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Making decisions about the disposition of non-performing assets is very difficult: Inadequate information on which to
base decision Fear of trouble
Fear of criticismFear of retribution—loss of job or position
or being reprimandedFear of giving something away
Effective decision making requires three basic elements: Clear and precise delegations of
authority Written, detailed policy and
procedures Documented approval process
Effective Decision Making
Authority to make asset related decisions should be delegated to descending levels of management within the organization, depending on the size and magnitude of the asset and related proposed action.Routine decisions should be made routinely and by the use of individual authorityCredit Review committees should be encouraged as opposed to individual decision making on large and complicated matters
t
Delegations of Authority Relating to Closed Bank Management
Authority is delegated and re-delegated in smaller amounts to descending levels of management and responsibilityUltimate authority with board of directorsBoard delegates a certain level of authority
to LPS DirectorLPS Director re-delegates his authority to a
committee made up of senior LPS managersLPS separately re-delegates some of his
authority to Liquidation Team Manager
Types of Delegations of Authority specific to asset disposition decisions:
Compromise and settlement authorityAbandon any assetCompromise any assetRelease guarantors on any assetAbandon collateral to any assetDispose or sell any assetApprove settlement or any claim or
litigation concerning any asset (in concurrence with Legal Counsel)
Types of Delegations of Authorityspecific to asset disposition
decisions: Compromise and settlement authority (cont’d)
Take all other appropriate action related to assets in closed banks
Book Value Limitation:This authority extends only to those assets that
have a book value of __________or less However:
Regardless of the limitation above, to take any action where the amount of loss to be realized does not exceed 15% of the total of principal and accrued interest
Types of Delegations of Authority
specific to asset disposition decisions:
Sale of Real Estate or Other PropertyOn an all-cash basis or on terms if the
appraised value is __________or lessRegardless of the above limitation, to sell
real or personal property on an all-cash basis for a minimum of 100% of appraised value
All sales shall be conducted according to the policy for sale of real and personal property
Types of Delegations of Authorityspecific to asset disposition
decisions: Disbursement of Funds
For the protection of any asset not to exceed ________per calendar year
In accordance with contractual obligations arising from loan commitments, partially funded loans, letters of credit
To remove prior liens at or prior to a senior creditor’s foreclosure sale whenever the total amount of prior liens is 60% or less of the property’s appraised value
To pay sales commissions and closing costs, provided that the total amount paid does not exceed 10% of the sales price
Types of Delegations of Authority
specific to asset disposition decisions:
Release Collateral SecurityFor 80% or more of appraised value
whenever such release does not compromise a claim against a borrower
Initiate Foreclosure on Collateral Restructure Debt Sell Loans
Written, Detailed Policy and Procedures: These are the rules by which assets
are managed, such as:Financial statements requiredReal estate appraisalsListing priceForeclosure bid amountBroad marketing effortEtc.
Documented Approval Process I recommend a system based on the FDIC
“case” memorandum system. A case is a written memorandum to the appropriate level of authority seeking approval for an action, formatted as follows:ProposalDescription of asset and situationWhy the proposed action is the best alternativeReview of lesser alternativesSubstantiation of proposalCitation of policy and procedure as applicableCitation of relevant delegations of authority