Problem Loan Services

In most cases, it is neither efficient nor effective for a community bank loan officer or a senior officer of the community bank to resolve a problem loan. Not only is the assigned bank officer typically inexperienced in such matters and to some extent compromised by his existing business and personal relationship with the borrower, he is also badly distracted from his much more productive role as a producer of profitable banking relationships.

Even in those banks of sufficient size to hire a small staff of Special Assets officers, it is often more efficient and effective to utilize outsourcing of the Special Assets function for the bank’s problem loans. It is believed the knowledge, talents and experience of our staff in work-out negotiations and litigation will typically far exceed that of the employees the community bank may able to attract to these positions. Additionally, the expenses related to an internal Special Assets staff are fixed and non-controllable; whereas, the expense of outsourcing the Special Assets function is a variable and controllable expense.

There are a number of additional more subtle reasons to outsource the resolution of problem loans. Because Ensight CRC Group is an outside contractor, there is never any role confusion in the resolution of a problem loan. Furthermore, Ensight CRC Group, as an outside-contractor, has greater latitude in the avoidance of Lender Liability and can work more closely and at an earlier stage in the deterioration of the credit with the borrower in the resolution and possible migration of the problem loan situation.

Ensight CRC Group recognizes that there are sensitive concerns for any bank utilizing an outside contractor in the resolution of its problem loans. Foremost, Ensight CRC Group realizes that all of its loan resolution actions will reflect on the business and community image of the bank and will take the utmost care in representing the bank in a courteous and professional manner. Ensight CRC Group also recognizes the potential for legal liability for the bank in the event of its improper actions and will always maintain a professional approach, fully utilizing attorney consultation and employment when appropriate.

An overview of the terms and conditions for outsourcing the Special Assets function should include the following:

• All loan assets to be handled on an outsourced basis should meet some agreed-upon minimum threshold size.
• There should be a pre-assignment meeting between the Senior Credit Officer and the Account Officer of the Bank, and the Special Assets representative from Ensight CRC Group to fully discuss the loan history, current situation, and alternative resolution strategies.
• A formal, written resolution plan, including the resolution and/or litigation strategy, estimated resolution timeline, resolution budget, and service fee structure, will be presented by Ensight CRC Group and approved by senior management of the bank.
• The approved resolution plan will provide for all delegated responsibility, as well as the process for any required approval of actions and settlements.
• If there is a significant recommended change in strategy, a revised new resolution plan will be submitted for approval.
• Written summary progress reports are to be provided no less than bi-weekly, with significant events for specific loans to be reported in writing no less than weekly. All important developments will be communicated on the same day as realized.
• The fee structure will be influenced by the size of the loan, the complexity of the problem, and the expected time required for resolution.