Module 5: Making
the Credit Decision
Recap of Previous
Day
Module 5 Overview
In this module of the Consumer Lending Training (CLT) you will learn the last stage of the consumer loan approval process. After completing this module you will be able to approve or decline any loan that comes across your desk.
Terminal Performance Objectives
Upon completing this module you will be able to do the following:
Develop your own personal technique of the loan decision process
Identify reasons for a policy exception loan
Demonstrate and make a loan decision through the use of role-play with fellow peers
Criteria
Each participant will be measured by a module end progress test and by classroom discussion by demonstrating a loan decision through role-play.
Instructional Material Discussion
As lenders the Credit decision is often a hard decision to make but utilizing the previous skills learned in this program will help you to make an educated decision.
When making the credit decision you need to follow the following step each and every time you make a loan.
Identify the applicant(s) and their needs
Analyze the Credit report…. Look for past delinquencies or derogatory issues
Ask additional questions or obtain additional information from customer ( if applicable)
Utilize your institutions Credit guidelines
Calculate Debt to Income D/I
Calculate LTV and collateral by using NADA
Identify the applicants ability to repay( salary) obtain employment stubs
Review any special conditions of the loan
Review customer Relationship…. If applicable ( Good source of information)
After you have reviewed the above information if everything is
guideline and the loan make sense then approve the loan.
What Can I decline the loan for?
As a lender you can decline a loan for almost any reason that is legitimate. It is always a good practice to indicate multiple declination reasons.
The following are a list of some common declination reasons
Application incomplete
Insufficient credit information
Employment is temporary or irregular
Income insufficient
Delinquent credit obligations
Collections
Bankruptcy
Value or type of collateral not sufficient
Please note: This is a list summary please consult institution for
complete list
In class discussion of each item and examples
Once the Loan is Declined
How to
communicate to your customer
You will receive a letter within a few business days providing more specific information about why you were declined. If you believe there is an error reported on the Credit Bureau, you should contact them directly. The letter you receive will state which Credit Bureau was used, and how to contact them.
Exception Documentation
As a Consumer Lender you will often find that the loan decision process in not always set in stone. In lending there is always exceptions for approving a loan that would other wise would be declined. When you are given lending Authority by your specific institution you will be allowed to make exceptions, however every exception must be clearly documented and supported on why the loan was approved. This must be done to ensure the bank and its lenders are in compliance with lending relations and fair credit practices
When documenting the guideline approval exceptions it is very important that the reason supporting the exceptions are factual and relevant credit related reasons. Once again being consistent with every lender is a must.
The following are some acceptable and unacceptable exception approval reasons
Acceptable
15 year paid credit file with 10 years of
employment and 10 years of residence in your area.
Slow pay 15 months ago due to injury….. All
credit paid as agreed since then
Low score due to medical collections that
are paid in full with proof and other items paid as agreed
Unacceptable
Primary has major derog credit but
co-applicant’s credit good.
Applicant is relative of known customer
Applicant works for good business customer
Customer will be referring new business
to the bank
Important NOTE: A co-signer does not make a good loan….. A
co-signer makes a good loan better.
This means that a co-signer only makes the loan stronger, the co-signer does not compensate for the applicant’s poor credit quality
Progress Test for Module 5 Please use additional paper for answers
1. Explain why you as a lender would make an exception to the policy?
2. Give one example of an unacceptable reason to make a loan exception?
Wrap up
Session
Today I
learned…. Or I discovered………………