Software Help for Midlantic's Loans

System from Data Select Installed to Monitor Portfolio

Midlantic Corp., which recently posted sharp increases in nonperforming real estate loans, has installed advanced software designed to limit its exposure to bad construction loans.

The new mainframe system is being used not a moment too soon. Midlantic set aside $403 million against nonperforming loans in the second quarter, posting a $415 million loss.

The banking company, which has $1.88 billion in nonperforming loans, has posted five straight quarters of losses.

It began using the software, called the Construction Loan Control System, early last week to handle construction loans and mortgages in its Continental Bank unit based in Philadelphia. The unit handles a $1 billion portfolio of 1,000 to 1,200 construction loans and permanent commercial mortgages.

Hard to Automate

Construction lending, like commercial lending generally, is difficult to automate, because each loan is made under unique circumstances. Many banks track such loans manually, making it difficult to review loan portfolios in detail or maintain oversight on projects.

"This [software] can't make a bad loan good, but it can help you get the infrastructure in place" to monitor loans carefully, said Sean McCracken, vice president of marketing at Data Select Systems Inc., Woodland Hills, Calif., which developed and marketed the software.

Midlantic was a test site for the software, which will be rolled out to the company's other banking units over the next six months. It will replace software from the same vendor that was running on an International Business Machines Corp. midrange computer.

Several other institutions, including the Resolution Trust Corp. and Continental Savings Corp., Seattle, have bought the mainframe software, but Midlantic is the first to use it.

A System for Big Companies

The mainframe software, in contrast to the personal computer-based software already available from Data Select, is designed for companies that have many banking units with lending operations.

Loan officers, administrators, and building inspectors, among others, can use a personal computer or terminal to obtain up-to-the-minute data from the mainframe on a loan's status.

"It's a Cadillac, and it is going to help anyone who has it to get back into a more stable, informed position with great ease," said Estelle Bartsch, business analyst in client services at Midlantic National Bank.

"It will help us work out of bad loans more effectively," said Jerry Mayer, Midlantic senior vice president and management information systems director.

The software costs $200,000 to $300,000, Data Select said.

Revving Up

Midlantic is merging the back offices of its Midlantic North and Midlantic Metro Park units. By yearend those units will be using the Construction Loan Control System, which will then be handling about 1,500 loans.

The streamlining will not include layoffs, however. The company is already lean: Three employees handle Continental's $1 billion loan portfolio.

The system will be used companywide by the middle of next year.

The software tracks loans, does follow-up reporting, and generates required documents.

The system also monitors loans as they reach certain milestones, to ensure they remain on schedule. If the project falls off track for any reason, exception reports are generated.

Financial Watchdog

A commercial mortgage module included in the system lets banks keep track of unusual payment terms.

Banks might, for example, be releasing too much money to a contractor without realizing it.

Also, "everyone is restructuring loans to give relief to developers," said Mr. McCracken of Data Select.

"We probably would have needed a lot more people to control manually," said Mr. Mayer of Midlantic. "The data base we have on this system is extensive. We just couldn't process our volumes and get the special reporting we need." [Tabular Data Omitted]

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