|Next Info Memo||List of Info Memos|
|Subject:||Review of FCS Loan Underwriting Standards|
|Date of Memorandum:||08/21/2003|
|Signed By:||Smith, Roland|
|FCA Contact Person:||Smith, Roland|
|List of Attachments:|
Farm Credit institutions generally improved their loan underwriting standards (LUS) in 2002. Many institutions adopted new LUS for specific portfolio segments reflective of the types of specialized lending into which they were expanding. In addition, institutions were fine-tuning existing standards, with some emphasis on tightening versus relaxing standards.
More institutions changed their LUS in 2002 than in the previous year. Two districts had a significant percentage of institutions modifying their LUS, while the one district again had no modifications. In addition to updating LUS for existing institutions, 10 institutions with new charters and/or mergers effective in 2002 were added to our LUS database.
Institutions Amending LUS
The number of institutions amending their LUS increased from the prior year. Of the 106 active institutions in the LUS database as of April 2, 2003, 32 institutions (30 percent) amended their LUS in 2002. This is higher than the prior report as of March 25, 2002, when 20 (16 percent) of the 123 active institutions in the LUS database made amendments. Amendments included adopting new standards, revising existing standards, and eliminating existing standards. All institutions with amendments in 2002 and 2001 adopted one or more new underwriting standards.
Likewise, activity pertaining to revising existing loan underwriting standards was higher than the prior report. As of April 2003, 13 institutions (12 percent) revised loan underwriting standards compared to 8 institutions (6 percent) noted in the prior report. The activity was spread evenly across five districts. The institution with the most changes generally tightened standards by a slight amount in all categories of lending.
The number of institutions that eliminated underwriting standards remained stable. As of this report, 10 institutions (9 percent) eliminated some standards compared to 14 (11 percent) for the prior report. However, institutions implemented new or similar categories with generally the same criteria.
Nature of LUS Amendments
The LUS database changes were reflective of:
Our review of data collected by examiners on Farm Credit institutions’ LUS disclosed that the use of LUS by institutions has become more widespread, dynamic, and tailored by industry. As such, managing risk in agricultural lending is a complex issue and there are many other tools to manage risk that your institution may employ which the examiners will consider when evaluating loan portfolio management. Obviously, changes in the lending environment will require you to constantly review lending and loan servicing practices to ensure safe and sound operations. Please feel free to discuss this memorandum with the examiners assigned to your institution or contact me at (703) 883-4160. You may also contact me on the Internet at my e-mail address Smithr@fca.gov.