One problem with commercial loan portfolio due diligence is that there is no common underwriting standard between community banks. Mortgages, autos, consumer and other retail-type of loans tend to be more standardized since liquidity is greater. However, when it comes to commercial lending, the difference between banks can be wide. One bank’s “3” rated credit can be another bank’s “6.” While this is understandable between banks, this credit gap can even be found within one bank as different regions, branches and even lenders can propagate these systemic differences.
Tag: Loan Management
When a bank forecloses on commercial property (or has the option to foreclose) there is always a question of do you spend energy working out the property in hopes that the value comes back or do you sell the property and take the capital charge? To answer the question, we looked at analysis on 150 loans whose underlying financed properties had payment problem and analyzed appraised values over a period of time to determine when a bank should either push the borrower to liquidate the property or foreclose and liquidate the property themselves.