Credit Philosophy

The standard lending policies with regards to residential mortgages is an application of sound and prudent analysis of the real estate offered as security and the applicant’s ability to repay in an orderly and timely manner. Policies and guidelines are designed to provide maximum client service while minimizing the lender’s credit risk. There are five areas of analysis otherwise known as the “5 C’s” of CREDIT.

1. Capacity – Borrowers cash flow and ability to pay – The capacity of the client to service the obligation in a timely manner is a primary indicator of success in all lending. The lender must pay particular attention to this factor. Tools, such as debt service ratios, will help determine capacity; these, together with prudent judgment, will lead to success.

2. Collateral – Lending value and marketability of the security – Collateral, or security taken, provides support and risk justification. This characteristic must never override other components, but work in partnership with all other indicators and Cs. For mortgages, the collateral will always be the real estate, and both value and marketability must be reviewed.

Some marketability features include condition, location, design, zoning, size, neighborhood, and value at the time of the mortgage application. This is determined by the listing, description given on the application, and most of all, the appraisal done by an independent certified appraiser.

3. Credit Worthiness – This is the most accurate indicator of future repayment performance. An acceptable and clearly understood credit history is critical to the risk analysis and will support the overall credit decision. A credit history is obtained by ordering a credit bureau report.

4. Character – Financial maturity is for the most part somewhat subjective, but must be viewed as an essential component to support good lending. Outstanding financial maturity of a client will add strength to a transaction, and a positive willingness by clients to work as financial partners is a necessary component leading to a successful decision. Indicators of financial maturity may include minimal debt load, investments, and long time secure employment.

5. Capital – Financial reserves – Capital reserves available to clients provide financial support should circumstances change during the term. Since cash flow and security value are subject to market conditions, a fall-back position, if available, indicates maturity and good financial management. The lack of such characteristics may indicate an undetected problem requiring more investigation. Capital also refers to the amount of equity/investment the borrowers have in the property. In a purchase, this refers to the amount of down payment, which impacts our real estate risk.