copyright 2008 texas credit union league increasing the performance of your loan portfolio john...

Copyright 2008 Texas Credit Union League

Increasing the Performance of Your Loan Portfolio

John Kurtz - TCUL

Increasing the Performance of Your Loan Portfolio

John Kurtz - TCUL


AgendaAgenda AgendaAgenda

I.I. Current Lending EnvironmentCurrent Lending Environment

II.II. Underwriting & PricingUnderwriting & Pricing

III.III. Lending Tips Lending Tips

IV.IV. An Old Friend Re-VisitedAn Old Friend Re-Visited

V.V. QuestionsQuestions

I.I. Current Lending EnvironmentCurrent Lending Environment

II.II. Underwriting & PricingUnderwriting & Pricing

III.III. Lending Tips Lending Tips

IV.IV. An Old Friend Re-VisitedAn Old Friend Re-Visited

V.V. QuestionsQuestions


Current Lending Environment

Current Lending Environment


Snapshot of U.S. Credit Snapshot of U.S. Credit UnionsUnions

Snapshot of U.S. Credit Snapshot of U.S. Credit UnionsUnions

Savings increased from 4.2 in 2006 to 6.6 in March 2010.

Loan to share ratios decreased from 82.3 in 2006 to 73.3 in March 2010.

Loan growth declined significantly from 7.8 in 2006 to .03 in March 2010.


Snapshot of U.S. Credit Snapshot of U.S. Credit Unions (con’t)Unions (con’t)

Snapshot of U.S. Credit Snapshot of U.S. Credit Unions (con’t)Unions (con’t)

New auto loan balances have declined from 5.5% in 2006 to -11.7% in March 2010.

Used auto loan balances have increased from 0.9% in 2006 to 2.8 in March 2010.

60-day delinquencies increased from .68 in 2006 to 1.77 in March.

Interest yields decreased from 589 bps in 2007 to 457 bps in March 2010.


Snapshot of Local Credit Snapshot of Local Credit Unions Unions

Snapshot of Local Credit Snapshot of Local Credit Unions Unions

Deposit growth continues

Loan Demand Slow

Narrow Rate Gap to Work With. Deposit rates are as low as they can go.

Good News….Possibly??? We have had 3 years of slow new auto sales. The consumer is about ready to purchase that new car. End of 0%.


Slow Economy Cautious Consumers

Regulatory and Compliance

0% Captive Financing

or

Our Lending EnvironmentOur Lending Environment


Underwriting & PricingUnderwriting & Pricing


UnderwritingUnderwriting UnderwritingUnderwriting

# of inquiries on credit report.

Three Indicators to Evaluate a Member’s Level of Escalating Debt:

# of total loans with balances

# of new loans with balances


FICO Score ‘08FICO Score ‘08FICO Score ‘08FICO Score ‘08

Collections < $100 will no longer affect score.

Like inquiries within 45 days count as one.

% of total revolving available has more weight.

A one time negative will have less of an impact.

Credit Card Capacity represents 30% of credit score.


Careful Underwriting Careful Underwriting Careful Underwriting Careful Underwriting

Attention Red Light Shoppers!!

Excessive Unsecured Debt

UDR = Total Unsecured Balances Total Annual Gross Income

If UDR < 20% Should be a Go!If UDR between 20% & 30% Caution! Caution! Will RobinsonIf UDR > 30% Abort Mission! Houston, we

have a problem!


Careful Underwriting (con’t)Careful Underwriting (con’t)LTV DecisionsLTV Decisions

Careful Underwriting (con’t)Careful Underwriting (con’t)LTV DecisionsLTV Decisions

Use a consistent source of evaluation and stick with it!

Make each loan to value decision a unique decision!

The are “A” members that should be financed at 80% LTV and there are “D” and “E” members that can financed at 100%.

Sample LTV Policy Statement – LTV will be determined on a case by case basis after evaluation of the risk. – Brett Christiansen


FICO Score and PricingFICO Score and PricingFICO Score and PricingFICO Score and Pricing

Risk Based Lending

Keep your tier structure simple (4 Tiers) A 700+ B 660 – 699 C 620 – 659 D Below 620

Set your C & D rates with your membership in mind

Notice – All 700+ Paper is priced the lowest you can get!


CUNA’s E-Scan 2010 & 2011CUNA’s E-Scan 2010 & 2011

Borrowers with sub-680 credit scores will find obtaining credit difficult, creating an opportunity for credit union lending.

How Can We Lend To This Group?


Shift to B, C, & D PaperShift to B, C, & D Paper(Show Me the (Show Me the $Money$$Money$))

Shift to B, C, & D PaperShift to B, C, & D Paper(Show Me the (Show Me the $Money$$Money$))

These are the members with the greatest need. These members have the least amount of loan options. These members are very loyal if you can help them. Aggressive captive financing will capture much of your A paper auto loans.

Embrace Good Bankruptcies.


Underwriting Tips – Risky Underwriting Tips – Risky PaperPaper

Underwriting Tips – Risky Underwriting Tips – Risky PaperPaper

Lend the member a reasonable amount of money for an auto suggest 50% of Annual Gross Request a “cash down” commitment.

The member’s bad credit is not currently delinquent. At least older than a year.

Only use a co-signer for young borrowers just starting out. Parents only!


Underwriting Tips – Risky Underwriting Tips – Risky Paper (con’t)Paper (con’t)

Underwriting Tips – Risky Underwriting Tips – Risky Paper (con’t)Paper (con’t)

Don’t give the member an apologetic close.

Use this time to educate the member regarding their FICO.

“A loan closed properly is half collected.”

