Credit Evaluation School Instructor eBook - Oct 2023

People:

Borrower: Dexter Morgan Forensic Technician at Miami ‐ Metro PD W ‐ 2 income: $78M (at origination)

Purpose:

Purchase personal residence for $300M 27 years remaining on 30 ‐ year fully amortizing term loan

Payment: Protection: Problem: Prospects:

Debt ‐ to ‐ income ratio: 34% @ origination

First lien on residence LTV: 88% (at origination) Late history: 03/02/00

Loan reviewer identified several documentation issues: 1. Deed of Trust recorded in wrong county. 2. Deed of Trust signed in the wrong place by the borrower. 3. Lender is not listed as loss payee on insurance.

Introductory Consumer Credit Quick Hitter ‐ Criticized Ask students what changed: Late history & currently 92 days past due. Ask class: Pass, Criticize, Classify? And why? Preferred answer: Special Mention due to correctable documentation issues. Special Mention Key Points: • A Special Mention asset has potential weaknesses that deserve management's close attention. • If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. • Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. • The Special Mention category is not to be used as a means of avoiding a clear decision to classify a loan or pass it without criticism . Neither should it include loans listed merely "for the record" when uncertainties and complexities, perhaps coupled with large size, create some reservations about the loan. If weaknesses or evidence of imprudent handling cannot be identified, inclusion of such loans in Special Mention is not justified. • Ordinarily, Special Mention credits have characteristics which corrective