Print This Post

Loan Review Primary Focus: Borrower or Loan?

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.

Loan Focus

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.

Borrower Focus

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.

Madison Support

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.

Print This Post

What Regulators Want – Slice and Dice the Portfolio

Our clients are telling us that the regulators are asking them to be able to address three important issues:

  • Slice and dice the loan portfolio
  • Stress test the loan portfolio
  • Maintain a computer based loan review system


We have comments on Stress testing before, so today we will address the first of these issues � Slicing and Dicing the Loan Portfolio.

A problem with many cores systems is that they do not capture the data needed to slice and dice the 0loan portfolio. A second issue is that they are often designed to efficiently capture information necessary for the accounting system, not for flexibly reporting on the characteristics of the loan portfolio. A further limitation is that data that is not directly related to issues such as accounting and regulatory reporting is often incomplete or missing.

When clients acquire a system that is capable of slicing and dicing the loan portfolio, they obtain a much more comprehensive and robust view of the portfolio, the first consequence of which is to discover that data in the core system is inaccurate, incomplete or missing entirely. So task number one is to clean up the data, determine what additional information is necessary to support analysis of the loan portfolio, and then get the new and cleaned up information into the system. This can be a formidable task, to say the least!

Once the data is cleaned up, the portfolio can then be sliced and diced by a wide variety of characteristics such as:

  • Geography (State, Region, Market, County, City, etc.)
  • Lending Office
  • Collateral Type
  • Industry
  • Loan Type
  • Department
  • Lending Officer
  • Loan Program
  • Loan Purpose
  • Relationships
  • Tenant Characteristics
  • Occupancy Rates
  • Tenants and Tenant Industry
  • Loan Rating Distribution (and rating upgrades and downgrades)
  • Lots more!


Also, it is valuable to evaluate the results of queries such as:

  • What is the exposure to the high tech industry both in terms of C&I loan to that industry and tenants in that industry that occupy properties secured by CRE loans.
  • Which loans are in a particular market and are secured by a particular property type?
  • Which loans have leases that expire in the next few months where the tenants occupy more than a specific percent of the property?


Needless to say, all this analysis and much more can be done quickly and easily with the Madison System�s reporting and filtering functionality. But be forewarned, the easier it is to slice and dice the portfolio the more you will find that you are presented with the need to clean up the data on which the analysis is based.

Print This Post

Loan Rating Migration

It is important to be able to evaluate how loan ratings have changed over time. For example, what percentage of loans that were originally rated a 2 are still rated a 2, what percent have declined to 3, to 4, etc. Madison�s commercial loan software allows you to prepared detailed analysis of these trends for your commercial loan portfolio.

That analysis can be filtered by a variety of factors:

  • Loan Origination Date. If, for example, you feel that loans originated in the year 2005 and 2006 were underwritten more aggressively, you can filter the report to include only loans originated in 2005 and 2006 so you can better understand how the ratings of these loans have changed.
  • Collateral Type. How have the ratings of loans collateralized by a particular collateral type changed over time? You can filter reports by one or more collateral types.
  • Geographic Market or Region. Some geographic regions or markets may have experienced greater weakness than others so it will be important to understand how the ratings for loans from these locations have changed over time.
  • Other Filter Categories. The Madison commercial loan software allows you to filter by many other loan characteristics so that you can best understand how ratings have migrated.
  • Combine filters. Filters can be combined for greater depth of analysis. For example, you can evaluate loans in a particular market(s) that were originated in 2005 and 2006. Or loans collateralized by (a) office properties (b) in a particular market(s) (c) that were originated in a particular year(s).


For presentation purposes, the Madison commercial loan software provides a summary matrix that displays percentages, a summary matrix that displays dollar amounts, and a detailed matrix that shows the performance of each loan.

Print This Post

Loan Review Snapshot Information

The Loan Review Department will select a sample of loans to evaluate. In some cases, samples will be selected at the start of each quarter and then reviewed during the quarter. In other cases, a sample of commercial real estate loans may be selected at one time, later a sample of C&I loans may be selected, and at another time asset based lending loans may be selected.

In each case, the Loan Review Department may wish to have reports that document the review of each loan that contain information about the loan as it existed at the time the sample was selected rather than current information. Madison addresses this by creating a snapshot of data as of the date that the sample was selected. That way loan review reports can contain information about the loan as of the date the sample was selected, or as of the current date, or both. This feature affords greater flexibility in documenting and saving the findings of each review.