FDIC Issues Guidance on Purchased Loans, Participations

Noting an increase in loan purchases and participations that are originated by nonbanks or facilitated by third parties, the FDIC today issued an advisory on risk management practices for purchases and participations. The advisory reiterated previous FDIC guidance and reminded banks that they should approach loan purchases and participations as if they were the principal originating institution.

To that end, the FDIC said, participations and purchases should be subject to the bank’s internal policy guidelines, independent credit and collateral analysis, profitability analysis, written purchase or participation agreements and due diligence. The guidance also called for management to assess its ability to transfer, sell or assign interest, and to obtain necessary board approvals.