It Takes 'Courage' To See Folks As More Than Just An 'Application'

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HOLLYWOOD, Calif.-Members are more than a credit application and a credit score, and Rex Johnson says credit unions that turn down members for loans without digging deeper do themselves and their members a disservice.

Johnson, founder of Elgin, Ill.-based Lending Solutions, said a key mistake CUs make is not taking the time to get to know their members on a personal level.

"With centralized underwriting there are people making decisions about members without ever talking to them," he said. "They look at credit applications and credit scores and think they know those members, but you don't get to know people until you talk to them."

If CUs do not come up with a solution for their members, the members will come up with one of their own. Johnson said in most cases credit unions could devise a solution, "but we do not have the courage to do so."

It is "easy" to write loans and serve members when the economy is flush, he observed, adding that when people have jobs and high credit scores and are making their payments, no extraordinary steps are required.

However, thanks to the recent recession and ongoing high unemployment, Johnson said the D and E paper group has doubled in the last two years and 11 million people are upside down on their homes-meaning they owe more than the house is worth.

In the Chicago area, he reported, the housing market is so slow when homeowners are foreclosed upon by lenders, they then live in their homes rent free for an average of 494 days before it finally sells.

The key to solving the problem, he said, is to build lifetime relationships with members, not simply do "one and done" loans.

"Have a relationship with members, then they will pay the credit union even when they do not pay others," he said. "Make the loans no one else will make, except the payday lenders. Serve the underserved."

The problem with relying on credit scores is they tend to be volatile-they "can and will change," he said, adding CUs should not turn down a loan solely on a credit score.

"Our members deserve to talk to highly trained, highly motivated employees that really care," he said. "Treat the D and E paper people the same as the A and B people."

Johnson acknowledged that examiners "rough up" CUs for making loans to people with credit scores less than 680, but, he insisted, "it can be done and it can be profitable."

"Credit unions are about solutions, not denying loans because they didn't fit in the right box."

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