LANSING, Mich. - To manage risk in an economy that's turned even tougher, credit union CFOs say they are further scrutinizing credit quality and lending policies, as well as seeking out ways to access and better manage liquidity.
At least one CU indicated it has even put a new ALM model in place not just to manage risk but to drive new growth.
Five members of CUNA CFO Council told Credit Union Journal that lending-related issues are at top of mind, especially when potential new borrowers are looking to credit unions after being turned away by banks.
"Risk management is such a big topic right now," said Peggy Lamb, SVP and CFO for the $220-million CapCom Credit Union here. "All of my fellow CFOs and I are talking about it, because we are sitting in historic times. We are not going to see these kinds of issues again for a long time-at least I hope not. It is really impacting all of our credit unions."
Lamb said the chief issue has become "scrutinizing credit," making sure underwriting standards are "clear," and that every loan officer at the credit union is being consistent in how they underwrite loans.
"What we are concerned with is the fact that our members are going to start having trouble finding loans," Lamb said. "We want to be certain we are not jumping the gun to pull back so far that we can't service our members in this difficult time."
Lamb also cautioned credit unions to be wary of loan participations and to ask third-party servicers to provide updated credit scores for individuals in participation pools.
Close Eye On Loan-To-Value
In Baxter, Minn., the $195-million Mid Minnesota FCU has been instructing its loan team to look very closely at loan-to-value and debt ratios, said VP of Administration and CFO Pam Finch.
"The other side of that is when you see a 700 credit score, don't take it at face value and move quickly," Finch advised. "A 700 credit score can drop in six months and the member can be in trouble. We have looked at our delinquencies and are dicing them like crazy. One thing I am noticing is that we have a lot of 'A' and better paper that's moving into delinquency. It's not the stuff that we typically see. So it's people who have overspent, extended themselves, and they are starting to hand over the keys."
With the sharp decline in the Florida housing market, First Florida Credit Union in Jacksonville has the potential for deterioration in home equity loans and second mortgages squarely in its sights, shared SVP and CFO David Tuyo.
"We are closely evaluating home equity loans second mortgages," said Tuyo, who added that the $350-million CU has also stepped up scrutinizing first mortgage apps. "We are increasing collections efforts and are getting out in front of delinquent loans to help members find ways to not walk away."
The Springfield, Mass.-based Freedom Credit Union is "fortunate" not to be in an area hit hard by the housing decline, explained VP of finance and CFO Jay Scungio, who acknowledged the $360-million CU is still being cautious with its lending policies.
"We have very good underwriting but we are being conservative in putting a few extra bucks into our allowance for loan loss, just in case," Scungio said. "We're also staying a little shorter in our investment portfolio, trying to lower our modified duration."
Shortened Maturities
The Missouri Credit Union Association says the league and credit unions statewide are shortening maturities on investments.
"I don't think they feel it is prudent to be going long term right now with all of the uncertainty around liquidity needs," said Kevin Brueseke, COO and CFO for the St. Louis-based Missouri Credit Union Association.
Liquidity concerns may be heightening across the country due to lending issues, but also from corporate credit unions tightening borrowing, shared two CFOs.
"WesCorp shut down for a day, as far as overnight borrowing online," Pam Finch reminded. "People are starting to go to the Fed discount window to make sure they have access to liquidity, which is something we will check out as well. If all of our wholesale funding opportunities pull in the reins, that's going to concern me. We are fortunately in a position where we have adequate net worth and capital to reach out to members for a nice CD special to bring in money (see related story).
Tuyo said First Florida joined the Federal Home Loan Bank to assure liquidity, and it has moved to a new ALM model that gives the CU greater "freedom and control. We are a very liquid credit union, but we are still being prepared, just in anticipation of things that can happen. Look at what happened to the big banks, everything revolved around liquidity. We are making sure we have the lines of credit established so we can't get into that bind. First Florida is ready now to double our loan portfolio and feel very comfortable doing so."(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
