Loan Committee
Candlefocus EditorThe loan committee consists of upper management personnel within the lending institution that have the authority to approve loans that a single loan officer may not be able to approve on their own. In their assessments, loan committees gauge factors such as risk mitigants, the borrower's credit score, past payment history, outstanding debts, and current liquidity. Furthermore, the three main credit reporting agencies in the United States provide credit information on prospective borrowers that is utilized in the loan committee’s evaluation process.
Through its assessment procedure, the loan committee operates as somewhat of an internal review system for the lending institution. Its purpose is to ensure that the loan being evaluated meets regulatory standards, the firm's lending policies, and fits the credit risk appetite of the firm. Failure to comply with either the regulations of the lending institution and/or the regulatory standards of the country would put the lender at risk. Therefore, the loan committee’s role is of the utmost importance, as they are the gatekeepers and enforcers when it comes to the fitness and appropriateness of a loan.
Additionally, the loan committee is responsible for determining the actions that the lending institution must take if a borrower begins to miss payments or defaults on the loan. Based on the appraisal of the loan, the loan committee can decide to reduce or adjust the loan, but has the final authority to determine the corrective measures necessary to protect the institution’s capital.
Ultimately, it is the loan committee’s job to take the loan officer's assessment and review it from a risk-based perspective. With a keen eye for detailed analytics, the loan committee must use its best judgement to ensure that all loans being approved adhere to the lender's standards, policies and risk tolerances. In using this evaluation process, the loan committee provides an extra layer of security and prudence to the lending decision. With the help of the loan committee, lenders can rest assured knowing that stringent and careful analysis is being conducted behind the scenes in order to approve the fittest loan applications.