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Lender Due Diligence – Why the Interview Is Critically Important

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BY BILL HULSTRAND

How “smart” are your credit union’s lending practices? If your CU isn’t digging below the surface on its loan applications, you could end up with defaults on your hands. This close examination of a credit report and score illustrates why the applicant interview is such an integral part of the loan approval process.

One of the services consumer lending advisor Lending Solutions Consulting, Inc. offers credit unions is Smart Loan Audit. What LSCI does is look at a percentage of a credit union’s loan portfolio (usually 10 percent) and audit the application and underwriting processes. “We use a ‘traffic light’ approach to evaluate each loan,” explains Bill Hultstrand. “Green means ‘good to go,’ yellow means ‘use caution’ and red means ‘stop, you should not have made this loan’.”
For this month’s Lending Solutions article, “Credit Union BUSINESS” continues a series begun last month and shares a recent example of a loan LCSI audited for one of its clients. This particular application looked pretty good to the corporation on the surface, but when LCSI dug deeper, it found some glaring warning signs.

Application Basics
• 27 years old
• Income: $4,900/month ($58,800 annual)
• Applying for $33,900 for a 2014 Nissan Frontier
• NADA Retail: $26,000, so LTV is 130 percent
• 613 credit score

Other Factors
• The loan payment is double and the loan amount
is triple his previous loan.
• His unsecured debt is at 31.7 percent.
• Financed 130 percent LTV
• Took on a lot of negative equity

Credit Report and Score Codes

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