Account Management Solutions for Interagency Guidance on ALLL
The Federal Reserve, FDIC, NCUA and OCC (Interagency) recently released updated guidance related to the computation of Allowance for Loan and Lease Losses (ALLL) for loans and lines of credit secured by senior and junior liens on 1-4 family residential properties. The updated guidance specifically focuses on junior lien portfolios and serves as a reminder to financial institutions that allowance and credit loss estimates should reflect consideration of all significant credit risk factors -- and that failing to gather and consider reasonably available and relevant information about the collectability of a portfolio would be inconsistent with both GAAP and supervisory guidance.

Do you have an effective portfolio review strategy in place to manage junior liens?
Lenders that hold residential mortgages secured by junior liens in today’s market must take caution to ensure they are not exposing themselves to unnecessary credit risk. Due to declining real estate values, home equity has been significantly reduced in several markets across the country and, in many cases, lenders have open HELOC accounts secured by collateral that has dangerously high Combined Loan to Value (CLTV) ratios.  One effective strategy to manage this risk in the current environment is to closely monitor borrower equity on a regular basis.

What the Interagency Guidance States:

  • Identify delinquency and modification status of senior lien loans associated with an institution’s junior liens
  • Evaluate current borrower credit score
  • Obtain current loan-to-value (LTV) and combined loan-to-value (CLTV) ratios
  • Identify geographic location of collateral and property type (investor-owned or owner-occupied)

Are you in compliance* with the ALLL guidelines?
The Interagency guidelines outline requirements and best practices that lenders should follow when computing appropriate Allowance for Loan and Lease Losses (ALLL). One component of a sound ALLL program is evaluating the market value of any collateral that secures a mortgage loan held within a financial institution's portfolio.

Equifax is the only solution provider in the industry that is capable of delivering the credit and property collateral data you need to facilitate a comprehensive portfolio review process.  Property Value Estimator provides the accuracy and transparency you need to ensure appropriate capital adequacy requirements are met and valuable capital isn’t sidelined unnecessarily. It is a cost-effective method for monitoring junior lien portfolios to identify residential collateral that may have experienced a “significant” decline in value since the loan was originated.

What's more, our residential property valuation data can be used in conjunction with standard credit attributes, also available from Equifax, that are commonly leveraged by lenders to evaluate risk exposure and facilitate compliance with regulatory requirements specified by regulators. Availability of both property valuation data and credit attributes from one provider streamlines the portfolio review process, thereby improving your efficiency and reducing costs.

Why not choose a provider you can trust?
Don’t take on unnecessary risk exposure and scrutiny from regulators by leveraging inferior valuation and credit products.  Equifax is a global leader in information solutions with a 100+ year heritage of product innovation and decisioning solutions.  Contact us today.

* This content is for informative purposes only. It is not to be relied upon, is not intended to be, nor should it be used or construed as legal advice. Companies should consult their legal and/or compliance specialists for interpretation of the rules, determination of impact to their business, and suitability of individual compliance solutions. Account management as it relates to regulatory guidance and compliance is the sole responsibility of your organization.



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Related Resources
Interagency Guidance on ALLL
Property Value Estimator
Customer Portfolio Review



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