FISHERS, Ind. -
FORUM had been declining auto loan requests from members who had credit issues, and several auto dealerships bluntly told the $1-billion CU that they expected the credit union to be underwriting paper for both prime and subprime borrowers. Even with the recent mortgage meltdown of this year and the crash of Centrix, which focused on submprime auto lending, in 2006, FORUM Credit Union believed there was value to be had in such vehicle loans, and set out to do better as part of a broader effort to reach more of its 97,000 members and increase its loan yields.
"Most people are running from subprime and we think it's a good model," said Doug True, president of FORUM subsidiary FORUM Solutions.
FORUM teamed with Irving, Texas-based Capital Lending Strategies (CLS), which placed a field representative inside the credit union to manually jumpstart the subprime program. At the time, loan applications were being faxed in for approval. The process worked, albeit slowly, with most apps requiring an hour to process. It was an hour that auto dealerships weren't willing to spend.
Despite the slow approvals and dealer complaints, FORUM still managed to add $550,000 toward its bottom line in 2005 from submprime lending. But the program plateaued as the result of internal conditions. As the result of a decision within FORUM to trim its origination goals to accommodate liquidity needs (its loan-to-share ratio was hovering around 140%), net income from subprime lending declined to $150,000 for 2006. True said FORUM knew that 2007 had to be the year of change.
"We stalled out there because we weren't automated," True said. "We weren't getting deals. The dealers said 'You're too late.'"
To solve the problem, $1-billion FORUM Credit Union looked inside for answers to its own FORUM Solutions, which offers a solution it calls TAPS Enterprise Lending software to other credit unions to automate their lending processes. In addition to the underwriting, TAPS also offers cross-sell recommendations, customized business rules to support tiered pricing, and complete integration of forms and reports.
In this case, TAPS interfaces with auto sellers through DealerTrack. The business rules deployed within TAPS then automatically refers applications it identifies as subprime to the scoring model offered by Capital Lending Strategies to quickly provide a rejection or an approval, along with generating a rate on the loan.
"Loans are a commodity business. A lot of times, efficiency is the difference," True said.
True said the subprime loans now are now turned around in less than five minutes. The result, according to True, is that credit union is projecting growth beyond $25 million in outstanding subprime auto loans. The delinquency rate on the portfolio is 5.07% and its charge-off ratio is .87%, creating a gross yield of 16.25%.
"The hang up was the turnaround time. That's when volumes started picking back up, when we automated it," he said. "We're the only ones to automate it and take it seriously. Our members have voted with their wallets, saying they want a loan at the dealership."
True said FORUM Solutions has developed a 14-page Blueprint Report that details the costs of the program and provides a step-by-step list of recommendations for credit unions wishing to expand their own automated subprime auto lending program. The report is free to partners in FORUM Solutions; it's $50 for non-partners.
FOR MORE INFORMATION
www.forumcu.com
www.forumsolutions.com
