A bank should perform research before purchasing loans. Homework encourages a well-performing, stable loan profile with identified dangers which are inside the bank’s abilities to manage. Generally speaking, homework includes
Top-notch, separate credit analysis is essential in loan purchase activities. A purchaser would conduct an initial (i.e., pre-purchase) credit analysis independent of the seller to confirm that the loans meet the purchaser’s standards and risk appetite to make a prudent credit decision. For instance, a bank having a well-defined procedure for assessing participations or syndicated loans could leverage its interior underwriting policies and procedures to accomplish the credit analysis that is independent.