HOUSTON — When everyone else was getting into mortgages, Smart Financial CU got out, and now that everyone's getting out, Smart Financial is finally getting back in.
"About two years ago, you had a bunch of wacky people doing a bunch of wacky things with mortgages, and that's when we got out of mortgages and everyone thought we were crazy," said Dana Rawlings, COO of the $390-million Smart Financial. "Now, we're bringing mortgages back in house. There's a lot of demand for it. When we saw all the brokers go out of business, we knew that was the time to get back in. A lot of my peers thought we were crazy."
A Far Different Approach
But Smart Financial knew it was going to take a far different approach to mortgages than the brokers and banks have either gone bankrupt or exited the business. "They were all about greed," Rawlings suggested. "We're about serving the member. We're very conventional with our mortgages."
Mortgages are far and away the most popular loan at Smart Financial right now, followed by demand for business loans and then credit card consolidation loans.
"Autos are steady, but demand is definitely down," Rawlings reported.
Noting that the credit union is "blessed" to be in a part of the country that hasn't been as hard hit by the economy, Rawlings noted delinquency is still below 30 BPs, about a third of the national average.
But in addition to being geographically lucky, Smart Financial is also doing a lot of loan modifications for some borrowers. "We are seeing more people calling us and asking us for help, which hardly ever happened before," he said. "We jump on those immediately and do anything we can to help them."
The credit union also revamped its collections policies-something most credit unions just don't do often enough, Rawlings advised. "A lot of places limit their members to one extension per year. That just doesn't work in today's economy," he commented. "You have to be able to work with your members without so much red tape, hoops and loops. We offer multiple extensions, modifications and even 0% interest rates."
Smart Financial recently launched a second-chance auto loan campaign. "When we went to explain it to the board, we told them this is what is commonly known as subprime," Rawlings laughed. "So why do it? Because no one else is doing it anymore, and it can be extremely beneficial to our members but also to the credit union."
Rawlings said that's the guiding principle behind the CU's credit builder products, which charge a higher rates and have strict requirements on "true equity downpayments" of 20%. It also calls for a close evaluation of a car's trade-in value, again to determine "true equity."
Members are encouraged to use direct deposit, and if they pay as agreed for the first 18 months of the loan the credit union rewrites the loan to current market rates.
But perhaps most important of all: a member getting any of the credit builder products must have been a member for 12 months before applying.
Beware of New Members
"One of the biggest problems we've experienced is new members walking in off the street, they put their $5 into the share account and then get a loan," Rawlings explained. "And then a lot of them are fraudulent."
As a result, Smart Financial reevaluated how its lending process works. "About 65% are automated decisions," he said. "The problem is, the bad people are getting worse, and good people are being forced to do bad things. Now, any loan application [from a member] with less than 90 days must be underwritten by a live person. We have stopped a lot of additional fraud because of that."
