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Lending & Credit Risk Credit Risk Management Lending Regulation Loan Origination System Risk Ratings Portfolio Risk & CECL Loan Review and Due Diligence

Loan review challenges and how software can help mitigate them

Dev Strischek
January 19, 2022
Read Time: 0 min

How to overcome top loan review challenges

According to a 2021 Loan Review Survey, these are the top challenges faced by loan review departments and how automation can help solve them. 

You might also like this webinar, "Return to basics: Asking the right credit risk questions."

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Takeaway 1

Hiring and onboarding qualified loan review staff can be difficult, but software helps financial institutions get the most out of their existing resources.

Takeaway 2

Remote work is a challenge for many financial institutions. Software can make centralized documentation easier and streamline remote processes.

Takeaway 3

Additional responsibilities such as due diligence processes may cause more financial institutions to seek out loan review software to relieve the burden.

Introduction

Three challenges for loan review departments

After performing its annual loan review survey, DiCOM, now Abrigo, references the results against other industry touchpoints to create a holistic view of key trends and issues facing loan review. The 2021 review revealed several actionable trends in barriers that are holding back many loan review organizations. The good news is these challenges can be largely mitigated by using loan review software like Credit Quality Solution (CQS). The following are the most common problems identified--and the most solvable.  

  1. Difficulty hiring and onboarding new loan review staff
  2. Remote work environments make collaboration more difficult
  3. Additional responsibilities such as acquisition due diligence assigned to loan review teams

Staffing concerns

Difficulty hiring and onboarding loan review staff

Most organizations report they have difficulty attracting and keeping new loan review staff members. This is compounded by the aging out of the existing workforce which is made up largely of long-time senior-level employees (as referenced below):

While most banks over $1B in assets indicate they are reliant on internal dedicated resources to fulfill their loan review needs, approximately 35% of banks are leveraging external third parties for support. Increased workload and a shortage of talent are the top two primary reasons banks are looking outside of their organization. In fact, many banks state that both of these factors exacerbate the challenges they face.

While automation cannot solve the talent shortage in loan review, loan review software can help you optimize your process so you can get the most out of your existing resources. As a general rule, it is more cost- effective to optimize existing processes before spending finite budget dollars on additional resources. Additional resources or outsourcing may not be necessary if significant efficiencies can be gained through technology. Loan review software can allow you to add significant efficiencies and elevate your capabilities for a fraction of the cost of additional resources and/or headcount.


Specifically, software can allow your organization to:

  •  Eliminate tedious manual effort, freeing up your resources to focus on high-value work
  • Improve review consistency reducing back-and-forth and process waste
  • Streamline interactions between team members and other departments
  • Achieve a cost savings when compared to additional resources or outsourcing
  • More accurately assess resource needs

Many banks and credit unions find that booking loans with a loan origination platform offers their current staff greater functionality, mitigating or eliminating those staffing woes.  For smaller institutions especially, software makes tracking productivity among teams, geographies, and other factors easier and more efficient. In addition to providing more efficient credit risk review, a loan review solution can provide other analytics to elevate loan review’s profile or support staffing requests.

These benefits of software can help your financial institution stay on top of tasks when new regulatory challenges arise. 

Learn more about the impact of CFPB 1071 rule on small business lending 

Zoom in

Remote work complicates collaboration

According to the 2021 Loan Review Survey, approximately 4 in 5 loan review staffs are working remotely (partially or fully). While some banks supported remote options pre-pandemic, many banks were forced to implement “emergency” work-from-home policies for employee safety. This shift was often disruptive and has placed additional stress on how loan review departments managed the process. Even more telling is that 43 – 67% of banks (depending on size) expect the current work location to be permanent, forcing banks to optimize processes and technology to support a remote workforce. The primary challenges these institutions face are:

  • Inefficient document and workpaper management
  • Difficulty tracking review progress
  • Ineffective handoffs and collaboration with other team members and departments
  • Time consuming process of consolidating findings and workpapers for actionable review summarization

Loan review software like CQS is designed to offer a transparent work process to facilitate remote work environments. Because the team’s work is managed in a centralized platform, the process of tracking review progress is simple and intuitive. CQS acts as a “single source of truth” making it possible to ascertain progress at the team member and the review level with a few mouse clicks. CQS offers fully customizable workflows and collaboration capabilities to both streamline the loan review process and the various interactions required to support the loan review process (such as collecting/rectifying missing or incomplete loan documentation). Finally, all review information automatically flows to standard and customizable reports to ensure your final work products are impactful and actionable.

 

 

Additional tasks

Acquisition due diligence has become the responsibility of loan departments

Most loan review organizations are tasked with other responsibilities beyond the typical exam-based review process. While these “additional responsibilities” vary by institution, the most common responsibility is acquisition due diligence. For reference, please see the graph below from the 2021 Loan Review Survey. The survey found that many organizations are seeking to find a more efficient way to manage the due diligence process as it can cause a significant impact to team productivity and internal portfolio coverage.

CQS allows institutions to optimize their due diligence process in much the same way the system improves the internal review process. While most clients opt for an automated data import for their own loan data, CQS offers an intuitive manual data import option. This allows institutions to take a trial balance from the target organization and import that data directly into CQS through a simple data mapping interface. The target organization’s data remains segregated to simplify the due diligence review process. In addition, a unique review workflow and questionnaire can be applied to due diligence reviews to ensure maximum efficiency and effectiveness.

Learn more helpful information in this on-demand webinar, "Create and maintain a successful loan review function."

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About the Author

Dev Strischek

Principal
A frequent speaker, instructor, advisor and writer on credit risk and commercial banking topics and issues, Dev is principal of Devon Risk Advisory Group and engages in consulting, speaking and training on a wide range of risk, credit, and lending topics. As former SVP and senior credit policy officer at

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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