HMDA and Commercial Loan Refinancing

  • October 19, 2010

If you’re a commercial lender, you can be forgiven for wondering what, if anything, the Home Mortgage Disclosure Act, better known as HMDA, has to do with commercial loans. HMDA, which was enacted by Congress in 1975 and implemented by the Federal Reserve Board’s Regulation C, requires banks to maintain and annually disclose data about home purchases and refinance applications. This data is then used to help regulators determine whether the bank is serving the housing needs of their communities and identify possible discriminatory lending patterns.

Portfolio Management Strategies – Monitoring Borrower Concentrations and Covariance

  • October 19, 2010

We all know better than to put all our eggs in one basket. Unfortunately, many banks ignored this time-tested wisdom when it came to constructing their loan portfolios, contributing to the financial crisis and credit crunch of the past few years. Specifically, these banks allowed high concentrations of risky types of loans to build up in their portfolios without considering the potential impact on the bank should things turn south.

Financial Reform: What Will it Mean for Community Banks?

  • October 19, 2010

This summer, the most comprehensive overhaul of the financial services industry since the Great Depression was signed into law: the Dodd-Frank Wall Street Reform and Consumer Protection Act. Passage of the Act was just the beginning, though, as many of the implementation details must still be ironed out by regulators. But at first glance, the Act appears to be a mixed bag for community banks, with some potential benefits and some drawbacks.

New Requirements of ACH Risk Assessment for Community Banks

  • August 10, 2010

NACHA Rule Adds ACH Risk Management Practices Effective June 18, 2010, all depository financial institutions (DFIs) will be required by the NACHA Operating Rules to conduct an ACH risk assessment, and to implement risk management programs based on the results of the assessment.

Commercial Lending: Are Your Borrowers Testing for Goodwill Impairment?

  • July 9, 2010

When a company is sold for more than net book value, this results in an accounting concept known as goodwill. If you are relying on reviewed or audited financial statements from borrowers, you should be aware of their obligation to test for goodwill impairment. Once a year, these companies are required to screen for potential impairment, measure the amount of impairment (if any exists), and adjust the value of intangible assets (like goodwill) to reflect current economic realities. If testing reveals that the value of goodwill on the borrower’s books has been impaired (or, in other words, has declined), the company is required to write off this amount to its current fair market value. Note that the value of goodwill can only be written down, not up.

Commercial Lending: Monitoring Government Guaranteed Loans

  • July 9, 2010

A primary cause of concern among many banks today is the high rate of default on government agency guaranteed small business loans like Small Business Administration (SBA), Farm Services Administration (FSA) and Farmers Home Administration (FMHA) loans. In the good ’ol days, when these loans hit 90 days past due, the bank simply filed a claim, sent the government agency the credit file and the agency took it from there. Now, the agencies expect lenders to work out the credits themselves before filing claims. And for claims filed, the agencies expect documented evidence of lender due diligence in every aspect of loan origination and monitoring before they will honor their guarantee.

Commercial Lending: Managing and Mitigating Portfolio Risk

  • July 9, 2010

What a difference time makes. Three years ago, most banks were enjoying low levels of past-due accounts, criticized/classified loans and losses in their small business portfolios. Then came the recession and the financial crisis, which led to record losses and the subsequent failure of many banks.

Surviving the Recovery: How to Obtain Financing in the Post-Financial Crisis World

  • May 19, 2010

It’s one of the great ironies of economic cycles: There will be some companies that scratch and claw their way through the downturn, managing to survive the worst of the recession, only to fail when the recovery starts to kick in. The primary culprit is usually a lack of access to capital.

Commercial Lending: Debt Forgiveness and Foreclosure Tax Consequences

  • May 3, 2010

Do you realize that forgiveness of debt as part of a loan workout plan may be a taxable event for borrowers? If not, your borrowers could be in for a very unwelcome surprise from the IRS. For example, suppose you accept $300,000 from a borrower as satisfaction of a $500,000 debt. The IRS takes the position that the $200,000 difference is ordinary taxable income to the borrower, and you are required to send the borrower a Form 1099 stating this.