Speed Nice, But Loan Quality Is Nicer

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Credit Union: Freedom CU

Nominated By: CRI, Atlanta

Nominated For: Automating the Loan Process

Automating any system usually results in more efficient and less costly operations. At Freedom Credit Union, automating the lending process has also meant improved operations and a higher quality of loans.

Freedom has been a client of Creditor Resources Inc., Atlanta, for 15 years, according to John King, the $245-million credit union's executive vice president. When Freedom installed InterLend, CRI's Internet lending software, however, it revolutionized the credit union's lending operation.

InterLend, designed to process loans made over the Internet, contains a decision matrix that measures loan requests against borrowers' credit reports and income history. If members meet those requirements, then loans are immediately approved says King.

"We make 900 loans per month and loan officers never see 80% of our loans," says King.

Of the remaining 20% of loans referred, some are due to the member not fitting the matrix parameters. In most cases, the requests are for home equity loans, which require an appraisal and assessment, says King.

InterLend initially made the Internet loans easy to process for the 10% of members who bank online, but the matrix parameters proved too valuable to limit. Now, no matter how the loan request arrives -over the Internet, via telephone or in person-the borrower's particulars are run through the InterLend system and the same decision-making process applies.

In addition to the software's efficiency and speed, other results have led Freedom officials to believe they made the right decision. Delinquency is down significantly, says King.

"We watched this thing for the better part of 18 months and our delinquency rate is now .45%," he says. The uniformity of the criteria has a lot to do with keeping loan losses in check, he adds.

The credit union also has realized greater staff efficiencies through the process. In fact, when one loan officer resigned to take another position, King didn't replace her. Some staff wondered if their jobs were in jeopardy, but the credit union now emphasizes cross-selling training as a way to improve staff members' efforts as well as increase their responsibilities, he says.

InterLend has opened up the credit union's lending operation to whole new ways of doing business, says King. Freedom now can do risk-based pricing, where the interest rate is adjusted to a member's creditworthiness, and is even considering open-ended lending in which good members can identify terms and amounts, he says.

The software also is helping Freedom revitalize its Visa card program, which had been constrained by noncompetitive rates and languishing for years. Once again, the opportunity to use the software to apply risk-based pricing to its credit cards has helped Freedom re-enter the competitive arena. New software applications allowed for Reg Z compliance in notifying the member of rates. The program is set to go early in 2004.

"We'll be stepping into risk-based pricing for all loans and our Visa card," says King. "After that we may apply it to car loans, home equity loans and even lines of credit."

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