What is a loan production office?
A loan production office (LPO) is an administrative division of a bank which, as the name suggests, deals only with loan-related activities. The Federal Reserve defines an LPO as “a staffed facility, other than a branch, that is open to the public and provides loan-related services such as loan inquiries and requests”.
Regulated both by state law and by the board of directors of the main banking establishment, the LPO itself cannot grant loans, but can only exercise administrative functions regarding their processing. For this reason, regulations prohibit preventing the LPO facility from being considered a branch of the bank – unless the State Bank Commissioner grants a request for it to act as a branch. At this point, the loan production office can provide a complete loan service.
Operation of a loan production office
Located on bank premises or elsewhere, the loan production office reviews and processes loan applications, verifying compliance with underwriting standards and completeness of documents. These are most often residential mortgages, but also cover other types of loans.
An LPO processor or subscriber performs these support functions: receiving, collecting, distributing and analyzing the information required to process or take out a loan. In addition, the LPO processor communicates with the candidates to obtain the information necessary for these activities. Other roles in an LPO include the loan maker, the loan specialist, the operations supervisor, and the customer service coordinator.
An LPO can provide clients with educational information on mortgages and loans, whether it is exclusive documents from its parent bank or general documents from a government agency. However, LPO processors cannot offer or negotiate loan rates or conditions, nor advise consumers on residential mortgage rates or conditions.
Once it has finished collecting and analyzing all the data, the loan production office then forwards the request to the bank itself for a final decision. The main subcontractor of the LPO can recommend the approval of an application, but the decision must be made by the home office or a branch.
If the loan is approved, the LPO may also be responsible for delivering the check or bank funds to the borrower or to his account.
Special considerations for the loan production office
Since this is not a fully-fledged branch of the bank, the loan production office is not required to display the policies or signage of the Federal Deposit Insurance Corporation (FDIC) or the availability of funds and the collection of checks (CC regulation). However, the office should post an Equal Housing Lender sign, which is mandatory wherever deposits are received or loans made.
LPO vs Loan Servicer
Although they both provide financial support services, an LPO is not the same as a loan manager. In fact, the two operate for different purposes of the process. OPLs can only administer the process from the request to the disbursement of a loan. However, from the time the loan proceeds are distributed until the loan is repaid, the loan manager administers it.
Confusion often arises because loans are often managed today by third parties separate from the institution that issued them. Traditionally, loan management has been an essential function performed by and hosted by banks. Today, tasks can be performed by a non-bank entity specializing in lending or a sub-manager who operates as a third-party supplier for credit institutions.