Charge-Offs, Competition Inspire SELCO Resolution
It took the double whammy of increasing charge-offs and stiff competition from a neighboring credit union to inspire SELCO CUs 2002 resolution: to become the premier lending institution in its market.
"You've got two big credit unions that are really working hard to get all the loan business they can out of the market," said Dave Baggett, executive vice president of the $400-million, 63,000-member credit union, which enjoys 11% market share. "We have focused the institution around a new way of doing lending. In essence we threw out the old automated system."
The First Step: Training
The first step: put 20 loan officers through three days of school with Rex Johnson and Lending Solutions Inc., (LSI) Elgin, Illinois, where they learned to engage the member more aggressively in conversation to encourage quality secured loans, Baggett related.
LSI also recommends monthly risk-based rates, based on what captive finance companies and banks are doing. The credit union's asset/liability committee examines the rates and uses the monthly suggestions as a barometer.
"It's a combination of world-class rates on our loan products and we are really focusing on our throughput," Baggett explained, adding that SELCO's auto loan rates right now are as low as 4.9%.
But make no mistake; production does not mean assembly line processing. The in-house developed "Fast Track Lending" program is completely decentralized. To make that work one of the main principles of the system is constant validation and proof of quality work from loan officers.
"You have to constantly make sure that the people who have the lending authority are putting quality loans on the books," Baggett noted. "They are given lending limits incrementally based on their work. They have to do a set number of loans almost perfectly before they can go up to the next level."
One employee may need to do 100 loan deals before the manager is comfortable enough to promote him or her to another level, Baggett said, while another employee may only complete 30 loans that, because they are superior, allows that employee to move up.
The credit union uses LSI-recommended incentives for employees. Incentives are paid on loans closed, loans captured from competitors and checking accounts opened.
SELCO has partnered with Frontier Mortgage due to its processing capacity, and plans to contract with Centrix Financial this year for sub-prime lending services.
Maintaining consistency among loan officers is a factor of constant training through LSI and SELCO's Lending University training. In addition, managers regularly inspect loans at the branch, though they do not have lending authority over loan officers.
"One of the keys to (LSI) lending is making the loan to be bankruptcy-proof," Baggett said. "If there's risk with the member what you do is package it so it's a very secured loan."
The bottom line is improving return-on-assets. The vision is to partner with the member for the health of their financial future. The purpose is to get all the loans and business out of every household possible, Baggett said.
"I have employees who, when they're calling for payoffs from a bank, are selling the bank employee at the same time they're getting the payoff," Baggett said. "It's competitive with the competitors but it's also between branches."