How are lending decisions made... really?

[veracious]

I've always wondered how loan officers at credit unions,banks,etc. make their decisions.

Do they rely strictly on computerized risk  models    (for lack of a better term)   or, do they

receive some special training on how to evaluate people as well?   Years ago, when I

started applying for credit  there were only face to face evaluations.

I'm about to meet with a credit union officer and just wanted to know what to expect.

      veracious

[marty56]

Last year, when I refied my mortgage with a CU, the CSR said that the loan application went to a loan committee for review.  I would say it depends on the loan type.

[MarineVietVet]

I can't really say for sure exactly how it works. I think some of it may have to do with the amount of the loan. A loan officer may have the authority to approve a small (what's small?) loan on their own but a mortgage might always require more than one person to approve.

I'm just guessing here.

From a BK years ago to:

9/09 EX pulled by lender 802
3/10 EQ- 800
4/10 TU -772

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Whats In Your FICO Score

[veracious]

Thanks, marty56.

I'll keep that in mind, so as not to think their giving me the run around.

   veracious

[veracious]

Marinevietvet,   thanks my friend

.

Seems like you've been there_done_that  and back again.

 veracious

[MarineVietVet]

---

@veracious wrote:

Marinevietvet,   thanks my friend

.

Seems like you've been there_done_that  and back again.

 veracious

---

LOL. I've been a few places in my life and sometimes wonder if I learned anything from the journeys. 

[RobertEG]

It is a cost of investigation  vs risk of default analysis.

Sample A: A credit union or banking institution for which you arent requesting credit, but merely the opening of an account, secured by funds.

They are not extendinng you immediate credit, so may do a credit putll, or may not.  FICO will probably be, at the most, all they need.

Sample B:  A CCC for which you request an account with very low credit limit, maybe even secured, and a high % APR, and maybe even an annual fee.  You cant go too much in debt with them, so they will probably rely only on your FICO score.  It costs them money to pull your CR, but it is automated, and they dont need anyone to do a manual evaluation of your CR to make a meager decision.

Sample C.  You request a major CC with a high CL, low interest rate, and no fee.  Pre-approval may be based only on FICO score, but the higher the CL they commit to, the higher the chances that they want to know things not recorded in FICO, such as your total income, marital status, total debt, etc.  This costs them a lot of money to review, so they balance the cost of review against their potential risk.

Sample D:  You request a mortgage loan of $250.000.  Now the potential risk soars.  Sure they will view your FICO score, but will almost invariably request a full financial disclosure of you income, your spouse's income, total debt, etc.  That is a lot more investment in their process of evaluation of the credit extension, but warranted by the much higher risk.

[cdtotten]

One of the largest businesses my firm performs is internal auditing over financial institutions. I can tell you that most of your smaller banks and credit unions operate within a system of lender limits. Each loan officer and or supervisor has an internal limit on what he or she can approve without involving others. After that limit, it must be taken to a supervisor (if it is a lower limit employee), who can approve up to his own limit, or if it exceeds that... must be taken to the loan commitee. Typically loan comittees meet once a month at the bank or CU's board meeting. They are presented a list of loans that need approval by the primary lending officer, and he or she makes the case for why the loan should be approved or denied.

As for larger banks, it is underwriters that must operate within defined parameters. They are typically using automated systems to aid them in what is acceptable risk and what is not. Although FICO scores can drive a small loan to be given out without further inquiry, any large loan will be subject to an underwriting decision. That could be at the individual lender level (as with small banks), or an underwriter.