Lending in 2014: What’s in Store for CUs?
‘Roller coaster’ changes in refinances and purchase loans have caused volatility in technology and staff resources.
Credit union lending has seen its peaks and valleys over the last few years, with a drastically changing product mix, say Terri Gillespie, Fiserv’s vice president of strategic business development, lending solutions, and Bill Handel, vice president of research for the Raddon Financial Group.
Plus, “roller coaster changes” in both refinances and purchase loans have caused volatility in technology offerings and staff resources, they say. This should continue into 2014.
Gillespie and Handel tell Credit Union Magazine what this means for credit unions in 2014.Q What do you see for CU lending in 2014?
A We are likely to continue to see the rapid reduction in the mortgage refinance market. Additionally, rising rates, which have already impacted mortgage refinance, will most likely impact other areas, such as automobile purchases.
Automobile purchase volume has grown rapidly since 2009, and in 2014 the industry may see this flatten out.
As the slowdown commences, consolidating loan production and management across origination channels and departments can provide a clearer picture of members’ financial positions and related opportunities for credit unions.
Q What factors will affect various types of loans?
A Much of the rapid growth in automobile sales has been due to two factors: Pent-up demand and historically low loan rates. A portion of this pent-up demand has been sated, so future prospects in automotive sales will be driven by the overall performance of our economy.
Credit cards are a different matter. At the macro-level, credit card balances have continued to decline. While part of this is due to the pay-down of credit card balances via the mortgage refinance, it may also reflect a structural change in how consumers use credit cards.
This may present an opportunity for credit unions. If the credit card becomes less of a debt vehicle it can transition into a transaction account where profitability is achieved through interchange. Credit unions should focus on having their cards be the primary ones in members’ wallets.
In mortgage lending, the fundamental shift is away from refinance as noted previously. New purchase volume—especially first-time home purchases among generation Y—is the emerging opportunity.
The first-time home buyer typically is age 29, although this could increase due to heavy student loan debt. That means the bulk of Gen Y will be making first-time home purchases in the next three to five years.
Looking at this opportunity from a holistic perspective will benefit credit unions. It’s not simply about funding the mortgage; it’s also about helping young individuals get to the financial place where they can actually buy a home.
Business lending continues to hold significant opportunity for credit unions. However, credit unions first need to determine their expertise related to business lending and then, based on that expertise, identify niches in the business lending market to target.
Credit unions should use this approach as a starting point for 2014 business lending efforts.
Q Where will most loan growth come from in 2014?
A Even as rates increase in 2014, we anticipate that a significant amount of new loan volume will be generated by the refinancing of loans members hold elsewhere. Credit unions will want to pay close attention to their “share-of-wallet,” the percentage of members’ total loans that are at the credit union.
Right now the industry norm is 22%, but best performers achieve between 40% and 45% share of wallet. This means many credit unions could double their loan portfolios without having to attract a single new member.
To drive that type of growth it’s important for credit unions to streamline application and underwriting, meet borrower expectations, and simplify document exchange and compliance requirements to facilitate quicker loan turn-around time.
In addition, when lenders gain efficiency in day-to-day operations, they can focus their staff more effectively on new business marketing and overall customer service.
NEXT: Technology's role in lending
Q What role will technology play in CUs’ lending success?
A It’s important for credit unions to realize that lagging technology creates organizational inefficiencies and higher operational costs. In an environment where customers expect “right now” loan options, approvals, and documentation, credit unions are behind if they aren’t responsive.
Paper-free lending solutions can add convenience, efficiency, and security to business processes. Electronic document exchange and e-delivery with e-signature capabilities greatly streamline the document management processes associated with disclosures and closings.
The more steps that can be integrated within a loan origination system, the easier it is to meet compliance requirements.
Raddon Financial Group research indicates that unnecessary complexity in the lending process lengthens the time needed to see a loan through to approval and funding, and this creates a significant barrier to loan growth.
Q What will be some of the top lending challenges facing CUs in 2014?
A One of the biggest challenges, not only for credit unions but for the lending industry as a whole, will be compliance.
Lenders have the ultimate responsibility for regulatory compliance. New regulations and rules have caused the scope, complexity, and operational impact for both originating and servicing loans to grow exponentially.
Q How can CUs use technology to address compliance challenges?
A Within the fabric of lending compliance, both credit grantors and servicers have relied heavily on technology solutions to reduce the operational burden. Origination solutions that contain accurate calculations, warranted state-specific documents, approved disclosures, and workflow enforcement ensure that lenders can achieve compliance effectively in those areas.
Servicing technology that offers a wide range of confidential data management, client notifications and disclosures, rules-based workflow, and accurate accounting all contribute to regulatory compliance as well.
Finally, being in touch with the growing community of third-party regulatory resources for continuous information, interpretation, and clarification of new rules and regulations should be an integral part of a lender’s compliance and overall data governance initiatives.
Q What advice would you offer CUs about achieving lending success in 2014?
A Achieving lending success in 2014 will depend a lot on institutional differentiation.
Financial products are commodities, but financial relationships are not. In order to provide the best financial relationship, it’s increasingly important to create a holistic view of each borrower.
The ever-connectedness of consumers has raised their expectations. Creating a holistic view of a borrower’s creditworthiness is no longer just “nice to have.” It’s truly necessary, not only to enhance the member experience but also to help ensure compliance.
Immediate awareness and analysis of borrower information, including application and closing transactions, is becoming a daily activity for lenders.
The loan origination system should be tightly integrated with the servicing platform so all of the analytical information starts in one database and stays in one database. This approach provides greater insight about the member’s financial status and behavior.
User experience also is a key factor when consumers apply for loans. Providing tailored scenarios to borrowers gives originators the opportunity to clearly explain product options and loan terms.
Reducing the time and enhancing the experience for the customer can differentiate one lender over another. Thriving comes down to exploring every possible way to use available technology wisely.