With more life companies and banks either returning to loan originations, or considering it, now is the time to revisit your basic loan document forms, and to revise them based upon the “lessons learned” during this market downturn. But STOP.
Simply grabbing or creating a list of topics and then changing your forms will NOT bring you the best result, and it will complicate and even slow down this process. Incorporate the following into your plan:
- Big Picture: Many factors and considerations come into play as we consider changes to loan documents. Make identifying those factors and considerations your first step in the process. Factors could include your Company risk tolerance, servicing needs or restraints, industry standards, regulatory constraints, investment period, loan sale possibilities, documents used by other lenders, comments and complaints directed at your current forms, etc. Identify every player who has an interest in the loan file.
- List: Make a list of the possible changes and rank them in priority of importance
- Buy In (Who Cares?): Show the list to the key players in your company (loan productions, servicing, loan sales, compliance group, insurance group, special asset [workout] manager, etc.); and get their approval of the list; again, if a department “touches” the loan file, then get their input (on the topics of interest to them)
- Legal Review: ask your outside legal counsel to review, comment on and contribute to the list
- Intel: examine documents used by your competitors; investigate the documents used in other lending areas; if you sell all or a portion of your loans, ask the buyers to comment on your documents (and “what” they like about documents used by your competitors)
- Approach: articulate your style or approach. For example, will you “repeat” provisions in more than one document? Will the documents contain key terms in a single location (to assist in the review of the documents, to make amending the deal terms in a deal a very easy process, and in the use of automated, document preparation tools)? Do you favor longer documents over shorter documents? Do you want to use a “plain English” approach?
Mapping your process and the players will make implementing the changes easy. Start smart. Please give us your suggestions by commenting below.