LAS VEGAS -
Driving these trends: members' desire for some of these products, according to Allan Stevens, VP and senior loan officer for Franklin Mint CU, Broomall, Penn., who said members are showing interest in home equity lines of credit, payday loan alternatives, business loans and mortgages.
Stevens told attendees of an educational session at CUNA's America's Credit Union Conference here an emerging loan product is the "umbrella" or "hybrid" HELOC, noting that consumers are looking to convert variable-rate loans to fixed rates.
"A fixed-rate loan takes away interest rate risk," Stevens explained. "It is becoming a more and more dominant product in the marketplace. This is a 'sticky' product-members who have it will be sticky. Your credit union might not be the primary financial institution, but it certainly will be an important financial institution."
The biggest challenge to offering an umbrella or hybrid HELOC, according to Stevens, is getting the core system providers to offer support. Many members need payday loan alternatives, which he noted have drawn plenty of media coverage.
"One can hardly pick up a publication without reading about this product. It is so prevalent today, it is crazy," he said. "It is the opposite end of the spectrum from a HELOC."
A CU can offer a payday lending product coupled with financial education and sometimes a savings product, he said. "It is very labor intensive, both the product and the process, but it is very significant."
Stevens encouraged CUs to investigate next-generation scoring models that promise to provide credit scores for more consumers and be more predictive.
One final trend: Stevens said process improvements will help CUs lend more efficiently. He said automated valuation models are replacing traditional appraisals in real estate loans, which deliver second mortgages with lower costs.
Keith Reynolds, VP of lending and business services for CEFCU in Peoria, Ill., said credit unions have experienced impressive growth in member business lending in the past three years, but warned banks also have done more business loans.
According to Reynolds, 38% of CUs offer some level of business services, and 20% report a member business loan on their 5300 Call Report. He said the average MBL is $178,000; while the median loan is $118,000. Credit unions originated $4.78 billion in member business loans in 2006-a 24% increase from the previous year.
"Many of the larger credit unions that have been in business lending are getting more sophisticated and discriminating," he said. "However, the growth level might flatten in the next year or two."
CUs had $23.9 billion in MBLs outstanding as of 2006 year end, he said. This represents a market share of 0.82%, while banks have 99.18%.
"Credit unions have grown impressively, but so have banks." Reynolds said keeping staff turnover low is especially vital in the business lending area. He pointed out if a business lender walks out the door, he or she might take along his/her business.
The two biggest challenges to operating an MBL program are training and education (25%) and finding/retaining skilled staff (21%). Trailing far behind are marketing (12%), growing the portfolio (11%) and regulations (10%).
"One would be hard pressed to find another credit union product or service where nearly half the problems are HR related," he observed.
Why are MBLs so important? Reynolds said statistics show credit unions with member business loans outperform non-MBL CUs in the four key growth categories: loans, members, savings and assets. In addition, he said MBL credit unions averaged ROA 4 basis points higher than non-MBL CUs.
"Start-up costs are significant, but credit unions should know business banking initiatives will get 25% to 35% of bank IT budgets over the next 18 months," warned Reynolds.
Joe Brancucci, BECU's VP and chief lending officer, said CUs must become more creative to increase their share of the mortgage market.
"Many of our members are drowning, but bad mortgages are an opportunity," said Brancucci, who also serves as CEO of Prime Alliance Solutions, a Tukwila, Wash.-based organization that combines credit union, mortgage and technology representatives. "BECU will be doing a campaign featuring the slogan: 'We Fix Broken ARMs.' Mortgages are an opportunity, but only if credit unions focus on the opportunity."
Brancucci pointed to the oft-cited graying of CU membership as an example of an area mortgage lending could help. He cited statistics showing credit unions are over represented among the 55-to-64 and 45-to-54 age ranges, but trail significantly in attracting the 18-to-24 set.
"We must get creative to attract younger members-the 'young and the restless,'" he quipped. "BECU has a first-time homebuyer approach that helps bring down the average age."
Brancucci said he is not advocating ignoring older members, who may be looking for reverse mortgages. "As an industry, we must figure out how to deal with our 'old and the breathless.'"
Credit unions should strive to move their mortgage market share to 10% from the present 2% over the next decade, Brancucci said. For those who do not believe CUs should get into mortgages, he offered this warning: "Wells and B of A do think mortgages are a core product."
