Loan Production Office (LPO): What it Means, How it Works

What Is a Loan Production Office?

A loan production office (LPO) is an administrative division of a bank that deals solely with loan-related activities. The Federal Reserve defines an LPO as “a staffed facility, other than a branch, that provides lending-related services such as loan information and applications.”

Regulated by state law and the Board of Directors of the main banking facility, the LPO itself cannot make loans but may carry out administrative functions regarding loan processing. Regulations prohibit the LPO facility from being called a branch of the bank, unless granted permission to act as a branch by the state banking commissioner. If approved, the loan production office may provide full loan servicing.

Key Takeaways

• A loan production office, or LPO, is an administrative division of a bank focused solely on loan requests.
• An LPO primarily deals with requests for residential mortgages but also handles other types of loans.
• The LPO cannot make loans directly but can carry out all administrative functions related to loan requests.
• The LPO can research and suggest loan approval or rejection but must forward the application to the bank for a final decision.

How a Loan Production Office Works

Located on the bank’s premises or at another location, the loan production office reviews and processes loan applications, checking for underwriting standard compliance and document completeness. It deals with residential mortgages but also handles other types of loans.

An LPO processor or underwriter performs support duties: the receipt, collection, distribution, and analysis of information required for loan processing or underwriting. The LPO processor communicates with applicants to obtain necessary information. Other roles in an LPO include loan production leader, loan specialist, operations supervisor, and customer service coordinator.

An LPO can provide clients with educational information about mortgages and loans, using proprietary materials from its parent bank or general ones from a government agency. However, LPO processors may not offer or negotiate loan rates or terms, nor counsel consumers about residential mortgage loan rates or terms.

After gathering and analyzing all the data, the loan production office forwards the application to the bank for a final decision. The senior processor of the LPO may recommend application approval, but the actual decision should be made by the home office or a branch.

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

A loan production office can only provide full loan servicing if the bank successfully petitions the state banking commissioner for permission.

Special Considerations for Loan Production Office

Since it is not a full branch of the bank, the loan production office is not required to post Federal Deposit Insurance Corporation (FDIC) or Availability of Funds and Collection of Checks (Regulation CC) policies or signage. However, the office should display an Equal Housing Lender poster, which is a requirement wherever deposits are received or loans made.

LPO vs. Loan Servicer

Although they both provide financing support services, an LPO is not the same as a loan servicer. LPOs only administer the process from application to disbursement of a loan. In contrast, the loan servicer administers the loan from the time the proceeds are dispersed until it is paid off.

The confusion often arises because loans are often serviced by third parties separate from the institution that issued them. Traditionally, loan servicing was a core function carried out by banks. Today, the duties may be done by a non-bank entity specializing in loan servicing or a sub-servicer who operates as a third-party vendor for lending institutions.