Five Steps to a Successful Collateral Verification
(Part 1 of our 2 part collateral series )
by Kylie Mergen, Director of Financial Services
As a collateral-based lender, validating collateral pledged to FHLBank is a necessary and prudent risk practice. The main process we use to validate collateral is the onsite collateral verification, which includes a visit from one of our Collateral Review Officers to review a sample of loans pledged. The goal of the collateral verification is to ensure pledged assets meet our underwriting guidelines and are eligible collateral. We’ve put together a list of five steps you can follow for a successful collateral verification.
Step 1: Prepare
Preparation is key to a successful collateral verification! Here are a couple of things we recommend.
- Ensure the individuals completing and approving the QCD form are knowledgeable of not only your assets, but also FHLBank collateral policies.
- Identify the way in which your system can recognize eligible collateral assets. Can you code for ineligible loans? Do you have queries that will identify assets for you?
This step is an ongoing process and needs to be refined as the environment, technology and market changes.
Step 2: Review
FHLBank policies can change as often as quarterly, so watch for email notices of updated policies. Make sure to use the most recent underwriting guidelines posted on our website. They are detailed in the Schedule of Eligible Collateral and can be found in the Member Products and Services Guide. Validate that ineligible loans have been eliminated from pledging. Completing a quick comparison may reveal a report was not working properly or a step in the process was missed and can prevent issues from arising during the verification.
Step 3: Pre-work
Prior to the Collateral Review Officer’s arrival, we recommend that you do a couple more things to prepare for the review.
- Provide additional loan data on the loans included in your sample. The data is used to validate that our current lending values are accurate and appropriate. The more data you can provide, the less data the Collateral Review Officer will have to track down while onsite, which saves time.
- Review the loan files in your sample to ensure the appropriate documentation is in the file. Check for final title policies, income verification and appraisals. Finding missing or misfiled documents prior to the reviewer arriving will also make the review go more quickly.
Step 4: Engagement
While onsite, the Collateral Review Officer will primarily be focused on reviewing the loan files and supplemental information you’ve provided. However, they are also available to answer any collateral questions you have. For example, the officer can review assets you’re considering pledging, walk through a complex loan to determine eligibility, demonstrate the process of reviewing a file or show you how to identify ineligible assets. We encourage you to take advantage of these collateral experts while they are onsite!
Step 5: Education
Webinars are offered in the fall on collateral reporting, eligibility and the collateral verification process Occasionally, we also speak at the Annual Management Conference held in the spring. Watch our website for details. You can also contact us anytime for one-on-one support with any collateral matter, such as help identifying opportunities to increase your collateral or working through specific loans you’re considering pledging.