Imaged Loan File Best Practices for Financial Institutions

Lenders must retain and be able to accurately reproduce loan documents1. The electronic storage, or imaging, of loan and credit files can facilitate both retention and reproduction. The potential efficiencies of imaging and the accuracy of reproduced documents, however, rely heavily on a well-planned and implemented process.

Whether your financial institution is beginning to transition from paper loan files to imaged loan files, or already has an imaged file retention program that would benefit from enhancements, here are some key considerations to include in your project planning.

How do you establish full institution support for imaging?

This is partially a culture question, and the answer should be fully supported and clearly communicated from the top levels of management before the refresh or new project begins. Staff that is accustomed to keeping certain documents locally may be hesitant or complacent about imaging. This may be evident in an existing imaged file retention program that is incomplete. Your project team should include members from each area of the financial institution that will be impacted by imaging, i.e., executive management, credit department, loan officers and administrative support, loan operations, special assets, information technology (IT), compliance and internal loan review. As your file of record transitions to one imaging system, every staff member should understand the importance of having all relevant documents imaged in a timely and accurate manner. Implementing a user-friendly imaging system will further encourage cooperation.

Which imaging system is the best fit for your institution?

The answer will depend on multiple factors, including your core system, preferences for imaged file organization and naming capabilities, and the ease of use for both initial imaging and retrieval. When comparing vendors, consider the contracted ongoing support levels from each, your technology resources and IT support staff capacity, and your current printing and scanning equipment. If your financial institution already has an imaged file retention program, or is using a share file system, research the ease of transferring files to a new or enhanced imaging system. Some system vendors have multiple products or methods of use, so request presentations for various options.

Will you image the historic paper files?

For most financial institutions, this is a question of staffing resources and capacity during the transition period. If imaging all historic files in a short period of time is not an option, consider imaging on a go-forward basis with a defined date. You can also image historic files periodically, as a line of credit is renewed, as a ballooning loan is refinanced, and by targeting your largest relationship exposures. Keep in mind that, for a period of time, you will need to provide access to both paper and imaged files to relevant external parties.

Who will image the original documents?

Determine if all imaging will be completed by a single department or if multiple areas will have the ability to image original documents. There are pros and cons to each approach. Most importantly, anyone tasked with imaging should have the proper knowledge of each document for naming purposes and to recognize when it is complete. Hiring temporary staff, without the requisite skills, to image new or historic files typically yields undesirable results for retrieval. Engaging an outsourced vendor to image files may result in one mass image file for each loan, hindering search and retrieval capabilities.

How important are document names and dates?

Document names and dates populated in the imaging system are critical for efficient retrieval and having insufficient names leads to confusion and inefficiency. A couple examples would include:

  • Locating a client’s most recent profit and loss statement when several documents are named Financials with no additional description.
  • Finding a particular change in terms agreement among numerous Agreements that are all dated as of the day the historic paper file was imaged.

You will retrieve the specific documents eventually, but not efficiently. If you have an existing imaged file retention program, document titling for ease of retrieval may be the most requested enhancement by users.

Plan to create categories or folders to group similar document types together for both the loan and credit files, including items for guarantors and related parties, and less frequent documents for watch credits. These categories may mirror sections or tabs you previously labeled in a paper file. Individual document names should be granular enough to differentiate a security agreement from a business loan agreement, or a tax return from an internal balance sheet. Consistency in document naming is also vitally important for later retrieval. Best practices are to display the date of the underlying document and to image each document separately.

What quality controls should be in place?

To accurately reproduce loan documents, your imaged documents must be legible and complete, including any referenced exhibits and attachments. Verification of image quality should be an additional step in your current post- closing review process. An effective quality control function for imaging will verify legibility, original two-sided documents contain all pages, legal-size documents have not been truncated, Schedule A is imaged with the mortgage, etc. For trailing documents pending recording, a best practice is to image an executed, unrecorded copy after the loan closing; then replace it with the recorded document upon receipt.

Which original documents should be retained?

Consult with legal counsel to obtain the appropriate opinion based on your state, your regulator and other factors.

Who will need to use the imaging system?

Aside from your lending staff and management, your regulators, accountants, internal and external auditors, and external loan review personnel will need access to your loan and credit files. External parties prefer to access your imaging system directly to demonstrate that a file can be viewed in its entirety. This also has internal benefits, as staff will not need to copy imaged files to another location or print documents. You will need to supply a computer for each external person arriving onsite or determine if you can provide remote access for document viewing. For financial institutions with an existing imaging system, include prior feedback from those external parties when beginning a refresh project.

Other Considerations

Information in this article is not intended to cover all topics that you and your imaging system vendor may identify during the project. Comprehensive planning and implementation will contribute to an enhanced user experience, while meeting your requirements to retain and be able to accurately reproduce loan documents.

For questions or more information about loan review or imaging consultation services, contact DHG Credit Risk Management at benchstrength@dhg.com.

About DHG Credit Risk Management

DHG Credit Risk Management assists clients with understanding and managing credit risk in the loan portfolio, including evaluating the overall credit process and internal credit review. Our professionals perform in- depth independent loan reviews, including due diligence loan review, and can assist in establishing the overall credit mark in diligence situations. From loan review and imaging consultation services, to internal assessments supporting capital raises and external assessments for private equity, DHG is equipped to meet your credit risk management needs. Learn more about the services of DHG Credit Risk Management at dhg.com/industries/financial-services/credit-risk-management.

Source

  1. 12 C.F.R. § various. (Code of Federal Regulations, Title 12 – Banks and Banking, Various Sections)