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August-01-2016

Powering Loan Growth

As Seen in CU Management Magazine
August 2016 – Vol: 39 No. 8
By Karen Bankston

5 ways CUs can flex their tech muscle.

How well credit unions wield technology will play a big role in how they respond to the lending challenges and opportunities that remain in 2016. Here are five suggestions about where lenders and IT specialists need to have their sights set going forward.

1.) Dig Deeper Into Data
Core data banks may provide a wealth of leads for building wallet share and managing credit risk. At Ent Credit Union, lenders are mining ACH data as a source of prospects to refinance loans members hold with other creditors. Conducting that research, the credit union ran across a group of members making regular payments from their Ent CU accounts to subprime auto lenders. Ent conducted outbound calls with offers to save members money by refinancing their car loans, says CUES member Bill Vogeney, senior EVP/lending and finance for the $4.1 billion Colorado Springs, Colo.-based CU.

The program generated $2 million in new loans over three to four months—and goodwill with those members, Vogeney says. “We found that people were really responsive to these outbound calls, and we were able to refinance a big chunk of these loans because their FICO scores had improved to the 680 range, definitely not subprime. We plan to conduct the same review every six months or so. It won’t generate big results, but smaller and more consistent wins because we’re not painting everyone with the same broad brush.”

Learning how to wield the power of big data could also help credit unions identify the early warning signs of credit problems with individual members, he notes. Quarterly or semi-annual portfolio reviews pinpoint which members are starting to max out on their credit cards, whether delinquencies are starting to occur, and if credit scores are changing.

Monitoring trends in card usage could raise red flags earlier. For example, members with credit card charges evolving from entertainment and travel to grocery purchases and cash advances could be a sign of trouble ahead—and a warning not to raise limits.

“Do you have that data from card processors, and have you developed strategies to analyze those kinds of change in behavior?” Vogeney asks.

2.) Take Mortgages Digital
Delivering mortgages digitally since 2008, BECU was one of seven lenders participating in a 2015 Consumer Financial Protection Bureau pilot to examine the processes and consumer response to e-closings.

“It was demonstrated through the pilot that when borrowers go through an e-closing and receive the documents in advance for review along with access to educational materials provided by the CFPB, they feel more empowered and more knowledgeable, and they feel the process went much more efficiently and smoothly,” says CUES member Lorraine Stewart, VP/mortgage lending with $13 million BECU, Tukwila, Wash.

3.) Streamline Post-TRID Mortgage Lending
Many CUs spent 2015 working toward compliance on new forms for mortgage borrowers under the TILA-RESPA Integrated Disclosure rules. Now it may be time to ensure that mortgage processes are functioning as efficiently as possible, says Bruce Backer, managing director/consumer engagement with lending solutions provider Optimal Blue, Plano, Texas.

CUs employing technology from mortgage application through closing may have an easier time ensuring consistent compliance, Backer suggests. “Technology allows you to make changes in an automated way and ensures consistency. Embracing automated tools can take a burden off your people and becomes an integral part of your systems—and a seamless source of real-time, accurate information.”

It’s not unusual for a mortgage to go through five to seven meaningful changes in processing, he notes. Credit scores might change slightly, or a member might have forgotten to mention a loan. The property value might fluctuate.

Especially if loan changes affect the rate or fees, a full record of those changes is helpful if members inquire about the new pricing, Backer adds. Relying on automated systems, “the lender has a really clear way to articulate what the changes were.”

Though many CUs use automated systems to process loan applications, recent indications are that just under a third of mortgage lenders have been using online technology, Backer says. He suggests that those numbers will likely increase as CUs and other mortgage lenders recognize the inherent value of automated systems in both compliance and the ability to provide 24-hour service.

“This is especially true for first-time homebuyers; millennials who are very comfortable with technology want tools available outside of normal business hours, and prefer to use” their phones, he adds.

“For the first time, technology for loan originators can now be exposed to consumers,” he adds. “Borrowers can enter in the same criteria a loan originator would and find out their exact mortgage rate and mortgage loan options. The borrower can run multiple scenarios for different down-payment options or purchase prices and set mortgage rate alerts for any time there is significant market movement.”

There’s also a competitive component to mortgage technology. Big banks and mortgage lenders have invested heavily in mobile and online applications, and home buyers rely increasingly on Internet outlets like Zillow, which include prominent ads for mortgages. More than ever, CUs aren’t just competing with the banks down the street, but with every mortgage lender advertising online.

To edge out the competition, CUs can look for ways to leverage technology to stay in touch with prospective borrowers following a rate check.

“As loan officers have more and more people in the pipeline, it’s harder to stay in touch without features like these—tools at work in the background that do meaningful things, not just sharing recipes and birthday wishes,” Backer says. “Now technology allows loan officers to put into these messages exact market data that’s specific to that consumer. And that’s what consumers want: information about what products are good for them, what are the terms, and what’s the bottom line?”

4.) Balance the Portfolio
Indirect lending has been a good growth area for a decade or more for many CUs—to the point that there may be some concerns about concentration risk. An option to balance the portfolio is to grow other product lines, says Ryal Tayloe, VP/credit unions with nCino, Wilmington, N.C.

“Small business lending seems to be a very hot topic, as credit unions try to figure out how they can serve the needs of business members and other small businesses within their fields of membership,” he says. The challenge is in making small business loans efficiently to optimize member value and compete effectively with other lenders.

This is another area where wise investments in technology can pay dividends in enhancing efficient operations and codifying decisioning criteria, Tayloe says. At some CUs, experienced business loan officers may execute manual processes, assessing business plans and maintaining paper loan files. But as business loan volume grows, those manual processes can become unwieldy. Automated systems simplify the processes of and reduce the time required to manage risk, maintain business member relationships and generate useful reports.

With new MBL regulations approved by the National Credit Union Administration in February and going into effect Jan. 1, CUs may have more control over the types of loans they make and more responsibility for ensuring they make solid business loans. Finding the right tools to accept commercial loan applications, analyze business borrowers’ financial performance based on the CU’s specific criteria, and manage the ongoing relationship can help make the most of the new rules.

At BECU, the business lending department recently upgraded its loan origination system to improve processing efficiency. The next step is to upgrade depository product options with a technology upgrade allowing for more sophisticated cash management products, such as online ACH and wire transfer, positive pay, sweep accounts and analyzed checking, says CUES member Dana Gray, VP/business and wealth services.

The CU’s consumer lending staff is also conducting a lending origination system review. “We need to focus on efficiency, compliance and making sure we have flexibility to react quickly to product changes,” such as updating pricing in response to rate shifts, says CUES member Boyd Vanderleest, BECU’s VP/consumer lending.

5.) Be Where Members Are
Mobile delivery via every imaginable handheld device is at the forefront of serving members’ loan needs where, when and how they wish to be served. But superb self-service is just the ante. CU staff may also need to go where members are.

“In terms of delivery channels, credit unions are experiencing declining volumes in members coming into branches, so they need to think about how they can equip their lenders, business developers and other staff to go out into their communities and segments to serve their members with lending products out in the field and in their call centers,” Tayloe says. “If people aren’t coming into branches, how can we serve them where they live, work and play?”

Karen Bankston is the proprietor of Oregon-based Precision Prose.

Click here to view this article in the August 2016 issue of CU Management Magazine.