PORTSMOUTH, N.H. — Perhaps in no area of lending is experience more critical than indirect auto loans.
Case in point is the $650-million Northeast CU here, which recently finished in second place in the Return to Borrower rankings from Callahan & Associates for CUs in its peer group.
"We brought in a seasoned indirect business development manager, and an indirect lending manager, who both have 20-plus years experience in indirect lending in our market, as well as an indirect lending loan officer, who also has years of experience," said VP-Lending Thomas Weaver. The credit union is also conservative in underwriting indirect loans. "Our average credit scores for originations are well above 700," he added.
But it takes more than just that to be successful and avoid losses with an indirect landing program. "We have long-term relationships with not just the finance managers at these dealers, but with the general managers and dealer principals," Weaver said. "They are looking for the basics, a local contact, someone who responds quickly and who will pick up the phone and be willing to talk about a loan, whether we buy it or not. Just being open to some dialogue goes a long way toward forging these relationships. We stick to our credit disciplines in an effort to maintain a profitable indirect lending portfolio."
The weakened economy has also driven Northeast Credit Union to put more emphasis on its indirect lending portfolio, Weaver noted. "We currently sell most of our fixed-rate mortgages to the secondary market to lessen interest-rate risk, but keep the servicing," he said. "Our credit card portfolio remains flat. We have some relationship incentives in the form of rate reductions available to members if they expand their borrowing to other loan and deposit products."
Another strategy addresses an inherent weakness of indirect loans, a poor relationship with the new member. On all indirect loans where the member resides within five miles to one of its branches, NCU has its branch personnel make telephone calls to the new borrower/member to create awareness of other loan and deposit products the CU offers.
"For loans outside of the five miles, our contact center makes similar calls," Weaver noted. "We have seen success in both cases and have been able to turn many indirect lending member relationships into full loan-deposit relationships."
Other market factors have also aided its success. "There are some competitors out there who may have been a little loose with their credit decisions in the past and are now having to pull back, giving dealers the perception of (credit) tightening up," he said. "Our approach has always been to be consistent in our credit decisions, so we were not in the position where we had to tighten up because we never went after that subprime market. Members still want the convenience of point-of-purchase financing for their autos, and we have a solid program to provide that."
