FORT WORTH, Texas-Boosting lending in 2011 may require more than just increasing advertising and checking credit scores.
To really help members, credit unions should help them balance their checkbooks, teach them how to improve their credit scores and learn how to lend money to people with "sloppy" credit, according to Brett Christensen, principal at CU Lending Advice, LLC. He noted 25% of the U.S. population has a credit score of 600 or less.
Christensen noted it is easy for credit unions to become more conservative as they get bigger, "but that won't help grow loans. Lending is a judgment business. It can be done for members with 478 FICO scores under certain circumstances."
To make as many loans as possible, Christensen recommends CUs use underwriting guidelines to walk away from bad loans, but never from the good loans. What makes a loan "good," he added, is simply if the payments can be made each month.
"The guidelines do not make the decisions," he said.
Four Facts
There are four "undeniable facts" about lending, Christensen maintains: 1. There are very thin margins on A paper loans. 2. "Serious money" can be made on D and E paper loans. 3. Members with bad credit still need a car to get to work each day. 4. Members with bad credit can choose to pay their credit union on time.
"Don't do D and E car loans through indirect at the dealers," he advised. "But know that high-risk members are the members with the greatest need and have the fewest options, and credit unions were formed to serve these members. If a credit union helps these D and E people, they will be very loyal. Loyalty is not driven by service or the number or branches, it is by consumers feeling their financial institution will help them."
Christensen offered "good luck" to CUs who chase A paper, as he said Bank of America typically will be able to use its size to beat credit unions on price. He urged CUs to realize charging higher rates on D and E loans is not "evil," because there will be losses on those loans and the rates will pay for those losses.
"It is their credit score and they earned it," he quipped. "Don't wait to make calls on late payments by D and E borrowers-start calling if they are one or two days late."
Attitude & Approach
Lending is "an attitude and an approach," Christensen said. He said CUs should look at credit reports and loan applications and search for positives rather than negatives. Lenders have the best job at a credit union, because they are in a "feel good" business.
"A lender evaluates risk and makes good loans," he said. "The C/D/E people always have a negative on their application, but many times the positives outweigh the negatives. Just make sure the payment and loan amount are appropriate for the member, and get the loan on auto pay."
Other advice for CU lenders from Christensen: sell ancillary insurance products and do a "firm close," at which the member must verify he/she understands the payment amount, the due date each month and the collections process if payments are missed.
