Question: The real estate market has been undergoing many changes in response to the economic condition of the country. As a result, lenders and banking institutions are beginning to make adjustments by tightening lending standards on Commercial Real Estate (CRE) loans, while trying to minimize credit losses. The financial community has been examining the effects of using Troubled Debt Restructurings (TDRs) to address this potential problem.
If used consistently with practical lending principles and proper supervision, TDRs can improve a financial institution’s collection prospects and assist financially-challenged borrowers. How can your organization prepare to use TDRs?
Answer:
Ensure that your institution has detailed lending policies and procedures (which are part of a credit risk management program) that are communicated to staff.
Communicate lending requirements for all products to appropriate staff and provide up-to-date reference material to these individuals.
Provide an effective way for lenders to ask questions and get immediate answers about lending policies and TDRs.
Management should develop specific TDR policies and procedures to ensure that loans are properly identified, monitored, accounted for and controlled.
Review reports regularly for trends of TDRs, performance updates and action plans.
Place strict quality controls on loan operations to ensure compliance with the modified terms of the TDR loans.
Conduct routine audits and assessments to prevent problems from occurring and detect potential problems with loans.
The Edcomm Group
The Edcomm Group is a 19-year old multimedia training company specializing in the banking industry. The Edcomm Group offers programs such as Compliance, Teller, BSA, AML, EEO, Sexual Harassment, Elder Financial Abuse, Bank Risk, Credit Risk Management, Fraud Prevention, Security, Ethics, OSHA, Lending, Sales & Service, System Simulations, Retail Systems, System Conversions, Leadership & Operations Management. To learn more, please contact Dr. Linda Eagle, President of The Edcomm Group, at 888-433-2666 or linda.eagle@edcomm.com, and visit us on the web at www.bankersacademy.com.
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