Jeff Judy

Jeff's Thoughts - August 3 , 2011

My Collateral Philosophy

In the previous issue of Jeff's Thoughts, "Rethinking Sources of Repayment," I wrote about viewing collateral less as a "source of repayment" and more as a loss mitigation tool. I also suggested that there are many alternative sources of repayment that can be applied to mitigate the eventual loss along the way, as the borrower deteriorates, rather than waiting to make up the entire gap with collateral once the borrower is in serious trouble.

I suspect that collateral has become such a routine part of the process and the paperwork that many bankers don't really think about what it can, and cannot, do for the bank, nor do they think about other options for loss mitigation as early and as often as they should. Let me share some of my beliefs about collateral, repayment, and loss mitigation:

In general, I recommend a much broader, and much more proactive, approach to repayment. We need to get past "primary and secondary sources of repayment" and recognize that we are "managing loss mitigation." And we can manage loss most effectively if we embrace early detection of borrower problems, and rapid response -- deploying steps we have already identified -- to those early signs of trouble.

Even with that philosophy, however, it is still possible to go astray. In the next issue of Jeff's Thoughts, I'll reinforce priorities that play key roles in effective loss mitigation practices.