Lending

An Opportunity Like This Comes Once in a Lifetime

July 23, 2010
KEYWORDS credit , housing , lending , loans
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Increased lending boosts market share, earns income, and builds loyalty.

What a differ ence a couple of years make. In 2007, credit unions couldn’t lend fast enough.

Looking back, credit unions probably could have loosened up a few programs or guidelines to maintain or gain market share. But we weren’t doing exotic lending like some of our more aggressive competitors.

The nation’s real estate market was booming in 2007. Even when mortgages went bad, property appreciation within the first year mitigated the losses. Rising real estate values masked lender risk and bailed out borrowers who got into trouble because they could pull equity out of their homes.

But the “make a loan” strategy has shifted to a more deliberate and inward-focused portfolio management strategy. Many loans we were happy to book two years ago are causing heartburn today. Not because we made bad loans, but because members who were good lending risks then are now unemployed or underemployed. And, in this market, they can’t liquidate assets to get out from under debt.

Corporate credit union stabilization and impairment assessments have reduced earnings. Credit union financials are stressed and lending has decreased dramatically as members pay down debt.

Now is the time, however, for credit unions to find ways to increase lending. Market signals indicate the economy has hit bottom or very near it. Housing price declines have slowed, and a recent poll revealed one in 20 people plans to buy a house in 2010. The reasons: growing confidence, more affordable housing, and pent-up demand. Forecasts for auto loans also show modest gains in 2010 and 2011.

Increased lending brings many benefits. It helps us gain market share, earn income, and build loyalty. And increased access to credit is the foundation of the cooperative movement.

We may never again have an opportunity this great to gain market share. Sooner or later, banks and other competitors will re-enter the market—and with all the resources their size and breadth allows.

Credit unions have a six- to 12-month window in which to increase lending initiatives and gain market share. Our great advantage: While other financial institutions’ cash sources have dried up, we have member deposits we can lend. More important, we’re still the most trusted financial institutions.

With access to the secondary market and interest rates at 40-year lows, credit unions can process and close as many real estate transactions as we want. We can choose to keep loans in portfolio or sell a portion to realize immediate income to help offset higher than normal charge-offs.

A word of caution: Balance current mortgage opportunities with awareness of mortgage resets coming in 2010 and beyond. Determine how many resets in your community are current members and how many are external opportunities for your credit union to serve.

Reach out to these people to build loyalty. Many credit unions have expanded their charters to serve new communities in addition to their original select employee groups. Some newer members don’t fully understand the benefits of being part-owners of a cooperative.

We can use the current downturn to our advantage. Many borrowers are struggling or being denied basic lending products they can afford. We can help current and new members through these tough times—through debt restructuring and consolidation, car loans, or lines of credit.

The economy will bounce back. And when it does, our members will remember who said “yes” during the downturn.

AARON BRESKO is vice president of lending at BECU, Tukwila, Wash., and vice chair of the CUNA Lending Council. Contact him at 206-439-5008.

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