c. Examination Objective - Loan Portfolio Management Subcomponent

c. Examination Objective - Loan Portfolio Management Subcomponent

The objectives of the Loan Portfolio Management Subcomponent are:

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  Determining the adequacy of loan portfolio management including strategic portfolio planning, lending policy and procedure, internal loan review, stress testing, and portfolio risk identification and management;
  
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  Concluding on the sufficiency of underwriting standards and track record of meeting these standards;
  
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  Determining whether loans are extended, serviced (including those loans sold where servicing responsibility is retained), and collected in accordance with applicable SBA Loan Program Requirements, SOPs and other SBA guidance, the Supervised Lender’s policies and procedures, and sound lending practices; and
  
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  Evaluating whether credit administration practices, including servicing actions, adequately control risks to the loan portfolio.
  

d. Examination Procedures - Loan Portfolio Management Subcomponent

The following procedures are provided to facilitate the examination of Loan Portfolio Management. Consistent with risk-based examination concepts, examiners should add, delete, or modify the following procedures as needed.

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  Evaluate actions to address the previous examination’s Findings and recommendations on loan portfolio management.
  
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  Review the most recent external audit report to determine the status of previously identified problems related to loan portfolio management.
  
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  Review any updates to the SBA Supervised Lender’s loan policy and procedures related to portfolio management that have been implemented since the previous examination or risk-based review.
  
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  Determine whether the SBA Supervised Lender has a written statement of portfolio management policy.
  
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  Determine whether the SBA Supervised Lender has a written commitment to make loans to all qualified applicants regardless of race, color, national origin, religion, sex, marital status, disability or age.
  
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  Identify whether the SBA Supervised Lender support agency initiatives.
  
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  Determine whether the SBA Supervised Lender’s written policy describes the fees that may be charged to the borrower.
  
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  Determine whether the SBA Supervised Lender’s written policy outlines what collection actions may be taken against borrowers who do not make timely payments.
  
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  Determine whether the SBA Supervised Lender’s written policy consistent with SBA policy.
  
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  Verify that the SBA Supervised Lender documents its procedure for ensuring that only allowable fees are charged to the SBA borrower.
  
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  Verify that the SBA Supervised Lender documents its training procedure for staff involved in SBA financing.
  
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  Determine whether the board and management have adopted appropriate internal controls over the loan portfolio. Specifically, does the SBA Supervised Lender have an internal risk rating system that adequately identifies problematic segments of the portfolio? Also, does the SBA Supervised Lender have an internal credit review program (ICR)?
  
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  Determine whether the SBA Supervised Lender has a written policy of lending authority delegations.
  
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  Determine whether the SBA Supervised Lender has a written policy for its portfolio review process.
  
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  Verify that the SBA Supervised Lender documents its procedure to ensure that loans are approved and authorizations signed by officers with the appropriate authority.
  
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  Determine whether the SBA Supervised Lender documents its procedure to assure that required closing documents are obtained. (If the SBA Supervised Lender makes loans in more than one state, the procedure must include allowances for state variations in the required documents).
  
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  Determine whether the SBA Supervised Lender documents its process for ensuring that items required after closing are collected.
  
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  Verify that the SBA Supervised Lender documents its method of safeguarding collateral documents in the lender’s care.
  
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  Determine whether the SBA Supervised Lender has a process for updating UCC filings, financial statements and insurance requirements. (tickler system, etc.)
  
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  Determine whether the SBA Supervised Lender has access to counsel available for processing, closing and servicing advice. (If the SBA Supervised Lender lends in more than one state, it must have access to counsel in each state).
  
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  Verify that the SBA Supervised Lender maintains its loan files in a consistent, orderly and accessible manner.
  
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  Determine whether SBA Supervised Lender documents its procedures to ensure that required forms are with their SBA applications.
  
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  Verify that the SBA Supervised Lender documents its procedure to ensure that SBA credit and eligibility requirements are complied with.
  
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  Verify that the SBA Supervised Lender documents its process for ensuring timely filing of SBA Form 1502 reports and the correction of submission errors.
  
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  Summarize the credit administration results from the individual loan review.
  
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  Discuss with management whether there are any external factors that would impact the loan portfolio and inquire whether any stress testing has been conducted. Review the stress tests for adherence to industry norms. Are assumptions logical? Are all exposures tested? How frequent is the testing?
  
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  Evaluate the management information systems used in loan portfolio management to determine their sufficiency. Are there periodic evaluations? Are the systems accurate? Are reports meaningful and meeting the needs of the BOD? Are the systems timely? Is the information generated secure?
  
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  Evaluate the process for identifying portfolio concentrations. Are discussions held concerning the risk in new or pending concentrations? Are the concentrations stress tested?
  
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  Determine whether the SBA Supervised Lender has a normal geographic lending area and under what circumstances it may provide lending outside this area.
  
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  Determine whether the SBA Supervised Lender’s the process for appraising collateral is documented and adequate. Also, evaluate the credentials of those who appraise collateral. Do they possess any certifications? Are appraisal reviews completed?
  
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  Determine whether the loan officer or anyone else periodically visits the site of the business to discuss operations, and to verify and evaluate the condition of collateral. Are these visits documented?
  
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  Does the SBA Supervised Lender maintain a schedule of any field visits required and document loan files when visits are completed?
  
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  Did the SBA Supervised Lender document its process for ensuring routine portfolio reviews and borrower contact on SBA loans?
  
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  Determine whether the SBA Supervised Lender is servicing its portfolio in compliance with the following SBA Loan Program Requirements:
  
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    13 CFR §120.511 Servicing guaranteed loans;
    
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    13 CFR §120.453 Servicing and liquidation requirements of a PLP Lender;
    
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    13 CFR §120.513 Servicing actions that require SBA prior consent;
    
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    13 CFR §120.520 Honoring the SBA guarantee; and
    
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    13 CFR §120.540 SBA’s policies concerning liquidation of collateral.
    

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  Determine whether the SBA Supervised Lender documents that it has the resources available for proper servicing and liquidation (if applicable) throughout the geographic area in which it makes loans?
  
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  Determine whether the SBA Supervised Lender document its process to set up regular reviews of all delinquent loans.
  
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  Verify whether the SBA Supervised Lender documents its process to ensure proper notification to SBA of servicing/liquidation actions taken.
  
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  Determine whether the SBA Supervised Lender has sufficient ability to identify and manage its SBA loans for which guaranty purchase has been requested.
  
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  Determine whether the SBA Supervised Lender satisfactorily monitor and manage its portfolio of loans for which SBA’s guaranty has been honored.
  
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  Verify if the field office approved any contracts the SBA Supervised Lender has with service providers.
  
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  After reviewing findings from all items above, determine if there are any events that would cause the SBA to be released from liability on its guaranty.
  
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  Where documentation is missing above, is there evidence to confirm that the SBA Supervised Lender met the criteria?