No account relationship with the credit union

Collection calls within the 3rd day


Lending TipsLending Tips


And Away We Go…….And Away We Go…….And Away We Go…….And Away We Go…….

New and Used Auto Rates the Same.

One rate discount – Auto Pay

Use the Auto Enhanced Score to Price All Auto Loans.

Allow all loan ancillary products to be added to your loan. CL, CD, Gap, and Warranty



Allow 90 day to first payment on all A,B, and C tiers. Term based on auto value and not on loan amount.

.

Charge $20 to skip a pay once a year. Keep half and place the other half with a charity group. Make your base auto rate 66 months instead of 60 Implement a Payday Lending Program. Hint…..REAL Solutions®



Pay all staff a small fee for cross-selling and bringing over a auto loan. Pay members for referrals. Develop a proactive lending philosophy. Educate Staff Know Your Competition Match Rates. Thinking Outside of the Box – Pay your dealers $50 a loan simply to have the purchase order faxed to you and being able to close your member without the threat of being flipped at the dealership.


RVs, Boat, & Motorcycle RVs, Boat, & Motorcycle LoansLoans

RVs, Boat, & Motorcycle RVs, Boat, & Motorcycle LoansLoans

Keep lending in this area to 700 + FICO scores.

10% plus T,T, & L down on all loan requests to start. Keep Unsecured Debt Load in Mind When Underwriting These Loans.

Keep Minimum size on Motorcycles to 1000 CC.


To Think About…….To Think About…….To Think About…….To Think About…….

Why Do Credit Unions price Home Equity Loans Underneath the Market Rate of 1st Lien Mortgages?

You will lose some good loans if you require two years of tax returns on every self-employed borrower. Use good judgment and your relationship with them. A large amount of cash down or a great equity position can compensate for underwriting sins.

Develop a simple business loan program. Price your loans 2% above the rate that they would normally be approved for.


An Old Friend Re-VisitedAn Old Friend Re-Visited


Waitress gets $50,000 from Waitress gets $50,000 from cranky Texan cranky Texan

Waitress gets $50,000 from Waitress gets $50,000 from cranky Texan cranky Texan

‘‘I still can't believe it,’ Luby's cafeteria worker says I still can't believe it,’ Luby's cafeteria worker says of bequestof bequest

The Associated PressThe Associated Press

updated 8:37 p.m. CT, Fri., Dec. 28, 2007updated 8:37 p.m. CT, Fri., Dec. 28, 2007

BROWNSVILLE, Texas - For nearly seven years BROWNSVILLE, Texas - For nearly seven years Melina Salazar did her best to put on a smile Melina Salazar did her best to put on a smile and tend to the every need of her most loyal and and tend to the every need of her most loyal and cantankerous customer.cantankerous customer.

She made sure his food was as hot as he wanted, She made sure his food was as hot as he wanted, even if it meant he burned his mouth. And she even if it meant he burned his mouth. And she smiled through his demands and curses. The smiled through his demands and curses. The 89-year-old Walter "Buck" Swords obviously 89-year-old Walter "Buck" Swords obviously appreciated it, leaving the waitress $50,000 and appreciated it, leaving the waitress $50,000 and a 2000 Buick when he died.a 2000 Buick when he died.

"I still can't believe it," the Luby's cafeteria employee "I still can't believe it," the Luby's cafeteria employee told Harlingen television station KGBT-TV in an told Harlingen television station KGBT-TV in an interview during which she described Swords interview during which she described Swords as "kind of mean."as "kind of mean."

Swords, a World War II veteran, died in July. But Swords, a World War II veteran, died in July. But Salazar learned just a few days before Salazar learned just a few days before Christmas that he had left her the money and Christmas that he had left her the money and car.car.

‘‘I still can't believe it,’ Luby's cafeteria worker says I still can't believe it,’ Luby's cafeteria worker says of bequestof bequest

The Associated PressThe Associated Press

updated 8:37 p.m. CT, Fri., Dec. 28, 2007updated 8:37 p.m. CT, Fri., Dec. 28, 2007

BROWNSVILLE, Texas - For nearly seven years BROWNSVILLE, Texas - For nearly seven years Melina Salazar did her best to put on a smile Melina Salazar did her best to put on a smile and tend to the every need of her most loyal and and tend to the every need of her most loyal and cantankerous customer.cantankerous customer.

She made sure his food was as hot as he wanted, She made sure his food was as hot as he wanted, even if it meant he burned his mouth. And she even if it meant he burned his mouth. And she smiled through his demands and curses. The smiled through his demands and curses. The 89-year-old Walter "Buck" Swords obviously 89-year-old Walter "Buck" Swords obviously appreciated it, leaving the waitress $50,000 and appreciated it, leaving the waitress $50,000 and a 2000 Buick when he died.a 2000 Buick when he died.

"I still can't believe it," the Luby's cafeteria employee "I still can't believe it," the Luby's cafeteria employee told Harlingen television station KGBT-TV in an told Harlingen television station KGBT-TV in an interview during which she described Swords interview during which she described Swords as "kind of mean."as "kind of mean."

Swords, a World War II veteran, died in July. But Swords, a World War II veteran, died in July. But Salazar learned just a few days before Salazar learned just a few days before Christmas that he had left her the money and Christmas that he had left her the money and car.car.


Questions

Open and Closed End Lending??Texas Ranger World Series Talk!

copyright 2008 texas credit union league increasing the performance of your loan portfolio john...

Documents

credit score

credit report

credit unions savings

credit card capacity

brett christiansen slide

loan growth

lending tips iv

pricing risk