5 Ways to Reduce Your Bank’s Environmental Risk
Every new commercial loan for a collateral property has different environmental risks based on its current property use and previous land use. There are many ways to reduce and manage your bank’s environmental risk for their loan portfolios. Here are a list of items to consider when evaluating your bank’s environmental risk management to see if you can reduce risk:
- Annually verify your bank is in compliance with the FDIC and OCC regulatory requirements.
- Annually evaluate your environmental policies for your commercial loans to determine if your parameters are effective at reducing your risk or in congruence with your risk tolerance. Parameters to consider:
a) Loan Dollar Value
b) Property Use – Environmentally Sensitive Uses
c) Collateral Property Value
d) Loan Term
e) Types of Environmental Reports (RSRAs, Phase I ESAs, TSAs)
3. Annually evaluate the environmental firms on your approved vendor list using the following criteria:
a) Environmental firm has current Contractors Pollution Liability and Professional Liability (Errors and Omissions) Insurance for at the minimum $1,000,000 per occurrence.
b) Verify contractual agreements with firms, have no exclusions or limitations in reference to insurance requirements.
c) Verify the Phase I ESAs are completed by an Environmental Professional as defined by US Environmental Protection Agency’s All Appropriate Inquiry (AAI).
d) Verify the environmental firm is providing clear and concise recommendations in their Phase I ESAs, Transaction Screen Reports, Records Search with Risk Assessments, and Phase II Investigations.
4. Verify your Internal Environmental Reviewer has Environmental Experience or an Environmental Professional as defined by EPA AAI.
5. Identify potential environmental issues early on in your loan process. This is critical and is discussed below.
Identifying potential environmental issues early on in the loan process is crucial. An ERS Lender Check Report identifies potential environmental issues early. For just $74, this affordable screening report will:
a) Identify if your collateral property is listed in an environmental governmental database (Underground Storage Tanks, Generator of Hazardous Waste, etc.); this will allow you to obtain additional information from your Loan Applicant regarding these listings ahead of time.
b) Identify if an adjacent property is listed in any environmental governmental database. Does the neighboring property pose any potential environmental issue?
c) Provide an Environmental Risk Rating for your property.
d) Provide a Next-Step Action. What should you do? A file review, Phase I ESA, Phase II?
A LenderCheck Report is an easy & cost effective environmental screening report.
It will help you be aware and up front if your new loan has any environmental red flags. This report helps you avoid Environmental Surprises! It provides you with the time and knowledge to obtain additional information from your loan applicant regarding any listings for their property. It also provides you with valuable information, especially, if their property is listed in an Underground Storage Tank database, Cleanup database. If that is the case, then you know you may be doing a Phase I ESA early in your loan process, and will result in an increase in the time frame for your loan closing. If your property is not listed in any of the databases searched, no “environmental red flags,” then most likely you will not be encountering any environmental surprises.
Ordering a LenderCheck Report early in your loan process is a must!