Through the course of our work with loan review departments and independent loan review companies, we have noticed that there are two different approaches to loan review, one with a primary focus on loans and the other on borrowers.
One approach focuses primarily on loans and rates individual loans, not borrowers. Support for this focus requires the ability to enter rating for individual loans, including all history of ratings, and the supporting analysis of the ratings. Reports typically are organized by relationship and present summary information for all loans in the relationship followed by more detailed information about each loan such as (a) the specific terms of the loan, (b) the financial condition of borrowers and guarantors, (c) analysis of any collateral that supports the loan. While individual loans are rated and analyzed the analyst is mindful of the ability of one borrow to support several loans in the relationship for which they are a borrower or guarantor.
The other approach focuses primarily on borrowers and rate only borrowers, not loans. We are told that some organizations associate no rating with any loan, while other organizations associate the borrower’s rating with all their loans regardless of the terms and condition of individual loans. Support for this focus requires the ability to enter rating for individual borrowers, not loans, and maintain a history of all ratings for the borrower. Presentation of findings is organized by primary borrower with an emphasis on the financial condition of the primary borrower and guarantors as a group often referred to as a global analysis, versus the total interest and principal obligations of the associated loans as a group more than individually.
As a software development company, or goal is to support the needs of the industry we server. Consequently, the Madison System will support both approaches described above. Historically, our support has been for the loan focus described above. We are now completing the development of a new capability that will allow lenders and loan reviewers to increase their focus and reporting by primary borrower.
Both approaches clearly have merit and reflect the type of lending that is conducted by each organization. Whether the focus differs, both approaches evaluate the ability of borrows to repay the terms of their loans. They just come at the same task from different points of view.