Saturday, August 24, 2019

Strengthening Your Loan Maintenance Monitoring

Posted by OnCourse Staff September 6, 2012 1:11pm

Photo Credit: vichie81

When my team and I visit a client to perform an engagement, there are usually a variety of tasks that we will perform during one audit. Some, such as the Allowance for Loan Loss, are considered high risk by everyone, and taken quite seriously wherever we go. Senior management always looks for feedback or how to strengthen their existing controls.

On the other hand, there are the areas we review that make eyes roll and are perceived in general as a waste of time and effort. One such activity is Loan Maintenance changes.  And although it can be a bit of a chore, this is a very important control function for your lending department, reducing the risk of internal fraud, and with the prevalence of Identity Theft, it becomes even more key.

Loan Maintenance is just that – modifying something on an existing loan (or loan customer information) based on customer request, bank error, or pre conceived circumstance such as interest rate changes.  These things, in and of themselves, are innocuous, but by just peering past the veil slightly, it can lead to some concern.

There are three keys to a solid LM function the firm looks for, to ensure that adequate controls are in place. These controls serve to limit  personnel who can access customer accounts, ensure that proper documentation is maintained when necessary, and having a review function to guarantee that the process you have in place is working as intended.

  1. Accessibility -   Not everyone on the loan servicing /production staff should have the ability to enter a borrower’s account and change information.  This function should be limited to a relatively small number and controlled by the IT department through password and, if possible, an electronic “signature” that is recorded each time a change is made. Certain things that can be altered, such as interest rates, payment due dates, etc., should only be performed with transaction authorization, and should be able to be easily traced to the person who made the change (and can, in turn, trace the change back to the authorization).  Having limited access to the loan system means having greater control of the loan information, which is key to maintain the integrity of the data therein. This certainly would reduce the risk of internal fraud within the institution. There are a myriad of  incidents reported  where a “rogue” employee has reduced interest rates or changed payment dates for “friends,” or went so far as to  increase exiting credit line limits and transfer amounts to his/her account. Such things can certainly be narrowed through careful access designation and monitoring.
  2. Documentation -  Having back up for your changes is a critical function, not only for authorized activity from bank management, but from your customers as well. As  Identity Theft has become a huge threat to both customers and banks, it is become paramount that any change requested by customers are verified to actually come <from> that customer, and not from a malicious third party. To that end, many banks are now restricting traditional customer services such as address changes to “walk-in“ only status.  Gone are the days where you can simply open the mail (or email!), receive a request, and change the address for a borrower and be done with it. This is an easy way for an ID thief to worm their way into an account and retrieve information. Even if you do not prescribe to the “walk in only “ strategy,  your bank should have strong controls in place to document the borrower requesting the change, verifying the signature, and even making telephone call backs to the borrower to ensure that it was them that requested the change. A change of address form should be retained in the customer’s loan file, or if necessary, a log that the borrower was contacted and the change was confirmed.  This may appear a bit draconian, but it is my belief that the people wearing the black hats are currently one step ahead of banks in regards to Identity Theft crime, and anything that can be done to secure borrower information should be done.
  3. Review – Having the above in place means nothing if management is not monitoring the loan maintenance activity for any abnormality. This means pulling the daily report and checking it against source documentation if available. Tedious? Yes. Necessary? Absolutely.  By reviewing your changes, you are not preventing typical clerical input errors from getting out of hand. The most harmless thing such as a scheduled interest rate change that is not correct can lead to multitudes of problems down the line simply because they are not reviewed. Borrowers are overcharged/undercharged interest, a bank is sited (and fined!) and then also needs to expend funds to review existing loans to discern the extent of the trouble. In addition, this review creates an added level of fraud protection for both the bank and your borrowers.

Monitoring Loan maintenance changes is not glamorous. It is in fact, less fun than a trip to the DMV. However, it is an increasingly necessary function that must be performed in order to combat the ever changing electronic world in which we live in.

 

 

 

Comments

Add a comment

  • Required fields are marked with *.

If you have trouble reading the code, click on the code itself to generate a new random code.



