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Asset Quality Control & Credit Administration Practices:

An independent evaluation of the ratings and portfolio assessment of asset quality are reviewed within the context of local and regional economic conditions that might impact performance.  In addition, any systemic weaknesses, as opposed to isolated problems are given appropriate consideration under the following assessment guidelines and reporting conditions:

·         The adequacy and consistency of underwriting standards, credit administration practice, and appropriateness of risk identification practices.

·         Diversification and quality of the loan portfolio.

·         Credit Concentrations - (common enterprise & common control) loans-to-one borrower.

·         Credit Concentrations - portfolio mix, industry types, and geographic distribution.

·         The adequacy of internal loan controls and management information systems.

·         The adequacy and objectivity of policy, procedure, and consistency in practices.

·         Volume and nature of policy and credit documentation exceptions

·         Qualified Thrift Lender Test (FIDICIA) portfolio economic distribution (for Savings Associations.)

·         Performance of key areas with benchmark comparisons to peers, regional and national levels.

Asset Quality Control - Residential Lending

The uniqueness by design of our Quality Control Review Program has been found to be an effective tool in managing risk while complying with the guidelines set forth by regulation and secondary marketing standards.   The process of selection is achieved through a stratified sample of at least 10% of the total annual production, or the total of annual secondary market mortgage production from all product lines, at varied dollar amounts, geographic locations, and higher risk characteristics.  Most importantly, our process warrants that the selected sample is representative of the full scope of your organizations portfolio, production and fully compliant with FHLMC & FNMA guidelines. 

·         Selected loans are review for completeness and accuracy of information in the mortgage origination/closing processes.

·         Required closing documentation are reviewed for respective disclosures and compliance to secondary marketing requirements and applicable regulation.

·         Credit and financial analysis are conducted for conformity to your organizations/secondary market sources underwriting guidelines, credit policy and prudent lending practices.

·         The integrity of input information and testing is performed for respective FNMAs Desk Top Underwriter and FHLMCs “Loan Prospector” documentation and credit scoring system

Asset Quality Control - Servicers of Residential Mortgages

·         Identification and review of governing documents for securitization trusts.

 ·         Identification of borrower’s that are at risk of default.

 ·         Independent review and assessment of capacity and mitigation strategies.

 ·         Recommended prudent loss mitigation techniques.

 ·         Hedging of Mortgage-Servicing Assets (MSAs)

- A review of regulatory required comprehensive documentation standards to substantiate and validate the initial carrying amounts assigned to each pool of MSAs.

- Periodic reviews  of each asset’s subsequent carrying amount and fair value.

- Proper accounting treatment.

- MSA impairment analysis.

- Comparison of assumptions used in the valuation models with your actual experience.

- Comparison of models utilized including valuation, hedging, pricing, and bulk                                                       acquisition.

- Appropriate amortization practices of the remaining cost basis of MSAs.

- Timely recognition of impairment.

- Review for FAS 140 compliance.

·         Management Information Systems

- A review of the accuracy of reporting systems, controls, and limits.

- Tracking of quality control exceptions.

- Examination of credit quality, loan characteristics, demographics, trends, and sources of problems.

- Track and review front-end-closing and post-closing mortgage documents to insure sale in the secondary market.

- Identification of any control weaknesses.

Commercial Real Estate (CRE)

Acquisition, Development, and Construction (ADC) Lending

The level and complexity of risk-monitoring techniques and coverage for CRE & ADC lending is commensurate with the level of real estate activity and the nature and complexity of your institution’s market.  The process of review follows the guidelines set forth under Interagency Guidelines for Real Estate Lending Policies (Appendix A to Part 365).  In addition, encompassing the same techniques and review standards outlined under the internal loan review segment - covering an independent loan-by-loan review of all relevant credit factors, and underwriting standards, to include:

·         Identification of primary, secondary, tertiary, and global repayment sources.

 ADC lending review of alternative repayment sources other than the project being funded

·         Analyze the capacity of the borrower/guarantor(s) under each scenario of identified sources of repayment.

·         Appraised value of the property meeting appropriate appraisal standards.

·         Overall creditworthiness of the borrower/guarantor(s).

·         Level of equity or hard equity invested in the property or project and LTV.

·         Inspection of all administrative, credit, legal, and collateral documentation for its integrity, inclusion, perfection, and compliance to applicable laws and regulation.

·         Independent property inspections and ongoing inspections during the construction phase.

·         Plans, specifications, and budgets.

Portfolio Overview Review of:

·         CRE / ADC segmentation and portfolio diversification

·         Concentration limits

·         Level of pre-sold or other types of take-out commitments.

·         Speculative

·         CRE / ADC  inventory aging by portfolio and borrower

·         Aggregate by market / submarket and geographic dispersion

·         Loan underwriting exceptions (number and volume by justification and trends)     

·         Supervisory LTV exceptions in accordance with Interagency Appendix A to Part 365.

·         Portfolio liquidity, stress testing, and sensitivity analysis

Individual loans and portfolio are reviewed in accordance with best-practices guidelines, prudent assets quality standards, and the interagency guidelines for “concentrations in commercial real estate lending, sound risk management practices,” “real estate lending policies,” and “appraisal and evaluation guidelines.”

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