On November 6, 2015, the Federal Deposit Insurance Corporation issued an Advisory (the “Updated Advisory”) (FIL-49-2-15) to update information contained in the FDIC Advisory on Effective Credit Risk Management Practices for Purchased Loan Participations (FIL-38-2012).  The Updated Advisory addresses purchased loans and loan participations and reminds FDIC-supervised institutions of the importance of underwriting and administering these purchased credits as if the loans were originated by the purchasing institution. The Updated Advisory also reminds institutions that third-party arrangements to facilitate loan and loan participation purchases should be managed by an effective third-party risk management process.  This Financial Institution Letter applies to all FDIC-supervised banks and savings associations, including community institutions.

Of particular relevance to the marketplace lending industry, is that the Updated Advisory is applicable to banks that rely on to perform risk management functions when purchasing: loans and loan participations, including out-of-territory loans; loans to industries or loan types unfamiliar to the bank; leveraged loans; unsecured loans; or loans underwritten using proprietary models.  Letter.