 Image

OnCourse Staff

The OnCourse writing staff work to keep you informed about the most pertinent financial industry news of the moment



OnCourse Staff's Posts Subscribe to RSS Feed



Flood Coverage – Still a Hot Regulatory Issue
Interagency Statement on Sharing BSA Resources and Challenges
New Jersey's Corporate Business Tax Legislation: A Look at the Impact for Banks
Correspondent Banking: The Challenges of Data Transparency
Regulation E and Business Account Errors
Controls over Employee and Officer T&E Expenses
Is Regulation CC Put on the Back Burner?
Training – An Investment and Risk Management Tool
Are You Gambling with Your BSA Program?
The Case of Foreign Banks and Heightened Scrutiny
IRS and New Jersey Tax Audits of Banks
State Taxation of Financial Institutions in Today's Environment
Does your 401(k) Plan need an Audit?
De-Risking of Foreign Correspondent Banks
Same Day ACH Credits – Phase One
FinCEN Finalizes Ruling on Beneficial Ownership and Ongoing Customer Due Diligence
Keep an Eye On Your Chip!
Is the IRS Status of your Defined Benefit plan in Jeopardy?
The Dilemma of Banking Medical Marijuana Businesses and Other Indirect Risks
Is your Institution Monitoring Working Capital Lines of Credit?
Financial Reporting and Regulatory Update on the Horizon
BSA/AML Training: Is your program effective?
Planning in a Consolidating Banking Industry
To opt-out or not to opt-out, that is the question – A reminder on March 31, 2015 Call Report, Schedule RC-R, item 3.a
Anti-Money Laundering – The Age of Technology
Top Compliance Topics Discussed at the NJ Bankers Compliance University
Some tips and tricks for dealing with Regulatory Examinations
Updated Regulation E Booklet from the OCC!
Is Flood Disaster Still on the Heat Map?
Have You Implemented Your Plan yet?
FDIC Consumer Newsletter
More Flood Insurance Changes...
Same Sex Married Couples - Ensuring Equal Treatment – Announcement from Consumer Financial Protection Bureau
Truth in Lending (Regulation Z) Annual Threshold Adjustments (CARD ACT, HOEPA and ATR/QM)
FFIEC Releases Revised BSA/AML Examination Manual: So what’s new?
OFAC Consolidates Non-SDN Listings
Coping with HOPA
Coping with the CFPB’s Ability-to-Repay Rule
ABA Survey on Impact of Dodd Frank Compliance
ABA Mortgage Origination Deskbook
Who handles Your Dormant Accounts?
Appraisal Disclosure Rule
Cybercriminals Broaden their Attacks in Social Networks
The Importance of Segregating a Bank’s Credit Function from its Lending Function
Appraisal Management Companies in Regulatory Crosshairs
All About the Home Owners Protection Act
Requesting Current Financial Information
Countdown to Windows XP End of Life and Support: Are you still at Risk?
314(b) Distinct Advantages for Financial Institutions
Where is the Document?
Building a Better Hen House
Ready the Ramparts! : IT Security and the Modern Bank
The Credit -- Er, IT Crisis?
Keeping the Balance: IT Security and the Org Chart
IT Security: "IT's" About Process
Wag the Dog
Consumerization of Technology and its influence on Information Security
Detective, Reactive and Preventive: Evolving Your IT Security
Do You Know The Security Features of the New $100 Bill?
Segregation of Duties for Wire Transfer Processing
How do you charge Early Withdrawal Fees on Time Deposits?
Do you still offer NOW Accounts?
Policy Changes Required – Do you Wait until Annual Approval?
Summarizing ACAMS White Paper on EDD and AML Risk Assessments (Industry Survey)
ACAMS to provide Free Webinar
ACBB Changes its Name
Who Do You Give Cash to?
ABA Briefing to Help Banks Address Cyber-security Threats
The OCC Issues Booklet: “A Common Sense Approach to Community Banking”
Safe Deposit Box Contents are not insured – But They COULD Be!
Allowance for Loan Loss Tips and Tricks
FDIC Can Review New Products
Let’s Talk About Overdrafts!
Community Banks Slowly Warm Up to Private Student Loans
Has your Bank updated the Adverse Action Notice?
Regulation E and NACHA Rules: When you Want to Stop Payment on a Recurring Debit
CFPB Stands Up Against Poor Debt Collection Practices
Don’t Forget the Small Stuff
Double Endorsed Checks: What is the Risk?
Social Media – Will the Regulators Do Spot Checks?
How Does Your Bank Handle Customer Requested Maintenance Changes?
OCC Releases Booklet on "Common Sense" Community Banking
New SAR Filing Updates
Is your BSA/AML automated monitoring system up to par?
The Importance of BSA Training
Office of Foreign Assets Control (“OFAC”) introduces the OFAC SDN Fuzzy Logic Search Tool
Filing the New CTR Forms: What you need to Know
FFIEC Proposed Risk Management Guidance on Social Media: Beware and Prepare
