Credit Union Magazine - January 2009 - (Page 50)

COUNCIL CORNER Be there for newly credit-impaired members. Sam, a member, called recently, very troubled. He was returning our call about his past-due loan. Never delinquent before, he faced a new experience. Many members, like Sam, for the first time are having trouble paying their loans. Previously having had excellent credit scores, they’re more familiar with negotiating favorable loan terms than receiving collection calls. Some are unemployed, others have reduced incomes, and still more obtained exotic mortgages. Now, with mounting debt, they’re defaulting in record numbers. At the recent CUNA Lending Council Conference in Orlando, Fla., I spoke with many lenders facing these “newly delinquent” members. These executives must develop strategies to deal with high delinquencies and charge-offs, while keeping one eye on the future. My credit union’s branches are in the Ft. Lauderdale, Fla., area—hardhit by decreasing real estate prices. Home values have declined about 40% since 2006. Unemployment is up, and some workers have reduced incomes. Even core select employee groups—mostly government employees—have downsized, leaving longtime members unemployed. Although City County Credit Union never made subprime or option adjustable-rate mortgages, some members obtained them elsewhere and are defaulting on credit union auto loans and credit cards. City County’s membership always has included a high proportion of members with impaired credit. We’ve practiced risk-based lend50 CREDIT UNION MAGAZINE Lending 2009: Find the Silver Lining Lloyd Gill ing for years and have programs for credit-impaired members. We plan for higher delinquencies and charge-offs, which traditionally have been offset by higher yields. In late 2007, we saw increasing delinquencies, which have leveled off and remain at a constant, higher rate. To proactively manage through this difficult time, City County: u Implemented a financial stabilization plan that reduced operating expenses and increased revenue in Our message: We’re your CU, and we’re here to help. 2008 (this made a positive impact of $1.2 million in 2008 and an expected $2.6 million in 2009); u Created a member assistance program to help troubled members restructure debt whenever we can; u Augmented collections staff; and u Increased communication with staff and members to counteract the daily negative news. Though 2008 was a difficult year and our loan loss provision expense increased to 1.72% of average assets from 0.66%, we’ve seen improvements elsewhere. Return on assets, at 0.75%, has remained above the national average of 0.47%. Our net-margin-to-average-assets ratio increased to 7.74% from 7.38% in 2007. Fee and other operating income increased to 3.36% from 2.84% during the same time period. Our member-to-full-time-employee ratio increased to 376 from 342. In 2009, we’ll: u Debut business and student loans; uJANUARY 2009 ucuna.org u Continue to promote refinancings to help members improve cash flow; and u Expand our Encore program, developed to serve newly creditimpaired members who don’t qualify for traditional loans. We preapprove members using a custom credit bureau prescreen. Members with a minimum credit score of 500, two positive tradelines, and verifiable annual income of $20,000 are approved for a $15,000 auto loan with no down payment and a Visa card with a $500 limit. When members receive preapproval letters, some can’t believe it’s true, while others call to thank us. We also post preapproval memos to our main system, so front-line employees can tell members they’re preapproved. Our message always is the same: We’re your credit union, and we’re here to help. The Encore program works because of its positive message (you’re preapproved), favorable terms (100% financing, unsecured Visa card), and interest and fee income sufficient to offset a higher loss rate. More members are qualifying for the program, and we’ll be ready to help them. Give thought to how your credit union can capture future business of members currently facing financial difficulties. They’ll be loyal later because you reached out and helped them when few others would. LLOYD GILL is executive vice president and chief lending officer for City County CU, Margate, Fla., and CUNA Lending Council chair. Contact him at 954-7452340 or at lgill@citycountycu.org. Learn about the CU’s loan programs at http://www.creditunionmagazine.com http://www.cuna.org

Table of Contents Feed for the Digital Edition of Credit Union Magazine - January 2009

Credit Union Magazine - January 2009 Contents On My Way Leading Edge Spotlight President's Perspective Game Plan Washington Insider Wright Stuff Executive Suite Reverse Mortgages Come of Age Six Merger Myths Leading-Edge Lenders TwentyFour/Seven Bankruptcy Compliance Tools of the Trade Trendlines Rates & Ratios Council Corner Shoptalk System Scan Marketplace Branching Out Advertiser Index

Credit Union Magazine - January 2009

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