LAS VEGAS -
When the Credit Union Journal sought out lending experts for their top recommendations on improving loan performance in 2007, we also asked them to look into their crystal balls and reveal what areas CUs will be, or should be, focusing on in 2008. The answers included offering payday lending alternatives, mortgages, member business lending and specialized retail financing.
Phil Greer, senior vice president of loan administration for SECU in Raleigh, N.C., and chair of the CUNA Lending Council, said credit unions need to ask their members what they want, and then ask those members to book the loan they requested.
"It might take a while, but do a survey," he advised. "Find out what services members want and if there are any impediments to them choosing the credit union first. Remember, it is not always about the rate-members might want Internet access to their HELOC.
"Develop a survey that is meaningful, analyze the results and make changes," he continued. "Once the credit union knows what the members want, it can ask them for their business."
Competing With Your 'Buddies'
Warren Cole, senior lending consultant for the Lending Solutions Group of Harland Financial Solutions, predicted 2008 will bring more consolidation among CUs. He said the conversion by many in recent years to community charters means more credit unions are competing with each other-where they used to be a "buddy up the street."
"Credit unions will be grappling more and more with how to differentiate themselves from other credit unions," he said. "This will make cross-selling, targeting particular segments for growth in lending, and cross-selling new loans and deposit accounts more important."
There is a "real opportunity" in the area of business services, Cole added. He said CUs can provide information on business services to their members as an educational service.
"Relationships and cross-selling leads to business opportunities, and credit unions are very well-positioned for an opportunity for diversification," Cole said.
Mike Hales, president, Counter Intelligence Associates, said business lending has a huge market potential in 2007, and recommended credit unions get started by collaborating with other CUs via a CUSO.
For next year, Hales said, the "same advice applies."
"In many cases, it can take a few months to get credit unions together to form a member business lending CUSO, so start now for 2008."
A Shift In Financing
Bruce Callen, president of Teres Solutions, an Austin, Texas-based provider of lending origination software, predicted CUs will look beyond the typical products they have offered in the past.
"I see a shift towards merchant and retail financing," he said. "It is an area credit unions can be very strong in. There is an opportunity to finance small ticket items, such as home entertainment systems or furniture, through a merchant. Credit unions have strong relationships with merchants in their cities-much more so than banks."
Merchants currently are financing these items through GE Moneybank or Chase, Callen explained. He said CUs could step in and offer better rates and service than nationwide banks do.
"I am not talking about financing Best Buy-it has its own financing-but specifically shops and merchants that are local. Chase and GE don't have those one-on-one relationships."
Time For A Comprehensive Review
Tracy Ashfield, president of Madison, Wis.-based consultancy Strategic Mortgage Solutions, said CUs should launch a comprehensive review-of their delivery channels, their policies and procedures, and their existing marketing efforts, to discover where the CU is strong and where it is weak. Once credit unions have this information, they can build a comprehensive plan to bring mortgages to members in 2008.
"This cannot be arbitrary; it must weave together products and delivery with a communication and marketing plan to ask members for the loans," she emphasized. "Members must know mortgages are available at their credit union and, when the phone rings, it must be easy to do business with the credit union. It is the combination of those two things. It sounds simple, but it really is crucial."
Member-Specific Scores
Allan Stevens, vice president and senior loan officer for Franklin Mint FCU in Broomall, Pa., and member of the executive committee for the CUNA Lending Council, suggested creating a one-time or ongoing program to generate loans while providing members their credit bureau scores. He said the program should include member-specific tactics to improve their scores.
"See Rex Johnson's Score Enhancement program," he said.
The Payoff On Payday Lending
Both Daniel Penrod, industry analyst for the California and Nevada CU Leagues, and Rex Johnson, founder of Elgin, Ill.-based Lending Solutions, said there will be a significant opportunity in payday lending alternatives in 2008.
Penrod said many CUs have payday lending products, but they do not market them as such.
"This is a product that those who can least afford it use the most," he assessed. "Credit unions are noticing their members are writing checks to these services."
Paying $20 to borrow $100 is not "just" 20%, Penrod explained. If this loan is paid back in two weeks, the annualized rate is more than 500%.
"And that doesn't include fees if the person is late," he said. "The term 'payday lending' has a derogatory connotation currently. As credit unions get involved, they will lend in a more consumer-friendly way. And they will help members save."
According to Johnson, there currently are several payday lending models to follow in the CU movement, but he said credit unions must recognize this as a lending product and must bring it to their members.
"Offer a fast equity loan," he said. "This is a glorified signature loan, and credit unions can get their members qualified in a few minutes."
Johnson also foresees an opportunity in mortgages-if CUs make two critical changes cited by several of our experts.
"Credit unions only have 2% of the mortgage market because we don't ask for the business. Get the loans and sell the servicing, because credit unions are not set up to cover interest rate risk over 30 years. It will take training, training and training-credit unions need to train their decision makers, their collection departments and they must read their members' credit reports and do cross-selling. Ask for the business, and start serving all members by not chasing only unprofitable A+ paper."
This series on strategies for 2007 will be appearing regularly in the Credit Union Journal. Please send any comments to fdiekmann
