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#2269135 - 04/14/22 07:25 PM Second review of denials
dutchbltz Offline
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Is anyone willing to provide information about what their review of denials (for validity of reason/credit decision; prior to issuing an actual denial) looks like? I have my ideas of what I think it should look like; but I'm curious how other institutions are handling this - or perhaps there isn't a second set of eyes on the credit decision.

Thanks!

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Fair Lending
#2269200 - 04/15/22 11:44 PM Re: Second review of denials dutchbltz
TryingtoComply Offline
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The West
Ideally, a second review (and sign off) should be occurring in the business unit prior to your review (assuming your have a compliance role).

When we do our testing/monitoring, we review the denial reason and ensure that the business unit performed the second review. I don't feel that it is the role of compliance to second guess denial reasons when there is someone else in credit performing a second review, but you can look for obvious things.

Delinquent credit - review the credit report
Insufficient collateral - review appraised value
DTI - review calculation and compare to underwriting guidelines

Aside from that, we read the credit memorandum to ensure there are no statements or information that would suggest a fair lending problem. Comments about a prohibited class or comments about the area a property is located (redlining). And of course, review any written AANs for proper completion.
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#2269201 - 04/16/22 12:08 AM Re: Second review of denials dutchbltz
Rocky P Online
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Florida
Dutch, additionaly, 2nd review should not be trying to outguess credit. It should be identifying if all aspects were considered in the credit decision, the customer had a chance to explain deficiencies and if any loans were made to others with similar conditions.
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#2269242 - 04/18/22 02:57 PM Re: Second review of denials dutchbltz
dutchbltz Offline
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Posts: 207
Thanks - so far this is aligning with my thoughts on the matter.

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#2269243 - 04/18/22 03:00 PM Re: Second review of denials TryingtoComply
InFairness, CRCM Offline
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InFairness, CRCM
Joined: Nov 2010
Posts: 919
USA
Originally Posted by TryingtoComply
Ideally, a second review (and sign off) should be occurring in the business unit prior to your review (assuming your have a compliance role).

When we do our testing/monitoring, we review the denial reason and ensure that the business unit performed the second review. I don't feel that it is the role of compliance to second guess denial reasons when there is someone else in credit performing a second review, but you can look for obvious things.

Delinquent credit - review the credit report
Insufficient collateral - review appraised value
DTI - review calculation and compare to underwriting guidelines

Aside from that, we read the credit memorandum to ensure there are no statements or information that would suggest a fair lending problem. Comments about a prohibited class or comments about the area a property is located (redlining). And of course, review any written AANs for proper completion.

In the current environment, we're definitely looking at details of appraisals, including all text, not just valuations, when an application was denied for collateral.
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#2269263 - 04/18/22 04:08 PM Re: Second review of denials dutchbltz
dutchbltz Offline
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Joined: Oct 2015
Posts: 207
Does anyone allow one employee (any employee!) (who may or may not have approval authority) to make the credit decision on their own?

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#2269277 - 04/18/22 04:47 PM Re: Second review of denials dutchbltz
rlcarey Online
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rlcarey
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Galveston, TX
If someone does not have approval authority, how do they have authority to deny an application?
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#2269295 - 04/18/22 07:59 PM Re: Second review of denials rlcarey
dutchbltz Offline
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Joined: Oct 2015
Posts: 207
I fully concur; but I'm trying to establish if there is industry (or regulatory) support for that idea. Or regulatory support to specifically exclude that concept.

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#2269296 - 04/18/22 08:14 PM Re: Second review of denials dutchbltz
rlcarey Online
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rlcarey
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Galveston, TX
It is just common sense. If someone is not qualified or approved to make a credit decision, that includes both granting and denying credit applications.

It is like saying - I do not have a driver's license and never learned to drive, but hey - I am driving off road so who cares? Nobody is going to get hurt - right?

You are not really given authority to approve loans. You are given authority to underwrite loans. That authority might come with a dollar limit under which you do not have to seek concurrence from a person or persons with a higher approval limit, but you are fully trained in underwriting.
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