Solutions to Reducing Dormant Accounts at Your Institution
Pandemic Preparedness: Are you testing your Pandemic Plan?
Regulation E Foreign Remittance Rules
FFIEC issues revised “Supervision of Technology Service Providers” booklet
Expiration of Unlimited Deposit Insurance for NIBTAs
Is Your Institution's Marketing UDAAP Compliant?
What is Enterprise Risk Management?
New OCC Guidance Released on Investor Owned Properties
Electronic Work Papers - Why P&G Made the Switch
OCC to Toughen Exams in Response to United States Senate Permanent Subcommittee On Investigations
Clarifying Regulatory Obligations Regarding Continuing Activity SAR Filings
Federal Regulatory Agencies Proposal New Rule
Risk management - Smaller institutions and the benefits of ERM
Strengthening Your Loan Maintenance Monitoring
New Lending Proposal from CFPB
FDIC Reaches Settlement on Overdraft Fees
FRB Guidance on Foreclosures
Loan Denials and Withdrawals – Tips to Sure Up your Process
Regulation O – 5 Easy ways to avoid violations
The Summer of CFPB Proposals
Community Lenders Seize Market Share From Big Banks by Using Advanced Online Lending Technology
Dodd-Frank Rule to Change Legal Lending Limit Monitoring Requirements
The ABCs of a TDR
Supreme Court ruling for the Freeman, et al. v. Quicken Loans, Inc case
New FinCEN Guidance for CTR Aggregation for Businesses with Common Ownership (FIN – 2012 –G001)
Senior member of House of Financial Services Committee Introduces Overdraft Protection Act
FinCEN is looking to streamline the financial institution reporting process by issuing mandatory E-filing reporting requirements.
Curry: Operational Risk Now OCC’s Top Concern
JOBS Act Client Alert - Rules 506 of Regulation D
New Rules Proposal for Servicers Coming from the CFPB
Wall Street Receives Volcker Rule Clarity
De-stressing with stress testing
Banks Participate in Information Sharing to Battle Online Theft
IT security: Is your program still effective?
Banking Solutions: ALLL and GAAP in Agreement
How are the most recent regulatory enforcement trends that banks are facing today affecting internal audit? Why?
What are the most recent regulatory enforcement trends that banks are facing today?
Mobile banking: How do we get there?
UBS further struggles with $2 Billion loss by Rogue Trader
Capital One Becomes Dodd-Frank Test as Nation’s Fifth Largest Bank
Community Banks to receive US Funding for Small Businesses
FDIC fields questions about overdraft guidance
Negligent Hiring – A mistake can cost more than just money!
Regulatory Burden – Managing the Pain
From Embezzlement to Imprisonment: Former Citigroup employee faces charges with $19.2 million in bank fraud
TDR or Not to TDR …Much Ado about Nothing?
Finding the Right Hire
Model behavior: Is your ALM model capturing your bank’s risks?
ALLL best practices: Pay attention to qualitative factors
Abandoned Property Law, and its new New York State of Mind
Consumerization of Technology and its influence on Information Security
FDIC releases Provisions on Dodd-Frank to help Community Banks
Social Media in the Employment Arena – It Gets Funky!
The Proof is in the Pudding: Affects of Dodd-Frank on Community Banks
Banks and Businesses get "swiped" over Fees
A little bit of this, and a little bit of that: Fed Unveils list of Banks Helped during Financial Crisis of 2008
IT Security: "IT's" About Process
To Test or Not to Test; That is the Question
2011 Failed Bank List Hits 25
Wag the Dog
Committee on Financial Services to Hold Hearing on the Effects of Dodd-Frank on Small Biz and Banks Today
2011 Failed Bank List up to 18
A Culture of Whatever: On the Path to Proper Governance
The Test Drive: Leasing or Buying a HR IT Platform
Detective, Reactive and Preventive: Evolving Your IT Security
Cracking the ALLL Code: How to Develop the Right FAS 114 Methodology
Double Digits: Bank Closings up to 11 in 2011
FCIC Releases Report on the Causes of the Financial Crisis
Part of the In Crowd: Thoughts on the Dodd-Frank Act
Another One Bites the Dust: Regulators Close 4 Banks
Keeping the Balance: IT Security and the Org Chart
On Notice: FDIC Issues Rule for Temp Unlimited Deposit Insurance
2011 Failed Bank List Up to 3
Welcome to OnCourse
Stick 'Em Up!
Time for a Tune-Up: The Necessity of a HR Audit
Visa Instituting Two-Tiered Debit Card Interchange Structure
The First Failed Banks of 2011
The Credit -- Er, IT Crisis?
Painting a Masterpiece: The Art of the ALLL Reserve
The Law on Your Side: Understanding HR Regulations in 2011
Building a Better Hen House
Ready the Ramparts! : IT Security and the Modern Bank
No Respite from RESPA