Avoiding Valuation Shock

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LAKE MARY, Fla. - Warren Cole, senior lending consultant for the Lending Solutions Group of Harland Financial Solutions, is urging credit unions to take a very hard look at the affect of the economy on their real estate portfolios. He cautioned CUs are not immune to the potential "valuation shock," which may affect their home equity or mortgage loans.

"There will be a need for improvement in quality monitoring in home equity-based products," assessed Cole. "This means looking at advance rates for HELOCs, valuation processes and process improvements so valuations are more precise as some markets have deteriorations in home prices. Drive-by valuations will become less valid as it becomes necessary to protect the position of the credit union."

Cole believes that during 2007 there will be increased emphasis among credit union lenders on diversification out of concerns over an economic slowdown or even downturn. Diversification, he said, is important for credit unions to "immunize themselves" from that risk.

"They might need to replace some loan volume from other areas they've done in the past, and member business lending is an opportunity for diversification," he told the Credit Union Journal. "Member business lending also is a dramatic opportunity for profitability. Those credit unions that have already positioned themselves to enter member business lending will see their bottom lines shine in 2007. Other credit unions, which have not yet gotten into member business lending, should look into CUSOs or participation in this area." (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com

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