Our commercial lending group has started filtering smaller loans to individual commercial customers, thru our consumer undewriting group, instead of underwriting them in the commercial loan department. For example, loans secured by a semi-truck or commercial trailer that the borrower uses for his business, and the loan purpose is to payoff one of his suppliers, or to do upfits for his home office, or to purchase equipment used in his business.
Are there any problems with the lenders doing this? It just seems to me that the commercial team should be handling these requests, but as they are typically under $50,000, they are saying it should be done in the consumer world.
Any thoughts? Thank you!!

It's purely an operational issue. Many bank LO's make both commercial and consumer loans...so is it okay to do this? Yes. Are they also giving consumer disclosures? That could be an issue. I wouldn't want to routinely give consumer disclosures on commercial loans as I might be held to them in a court of law one day. Just an unncessary risk.

Any thoughts?

Your commercial loan officers don't want to be bothered with the "small business" customer.

These are business purpose loans and IMO should be handled as such.

So even if we have a separate centrallized consumer underwriting unit, there isn't anything that says these loans should not or can not be handled by the consumer underwriting group?

The type of lender chosen to handle a transaction is strictly a business decision. Very small banks only have one lender & s/he handles everything. Growth allows specialization and specialized lenders have better insight into the best ways to make the most loans to narrower categories of borrowers--with the lowest origination and servicing costs, highest return, and least losses. If that's why you specialize, why is it desirable to hand customers back & forth based on loan size?

I hope it is a decision made by management, perhaps to streamline approvals on these smaller loans, and not just lenders deciding to refer smaller applications.

Assuming the correct credit decisions are made, just make sure these loans are carried on the bank's books correctly.

In the event that all disclosures are given for loans generated in that unit, one issue with disclosures that are not needed, is that the bank MAY be giving the borrower some protections they do not deserve.

While it can be argued that an incorrect disclosure was not required, it has also been affirmed by courts (about half of the time, from what I've heard) that if a disclosure is given by a bank it needs to be correct. Most correspondents will not buy a loan package that has unnecessary (buy incorrect) disclosures for that reason.

This is strictly a situation where the commercial lenders do not want to be bothered with the small business loan requests. I am trying to prevent them from being filtered down to me, as I am our bank's only consumer underwriter (we have centralized that function to me), and I am having a very difficult time coming to terms with the fact that a business purpose loan, secured by a commercial piece of euipment, should be pushed to the only consumer lender we have, simply because it's too small for someone else to be bothered with:(

No one has mentioned that this would be incorrectly reporting on the Call Report. Not to mention the fact if you are a CRA reporter, and you classify these as consumer, you are inaccurately reporting and that would work against you as well. Your staff should be trained on the correct recognition of consumer versus commercial purpose, which is defined in REG B, which applies to both. This is ironic because we often commercial lenders want to tag a loan as commercial to avoid disclosures when it really is a consumer loan.

I see trouble ahead unless you have training and experience as a commercial lender and are comfortable using the appropriate forms needed to originate a commercial loan. If you have not already run this up the chain of command, do it. Underwriting and documentation errors can result in unnecessary losses. Why take the risk when the only reason seems to be the laziness of your commercial lenders? I thought loan demand was way off--how come they don't have time to underwrite these simple credits?

I agree completely, and unfortunately, I think the chain of command that is sending it my way, is higher up the chain than me!:)
I can think of no logical reason why we should mix commercial and consumer loans, when we've just worked so hard to centralize our consumer lending unit within the last year. Now they want to throw in some business loans to that mix. I have a feeling it will be inevitable, but I want to be sure that I don't miss any critical issues when I have to start handling them.

How the loan is underwritten and consummated does not necessarily reflect how the loan is classified on the call report.