Strategic, Transaction Risk Red Flags Outlined

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WASHINGTON-NCUA outlined the strategic, transaction, and credit risk red flags CUs should be watching for with indirect lending programs.

Strategic Risk Red Flags:

* High program exposure with no concentration parameters

* No portfolio credit quality standards

* High maximum LTVs

* Inadequate staffing, program analysis, and board reporting

* Unusual trends (i.e., high ROA)

Transaction Risk Red Flags:

* Inadequate segregation of duties

* Lack of internal controls for loan documentation/funding, credit reports, dealer reserves, and lien placement

* No follow-up procedures

* Improper incentive structures

Credit Risk Red Flags:

* Inadequate review of underwriting

* High default rates

* Insufficient loan documentation

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