RealWired announces the launch of YouConnect©, for the banking industry. YouConnect© is a Web-based Appraisal Ordering and Vendor Management solution enabling banks and financial institutions to automate and streamline their business, while satisfying state and federal examination and auditing requirements. YouConnect© provides vendor management, workflow management, status tracking, storage and management reporting in a secure easy to use format which is accessible anytime and anywhere.
The credit crisis has highlighted the need to carefully and accurately manage who orders and reviews appraisals while examiners emphasize the need for banks and financial institutions to prove high levels of safety, soundness and compliance throughout their organizations. You Connect© fits these needs.
YouConnect© allows banks and financial institutions to:
• Electronically create Request for Proposals and Awards for Services.
• Demonstrate the separation between lending and the appraiser selection process.
• Customize and access reports for tracking fees, time, volume, portfolio size, asset risk management and internal tracking for regulatory control.
• Manage internal tasks, reviews and disbursements.
• Provide document management and storage.
• Provide bank examiners with easy access to appraisal files, both off and on-site.
• Reduce administrative time on appraisal ordering process by 35 to 45%.
The Crisis, the Bailout, the Meltdown
What Does it Mean for You?
By Realwired! CEO, Brenda Dohring
So what have we found? Everyone is pretty much in the same boat. And while there’s comfort in that, it’s very disconcerting. We can’t say exactly how you’ll be impacted over the next 12 months, but it’s clear you will be impacted. How each of you as leaders in your organization react and the actions you take will have both an immediate and a long lasting impact. So for starters, no matter what you call the financial position you find your organization in, the expected changes and regulations are going to mean MORE WORK for you and your employees! Notice I didn’t say more business…I said more work. The credit department in your financial institution is going to be asked to do more. And of course your job is to make sure that they can get that work done while keeping an eye on driving profitability, managing risk and staying in compliance. Yes, compliance, the very thing that is driving the “more work”. And of course, you need to continue to lead with confidence.
Departments within financial institutions and specifically banks have become increasingly complex, driven by the demands of regulation and business practice. This increase in sophistication has accelerated in recent years, resulting in credit departments with ever increasing responsibilities. Since the audit function needs to address all areas of a financial institution including the credit department, auditors face additional challenges.
So a word about “credit”, that thing that is the core, is a good place to start. I’m fond of this definition of credit that I’ve cobbled together from several sources, including my own observations over the last 20+ years…
Credit is a question of ability to pay combined with the intention to pay. Both ability and intention must be assured of so the credit is considered a safe proposition. The intention to pay is best looked at on the basis of past experience, habits of life, character, etc. If a person has always has paid their debts and is not living beyond their means, a person’s intention to pay can be pretty well determined. The ability to pay is generally seen as easier to determine. It is however, very difficult to determine with accuracy. This is where skill and regulation are greatly needed.
So how might you help your organization get where you want it to go while avoiding hazards and shocks along the way? You’re smart enough to know it entails more than balancing risk and reward, and it goes beyond regulatory compliance. It’s about embedding risk management into everyday processes at all levels of the organization.
Believe it or not, technology expenditures have proven to be a key to success. Consider this. A recent survey of sizable financial institutions in the US revealed 89% agree that enhancing technology to improve productivity is important to their bank’s success. As a result, 66% of these bank executives expect technology expenditures to increase in 2008-09. Systems and process, together with the ability to capture reliable data is, of utmost importance.
What’s driving it? You already know the OCC expects banks with CRE (commercial real estate) concentrations to make realistic assessments of their portfolio based on current market conditions, and to make necessary adjustments as market conditions change. And while the OCC reports it has found some signs of improvement in some risk management practices, examiners have also continued to observe a number of deficiencies that are a cause for concern. In particular, reviews have shown that many banks with significant CRE concentrations have not updated appraisals regularly, which makes it hard to assess credit quality.
Banks should, and most do, have a process for determining when a re-appraisal is required due to market or project changes. The policy should detail criteria for when a full re-appraisal is needed or when a less extensive evaluation will suffice. This process should also clearly outline actions to be taken when the bank's review process determines that the final value is not supported by a recently received appraisal. The review should analytically assess the impact of market changes on collateral/asset values. If the bank's process is working well, examiners will avoid making their own adjustments to collateral value for the purpose of classification or for accrual decisions. And that’s a good thing. We sure don’t want a situation like we had in the Savings and Loan bailout days. Here’s a little history I’ve compiled for you.
First a brief and maybe timeline…
April 1987 - the Federal Reserve Board eases regulations under Glass-Steagall Act established the Federal Deposit Insurance Corporation (FDIC) offered banking reforms which were designed to control speculation.
November 1988 - George Bush elected President. The S&L problem was not part of election debate.
February 1989 - President Bush unveils S&L bailout plan.
August 1989 - The Financial Institutions Reform Recovery and Enforcement Act (FIRREA) was in place it abolished the Federal Home Loan Bank Board and FSLIC and put regulation in the hands of the newly created Office of Thrift Supervision (OTC). Another new entity, the Resolution Trust Corporation was created to resolve the insolvent S&Ls.
1989 and 1990 - The S&L crisis reached its height. The RTC closed 318 thrifts - total assets of $135 billion in 1989 and 213 with total assets of $130 billion in 1990.
Next, some lessons…
Between 1986 and 1995 - the underwriting of US thrifts cost somewhere around $155 billion. Others put the cost of the crisis at about $600 Billion and headlines reported it cost each person in the US $2,000. The situation was a major threat to the US financial system. The S&L industry was cut in about half as about 1000 institutions were shut down. Many cite the stage was set for the crisis by the sharp rise in oil prices in 1979, pushing up inflation, followed by interest rates on government debt hitting 16%. Prime rate hit 21% in December of 1980 and hovered in the 17% - 20% range until early 1982. During the 1980's and up until the early 1990's, credit card interest rates averaged about 18-20%. Still between 1980 and 1990, the number of credit cards more than doubled, credit card spending increased more than five-fold and the average household credit card balance rose from $518 to nearly $2,700.