of Lending: A statement that defines the type of loan, its maturities, quality and the size of loans.
2. Establish a Lending Authority: It should clearly define who is authorized to a loan
3. Establish Lines of Responsibility: It is making sure that all the information is reported to its department.
4. Operating Procedure: There should be appropriate operating procedures for soliciting, reviewing, evaluating, and making decisions on customer loan application.
5. Required Documents: All the required documents should be obtained for every loan application and must be filed properly.
6. Lines of Authority: Responsibility for maintaining and reviewing the bank’s credit files should be well defined.
7. Guidelines: Proper guidelines must be given as to how you can take a loan, evaluate it and perfect a loan.
8. Policies’ & Procedures: Policies’ & Procedures for establishing interest rates, payments, fees and repayments must be present.
9. Establish Quality Standards: A statement of quality standards applicable to all loans. That is, if a person does not meet the standards then the loan should be denied.
10. Establishing Upper Limit to Loans: A statement defining the upper limit to a loan beyond which a loan cannot be allowed
11. Define its Community: A description of the bank’s principal trade area, which most loans should come from.
12. Trouble Loan: A discussion of the preferred procedures for detecting, analyzing, and working out problem loan situations.
For loan to be good three conditions should be fulfilled, ie. First that the borrower should be creditworthy. Which could be known by a detailed study of the following six aspects:
• Character: The loan officer must know the purpose of the loan and make sure that the customer will be able to make the repayment of the loan. He should also determine that the borrower has a responsible attitude towards using borrowed funds, is truthful in answering the bank’s questions and willing to make every effort to repay what is owned.
• Capacity: The loan officer must make sure the borrower has the authority to request a loan and the legal standing to sign a loan agreement.
• Cash: The loan officer should make sure that the borrower has a stable stream of income and the ability to repay the loan.
other over borrowers face is that when they are faced with unforeseeable events and financial
...direct control over the agents who deal directly with the consumer. The practices of these independent agents cannot be easily controlled. As a result, corporations should require mortgage brokers to screen all of their loan applications to avoid any allegations of predatory lending.
b.) The Truth in Lending Act- establishes disclosure rules for sales involving consumer credit. It requires written agreement and four or more installments. The lending organization must disclose the following under Regulation Z: Annual percentage rate, amount of the finance charge, amount of the principal, amount of payments, number of payments, total of all payments, late charge arrangements, prepayment arrangements, and an opportunity for the debtor to receive an itemization of how the payments are to be
From time to time, lenders and their attorneys announce that lender liability is no longer an issue with which the lending community needs to be concerned. What usually prompts this proclamation of the death of lender liability is a recent case in which a court has summarily rejected a borrower’s claim that the lender violated the duty of good faith and fair dealing. Many courts have rejected borrowers’ lawsuits which are based on allegations of the violation of the lender’s duty of good faith. Nevertheless, lender liability should continue to be an area of concern to lenders.
• Review sections 900 and 1000 of the HUD statement if you sign for an escrow
First, it is important to define what a loan is in order to differentiate it from a sale.
...ancial positions of the borrowers, their lack of knowledge as well as the superior bargaining power of the lender to get the borrowers to agree to these loans. The lenders should bear the major responsibility of these loans, as they are aware of the ramifications of such transactions. The borrowers are also responsible, as they should not enter into contracts without adequately understanding the consequences of such actions. In many cases, the lenders do not provide the information that would assist the borrower in making rational decisions. There are instances when the borrower does not care about the increased penalties, they just want to get their hands on the money, and worry about the consequences later. Some borrowers just live beyond their means but once they get sucked into a predatory loan, they begin a cycle of debt that they just cannot get out of.
One way Greater Providence Deposit & Trust may improve their its loan review procedures at bank headquarters to minimize its fraud risk is to acquire a computer services arrangement at the headquarters, not at a neighboring bank or a bank out-of-state. This system should notify bank officials if a loan has been granted without a credit report or above the lending officer’s lending limit. These loans should then be examined by the internal auditors for fraud and unless there was prior approval to grant these loans; the lending officers should face consequences.
Loan officers have many important duties that they have to do while on the job. Loan officers contact potential loan applicants, both people and companies, and they ask them if they are in need of a loan. After ...
...el such as: purpose of the loan, maturity of the security pledged, the history of the client with the company and the unique characteristics that the bank’s customers might have.
The purpose of the debt will have a big influence on the type of facility that the company deems viable, and the terms upon which the facility is granted. We will discuss these considerations shortly.
You will need to show that you have the ability to make the loan repayments and be able to pay it back in a timely manner.
1) The asset management company should take all reasonable steps and exercise due diligence to
The study defines “default” is a risk to the repayment history of borrowers where the borrowers are missed at least three installments in 24 months. This showed a symbol and indication of borrower behavior will actually default to cease all repayments. This definition does not mean that the borrower had entirely stopped paying the loan and therefore been referred to collection or legal processes; or from an accounting perspective that the loan had been classified as bad or doubtful, or actually written-off (Pearson & Greeff, 2006).
Formalities – if formalities are prescribed for the formation of the contract , they must be observed.