EAST WINDSOR, N.J.-McGraw Hill FCU has grown loans steadily throughout the recession-17% last year-by focusing on refis and aggressively mining member data for opportunities.
"Refinancing is 80% of our lending," pointed out CIO Mike Sullivan. "We pull Experian data on each of our 18,000 members, find out what loans they have and where they are, and target them accordingly."
That data shows the CU's membership has $1.6 billion in debt outside the credit union, $1.1 billion in real estate and $500 million in consumer debt. "That is what we are going after and have targeted our members consistently. Over the last two-and-a-half years I think we have introduced 20 refinance campaigns."
A big part of the lending growth has come from auto-20% growth in 2011-mainly used vehicles. None of the business is indirect. "We use Experian and Raddon to get the triggers," Sullivan said. "When members apply for a loan we get a notification a week later that the person got the loan. We follow up with a phone call and show them how much money we can save them."
While 70% of the $277-million CU's membership is A paper and 9% B, the biggest opportunities throughout the recession have come from C and D credit. Sullivan said this is the group of borrowers that the credit union can save the most money and are generally not a bad risk. McGraw Hill's membership is white collar workers and many make more than $100,000 a year, Sullivan noted.
"They are getting hit with 19% to 22% rates at the dealerships, because they are high risk due their credit score," said Sullivan. "We guarantee that if we can't save them 25%, we'll give them $100. We price our high-risk paper in the 12% to 13% range."
Sullivan contends-and the credit union's 60-basis-point-delinquiency ratio supports-that most of these low-credit-score members are worth the risk. More important, through mining member data, the credit union knows these people have the capacity to pay. "They are high risk because they are not the best cash-flow managers. These people have good jobs, pay their bills, but are slow at paying them."
Targeted Home Equity
Home equity has been another growth area, with the portfolio doubling to a total of $34.7 million last year. MHFCU's home equity loan is a first-position mortgage with no fees and the rate was 3.25% at press time. "We target people, around 45 to 60 years of age, on the tail end of their mortgage, maybe 12 years left," Sullivan said.
Sullivan reiterated a point shared by many lending experts during the economic downturn, which is that if the credit union is going to extend credit to lower FICO scores, it must have solid collections practices. "We are aggressive with collections. We see a mortgage hit 20 days late and we are hunting them down."
The credit union spends $400,000 annually on marketing to not only reach many members but stand out in a highly competitive marketplace that's home to many big banks. McGraw Hill FCU averages about six marketing efforts a month, always including two savings and two lending initiatives.
"We are careful not to hit those members who by our targeting criteria are good candidates for much of our advertising," Sullivan said. "We filter our efforts for those people so ads are varied and are fewer. You can't overburden your members. However, our own members have been the answer to our loan growth."
