Definition of the Loan Production Office (LPO)

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 establishment, other than a branch, which is open to the public and provides loan-related services such as loan information and applications”.

Regulated both by state law and by the board of directors of the main banking facility, the LPO itself cannot grant loans, but can only perform administrative functions regarding their processing. For this reason, regulations prohibit preventing the LPO installation from being called a plugged of the bank – unless the state banking commissioner accepts a request for it to act as a branch. At this point, the loan production office can provide loan service.

Key points to remember

  • A loan production office, or LPO, is an administrative division of a bank that focuses solely on loan applications.
  • An LPO primarily processes residential mortgage applications, but also handles other types of loans.
  • The LPO cannot grant loans directly but can perform all of the administrative functions that go along with applying for and receiving loans.
  • The LPO can do the research necessary to review a loan, and can even suggest whether the loan should be approved or rejected, but must then forward the request to the bank for a final decision.

How a loan production office works

Located on the bank’s premises or other location, the loan production office reviews and processes loan applications, verifies subscription compliance with standards and completeness of documents. It deals most often with residential mortgages, but also offers other types of loans.

An LPO subcontractor or underwriter performs these support tasks: receiving, collecting, distributing and analyzing the information needed to process or take out a loan. In addition, the LPO processor communicates with requesters to obtain the information necessary for these activities. Other roles in an LPO include the loan production manager, loan specialist, operations supervisor, and customer service coordinator.

An LPO can provide clients with educational information about mortgages and loans, whether it’s proprietary documents from its parent bank or general documents from a government agency. However, LPO processors cannot offer or negotiate loan rates or terms, nor advise consumers on residential mortgage rates or terms.

Once it has finished gathering and analyzing all the data, the credit production bureau then forwards the request to the bank itself for a final decision. The LPO’s primary subcontractor may recommend approval of an application, but the actual decision must come from the head office or branch.

If the loan is approved, the LPO may also be responsible for delivering the check or bank funds to the borrower or their account.

A loan production office can only act as a branch, providing a full loan service, if the bank successfully requests authorization from the state banking commissioner.

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 Federal Deposit Insurance Corporation (FDIC) or Availability of funds and check cashing (CC Regulation) policies or signage. However, the office must display a poster of the Equal Housing Lender, which is a requirement wherever deposits are received or loans made.

LPO vs. Loan service

While they both provide funding support services, an LPO is not the same as a loan manager. In fact, the two operate at different ends of the process. LPOs can only administer the process from application to disbursement of a loan. In contrast, from the time the proceeds of a loan are dispersed until the loan is repaid, the loan manager administers it.

Confusion often arises because loans are often managed these days by third parties separate from the institution that issued them. Traditionally, loan servicing has been a core function performed and hosted by banks. Today, the tasks can be carried out by a non-bank entity specializing in lending service or by a subcontractor who acts as a third-party provider for credit institutions.

About Wanda Reilly

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