Credit Appraisal System

Analysis and evaluation stage is a single channel, interest rate multi channel, loan terms single channel, and final issuing a multichannel. (Exhibit A)The current structure of the analysis and evaluation stage does not maximize staff time effectively and as a consequence creates a bottleneck in the process. With the single channel structure loan applications are unevenly distributed among teams and create higher idle time for teams with less volume of loan applications to process. Utilization among regions varies greatly between 73% - 95%. The following observation of the current structure was achieved using the MMK model (See exhibit B):

Fair and correct application of appraisal rules 2. Consistency between appraised and market values. In the new QC model all submitted appraisals were reviewed to detect errors or inconsistencies that identify riskier appraisals. When anomalies were detected, appraisals were sent to the next control stage for a more thorough and sophisticated analysis. At the end of each stage, appraisals were scored based on the number and severity of the anomalies detected. The overall score allowed the lender to develop an appraiser-specific risk profile that was then aso leveraged to make grounded decisions about future appraisals submitted by the same appraiser. The system introduced relied on an enterprise document management solution (EDM) to further improve the efficiency of the QC process. By leveraging the EDM’s queue management functionalities the lender implemented a system that allowed QC managers to coordinate the workload balancing activities among multiple locations. Furthermore, providing QC analysts from different offices with the ability to access appraisal files helped the client improve the quality of the analysis by taking advantage of reviewers’ experience and/or specific geographical market knowledge. Key features of the new operating model: • Improving level of integration between QC and production activities. Screening activities were mostly automated by leveraging the existing loan origination system (LOS). The first level of

This section is to provide a strategy for which the credit divisions can reflect upon.

The credit bureaus have made a very profitable business out of helping lenders like banks, mortgage banks, credit card companies and auto loan lenders assess “credit worthiness” or in laymen’s terms a consumers ability to pay back a loan. The credit-scoring model is a risk assessment in the form of a score. This assessment or credit score is one of the leading decision makers of interest rates and other terms of a loan. Consumers with poor or low credit scores will pay a higher annual interest rate than consumers with high credit scores.

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So it is also attractive for Jules Kroll to take this opportunity to enter the credit rating industry. In addition, the “issuer pays” model, which used by the big three rating agencies, lets companies shop around for the best ratings, putting pressure on the agencies to inflate their grades. As a result, it is very difficult to argue that they can adequately represent the users’ side. Therefore, Jules Kroll wants to use another model that can assign unbiased and reliable ratings.

These lending institutions are meant to evaluate the financial records of potential borrowers to determine the risk level of lending them the money. These lenders also help in completing all the documentations necessary for the purchase as well as assisting borrowers with closing process.

b) The ratings methodologies employed by these various bond rating agencies are a mixture of financial performance, information and subjective objectives and management quality information. All of this information is synthesized for the purpose of using it to predict the creditworthiness of the bond issuer, which is inversely related to the risk of default. Based on the above bond rating methodology,

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Lending evaluations by Santander are based on credit background of the person (or company) who wants borrow. Through the development of a credit-approval system, Santander Consumer Finance increased an understanding into these clients on an online database which allowed for the use of real time analysis in determining interest rates for the business interactions.

credit providers (for credit related purposes such as credit-worthiness, credit rating, credit provision and financing);

Taken together, these five criteria indicate a borrower’s ability and willingness to repay its debts. It is important to keep in mind that lenders don’t give equal weight to each criterion

To improve the efficiency of the market, CRAs act as reliable information providers to collect and process information pertinent for the assessment of credit quality, and disseminate the results to financial market participants such as investors and portfolio managers. The rating information provided by CRAs will reduce information asymmetries in the market, and this will lead to a higher level of investor confidence, increased activities in the market and lower transaction costs.

Most businesses offer credit to customers. The related costs of credit to a company include the cost of financing (borrowing cost or opportunity cost for funds tied up), cost of running credit operations, cost of time to chase for debts, cost of bad debts and cost of debt recovery (legal fees). This area is particularly critical given the present tight credit situation faced by many companies. By invoicing promptly and accurately, a company can ensure that its debt collection process is timely and efficient and that crucial cash flows are received promptly from customers. Having a robust credit management process will help a company reduce the risk of slow payments. In particular, through rigorous credit screening and taking early

If the average age of debtors rises over time, a more detailed breakdown of the age of debtors is required in order to classify debtors by their quality, liqudity or the date of sale. The calculation of the average age and the classification of debtors help the firm to fucus on the bad debts and decide on the period that it is going to allow after the due date or whether to withdraw the credit and claim immediate payment. Morever, the calculation of the average age and the classification of debtors, combined with the sensitivity analysis, can also be employed