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RES.15-002 | Summer 2016 | Graduate

# Mission & Metrics: Finance Training for Federal Credit Program Professionals

This session explores how for-profit institutions approach the provision of credit. The purpose is to gain insights into their operations to enable government partnering agencies to better interface and protect taxpayer dollars in various public-private partnerships that can form to extend credit to borrowers.

### Benefits and Risks

- Adverse selection, lack of transparency, regulatory capture, conflicts of interest
- Credit portfolio management objectives for large loan, small loan and non-profit portfolios
- Accounting for delinquencies, charge-offs, and loss reserves: what it does and does not tell us
- How they game the system
- Metrics for detecting the games

### Predicting Credit Risk at For-Profit Lending Partners

- Who are they?
- What are they doing? Trend line analysis
- What are they thinking? The key driver and key strategy
- A successful agency solution: SBA’s PARRIS

### Predicting Credit Risk at Non-Profit Partners

- The key differences
- A successful agency solution: the NeighborWorks PROMPT

### Remediation

- Protecting the program from excessive risk and misuse
- Segmentation by performance in key metrics
- Graduated remedies

### Interactive

1. Based on metrics of three different small business lenders going into 2007, which of them will have the worst performing loans and which will survive—two different outcomes?
2. Remediation: Suppose a recipient of grant money from HUD for multifamily housing development is not using funds properly.

### Lecture Slides

Session 5 Slides: Working with Private Partners (PDF)

### Charts

Chart 5.1: Anticipating and Accounting for Credit Losses

Chart 5.2: T-accounts for the Loss Reserve

Chart 5.3: Examples of Different Kinds of Lenders

Chart 5.4: Commercial Banks with Assets Greater than $3 Billion (EOY)

Chart 5.5: The Chief Focus and Related Strategies

Chart 5.6: A Successful Agency Solution: The SBA’s Parris System for Participating Lenders

Chart 5.7: The Neighborworks Prompt for Non-profit Development Corporations and CDFIS

Chart 5.8: Risk Indicators for a Small Non-depository Program Participant (Broker, Mortgage Banker, Asset-based Lender)

Chart 5.9: Agency Protocols and Procedures for Participating Lenders with Different Risk Ratings

Chart 5.10: Graduated Remedies for Participating Lenders with Poor Ratings

Chart 5.11: Quick Track of the Portfolio Trend and the Outliers

Chart Files: Charts for Session 5 (XLSX); Charts for Session 5 (PDF)

## Course Info

##### Instructors

- Deborah Lucas
- Douglas Criscitello
- Charles Tansey

##### Departments

- Sloan School of Management

##### As Taught In

Summer 2016

##### Level

Graduate

##### Topics

- Business
  - Accounting
  - Finance
  - Management
- Social Science
  - Economics
    - Public Economics
  - Public Administration
    - Public Policy

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