Submitted by sevans on Thu, 11/20/2014 - 4:02pm

Due to the complexity and specialization associated with risk-based lending, examiners must carefully evaluate this activity during regular examinations and, if necessary, during supervision contacts. In reviewing risk-based lending programs, examiners will:

  • evaluate the extent of risk-based lending activities;
  • determine whether management adequately planned for this activity;
  • assess whether the credit union has the financial capacity to conduct risk based lending safely without undue concentration of credit and without overextending capital resources;
  • ascertain if management has committed the necessary resources in terms of technology and skilled personnel to manage the program;
  • evaluate whether management has established adequate lending standards and is maintaining proper controls over the program;
  • determine whether the credit union’s contingency plan adequately addresses issues that could arise during a period of an economic downturn or when financial markets become volatile;
  • analyze the program’s performance, including profitability, delinquency, and losses;
  • consider management’s response to adverse performance trends, such as higher than expected prepayments, delinquencies, charge-offs, and expenses; and
  • determine if the credit union’s compliance program effectively manages the fair lending and  consumer protection compliance risks.
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