Critical questions for assessing and monitoring problem loans

6/10/2020
Critical Questions for Assessing and Monitoring Problem Loans

The volume of problem loans is expected to increase in the coming weeks. Asking and answering the right questions can help you assess your capabilities and start mitigating potential losses.

After you’ve identified problem loans, the next phase is comprehensive assessment and monitoring. Answer the questions below to help you evaluate problem loans and to start working with borrowers to find solutions.

Loan documentation review

Loan documentation review

  • Do you have the resources needed to review loan documentation and identify defaults, detect documentation deficiencies, and draft notification of default to borrowers?
  • Do you have a repository to store relevant documentation in a central location?

Borrower conversations

  • Are you touching base regularly with your borrowers to understand their challenges and plans? 
  • Are you capturing the information from those conversations to protect your organization against potential claims of misrepresentation and misconduct?
Borrower conversations
Site visits

Site visits

  • Are you inspecting places of business, corporate headquarters, or other facilities to gather additional qualitative information on performance and collateral?
  • Can you easily capture and organize the information you get from these site visits?

Financial condition assessment

  • Are you requiring additional financial items from borrowers, such as cash flow schedules, go-forward operating plans, and liquidity verification? 
  • Do you understand how PPP loans are accounted for in financial statements?
Financial condition assessment
Collateral valuation

Collateral valuation

  • Are you performing a comprehensive inventory of borrower collateral – inventory, accounts receivable, equipment, real estate, and other assets?
  • Do you have internal procedures and third-party sources available to inform collateral valuations? 

Security perfection assessment

  • Do you have the resources and procedures needed to verify that the security interest in collateral is perfected? 
  • Are you refreshing your searches to potentially identify additional liens on collateral?
Security perfection assessment
Loan modification tracking

Loan modification tracking

  • Are you tracking key data such as volume of deferrals in anticipation of likely regulatory requests?
  • Is your tracking informing analysis of your CECL model?

Pre-workout agreement

  • Do you have a pre-workout agreement drafted?
  • Are all problem loan borrowers signing the pre-workout agreement prior to communication to limit your liability?
Pre-workout agreement
Technology capabilities

Technology capabilities

  • Do you have a solution to manage problem loan officers’ workflows?
  • Does your solution facilitate consistent application of key accounting classifications and estimates?
  • Have you established robust borrower-level watched asset reporting and aggregate management reporting?

Missed our May 29 webinar, “Identify and Address Problem Loans with Technology and Foresight”? Watch the recording

Want more insights on addressing coronavirus-related challenges?
Go to the Crowe COVID-19 resource center for more analysis and updates.

Contact us

We can help you manage your problem loans.
keever-dave-225
Dave Keever
Principal