Determining the Risk in Your Document Exceptions

Ongoing exception management is a never-ending task. Each newly originated loan adds a new set of documents that need to be reviewed upon loan closing, and then ongoing tracking for recurring items.

When determining “how” to track different requirements within a credit file, financial institutions should consider the following:

  1. Is this requirement specific to the Borrower? If the same borrower comes for another loan in the future, do I need an updated document? Or is it something that has a different type of collection frequency, such as Tax Returns?
  2. Is this requirement specific to the Collateral? If the same collateral is pledged for another loan in the future, does this same document still apply, such as Insurance?
  3. Is this requirement specific to the Loan? Is this part of the approval or closing process, and needed with the origination of each new loan to the same borrower? Are there additional requirements per Guarantor on the loan?

This process can become redundant and reporting less meaningful if ticklers are not established with the above considerations. Tracking insurance on a per-loan basis, for example, means that if the borrower has pledged the same collateral for three loans, the information needs to be updated three times. Or, perhaps the insurance tickler is tracked on one loan of that three, but then if that one loan is paid off, there is risk in losing track of the insurance.
Reporting can become convoluted as well. Exceptions are overstated if they are tracked at loan-level instead of borrower or collateral, or understated in the reverse.

Community financial institutions can alleviate the burden of ongoing exception management by ensuring that a solution is in place that properly categorizes exceptions. Reporting then becomes more meaningful in assessing portfolio risk. Learn more about how the Square 1 Credit Suite can help with ongoing Documentation Tracking.