WE ARE STILL SEEING PROBLEMS IN THE USE OF COMMERCIAL PLATFORM BANKING FORMS
Have you actually read your forms?
(Part 2 of a 2-part series)
In the first part of this series, we noted many examples of problems we see in the use of commercial loan platform documents when inadequate attention is paid to the way they are used.
In addition, we are seeing unwise shortcuts in the use of proper Phase I environmental assessments, adequate title work, and surveys. The standards for what are acceptable in these areas are constantly evolving, and there are many companies claiming to be able to do these cheaply who do not prepare a product that meets the current standards.
It is understandable that there is a need to reduce costs in a market where rates are very low, and completion is very high. We recognize that the solution is certainly not to involve attorneys in every commercial transaction. But here are a few suggestions for management to consider that do not involve more than a modest additional cost:
Train, retrain, and refresh training for document preparation employees on an established schedule.
At least annually, review and reassess how your software is being used. Reexamine the options provided by the software itself.
Develop a clear policy for when platform documents cannot safely be used. Such a policy should be built around a size of loan, type of collateral, market location of the project or borrower and other identified factors. But, a critical part of risk management in this area is knowing when not to use platform documents. In these instances, legal counsel should be involved.
Make sure that the personnel who are tasked to prepare the forms have adequate access to resources within or outside of the organization to get help with unfamiliar or oddball loan structures, jurisdiction issues or collateral types. Remember-- the size of the loan does not have a direct correlation to the sophistication of the legal challenges posed by the loan structure. Someone at the document preparation level needs to be empowered to "stop the presses" until an issue can be properly addressed.
Do not cut coroners on environmental and title issues. Someone in your organization should be trained on the changing standards for each and be able to spot issues that need to be referred to other experts for review. This is the same type of approach that lenders have been using in the review of appraisals. Quality protection does not happen just because you have "something" in the file. The details matter—a lot. And these are items that you are going to pass on to the customer as a closing cost. Why not get them done correctly and with adequate quality to actually protect the lender?
In this fast paced and constantly changing world, it is difficult to find time to focus your organization on the fundamentals. But the fundamentals are where the safety and soundness of every financial institution begins. And they are the very foundation upon which it rests.