ANAHEIM, Calif.–How do the best lenders do it? A half-dozen of the very best gathered here to share their strategies, as well as just-released data around their internal metrics.
Also part of the discussion: the number of employees involved in various loan channels, how pricing decisions are arrived at—including some differences of opinion around where fees should be charged–and how some CUs have reconfigured their branches to drive more lending.
During the CUNA Lending Council’s annual conference here, details of the latest “Lending Scorecard” were shared with attendees. The Scorecard is based on results of a detailed survey sent to participating credit unions, with the data then analyzed and published in a report from Cornerstone Advisors.
But in addition to sharing the report’s findings, some of the most effective lenders in the country were also on hand for a session at which they discussed their own processes and strategies.
Representing Cornerstone at the meeting and leading the discussion were Director Ryan Myers and Consultant Ryan Brogan, Sr.
Representing their respective credit unions during the session were Ray Lindley, chief lending officer with Elevations CU in Colorado; Marty Pell, CLO with Coastal Credit Union in North Carolina; Mike Long, chief credit officer with UW Credit Union in Wisconsin; Jim Block, CLO with Baxter CU in Illinois, and Michelle Goeppner, who leads credit product strategy, and Jeremy Pinard, who leads consumer lending, both with Alliant Credit Union in Illinois.
The Lending Scorecard’s data is based on proprietary metrics created by Cornerstone Advisors. This year’s Scorecard is based on results from 48 credit unions with median assets of $1.24 billion and a median loan-to-share ratio of 92%.
The session was divided into four areas of discussion around four different loan products. Here’s a look at the findings and what was discussed:
Direct Consumer & Home Equity
In looking at loan applications per FTE in direct consumer/HELC loans, the median was 34 per month in 2018 (the range was 22 to 53), while the ratio of apps per consumer underwriting FTE was 349 overall (396 for CUs with centralized underwriting, 219 for somewhat or entirely decentralized underwriting).
In terms of ancillary insurance cross sell, the insurance revenue/total funded loans median was $124 in 2018.
Where are loan apps coming from per channel among the CUs in the analysis? Overall, just over half are still coming through the branch, but that figure shrinks among CUs of more than $2 billion in assets, where more than half the loan apps are coming from the contact center or the digital channel.
‘What We Hire & Train For’
Jim Block of BCU said his credit union has seen good growth through all channels. With its branch channel, which BCU has been aggressive in growing, he said the focus has been on loan growth.
“That’s what we hire and train for and make sure the transactions are around,” he said. “Then we centralize the transactional work that is outside the relationship building.”
BCU does do significant outbound calling from its call center, he added.
Jeremy Pinard of Alliant, which focuses on being digital to the point of having closed all but two of its 11 branches, said that as expected it is lasered in on the online experience.
BCU, which built its own LOS, is all about “controlling that process. The friction can’t be there,” he said. “It’s easy to overcome friction in the branch when you’re sitting across from the person. Online, if there’s any friction or obstacle, consistently you will see people fall out unless it’s easy. As we have gone through this process one of the things we have done consistently is journey mapping. You need to understand where all the pitfalls are. If you don’t know where your pitfalls are, you’re going to be behind the times.”
‘Huge Pick-up In Productivity’
Marty Pell of Coastal Federal Credit Union in North Carolina shared that CU’s pioneering usage of personal teller machines in which it has moved to a model of tellerless branches where members can use video tellers.
“It has really freed up our branch manager resources. We found that as much as 60% of our branch managers’ time was related to something going on in the teller line,” Pell said. “Now, with teller function centralized, our branch managers can spend 100% of their time on relationships inside the branches. We’ve seen a huge pick-up in productivity.”
Credit Cards
The Lending Scorecard analysis found that among CUs participating in the research, cards issued among per FTE was 15.33 in 2018, the median for card apps per underwriting FTE was 176.
The research also revealed big differences in the efficiencies among the best and worst credit unions when it comes to getting cards into members’ hands.
The Scorecard data indicate total credit cards funded as a percentage of membership had a median of 23%, ranging from 13% to 31% of the CUs in the survey.
Mike Long, chief credit officer, UW Credit Union, noted his credit union signs up thousands of new students as members every year and gets 85% of those to fill out card apps. By graduation, he said it works to “aggressively” convert students to what it calls an “adult” card.
Building that cross sell into the process, whether online or in the branch, is really the “secret sauce,” he added.
The Right Product Mix
Alliant’s Goeppner said the secret to its success has been in getting the product mix right after realizing it didn’t have the kind of alignment it needed around what members wanted in credit cards. Following a relaunch it has seen originations grow after it also reworked its promotion.
“It’s looking at how you can be competitive, but also what makes sense for your business model,” she said. “Timing does matter. We look at bureau information for who is shopping cards at this time. We look at who has balances with someone else. And, of course, there is cross selling. Are you incentivizing your staff to get members to bring cards to you? And people are still very skeptical of banks, so leverage that to get the card in your wallet, and bundle and discount with other products.”
Goeppner said Alliant has also started to go outside the credit union and has reached out to the broader market to find “the ideal” prospect it is seeking.
How does Alliant ensure its card offerings are profitable?
Alliant Credit Union
Goeppner joked there are near daily meetings with the finance team to review pricing around finance charges, revolving balances (it incentivizes for big ticket items) and its rates, pushing rates up where it can but staying below the market.
On the fee side, she said Alliant does a competitive assessment on a regular basis and looks to see where it might have room to move, but again works to stay below the market.
On interchange, she noted certain merchant categories have higher interchange, so it works to promote spend in those categories, such as hotels or rental cars.
Building Engagement
UWCU’s Long said at his credit union it is “all about keeping the cardholder engaged. You have to have the card portfolio that continues to grow from a balance standpoint, because we are fee-adverse at UWCU.”
When it comes to being top of wallet, Goeppner said Alliant’s strategy is all about incentivizing stickiness, such as recurring billing. “It’s a pain to take a payment method out, so it’s critical. Equally critical is carefully monitoring competitors for any changes that might provide opportunities.”
Goeppner added Alliant also takes the very simple but effective step of asking members what they want.
“We saw on one card usage was low, so we enacted a campaign for people who had not spent on our campaign for the previous six months,” said Goeppner. “We asked, ‘We noticed you haven’t been using, why is that?’ That’s the benefit of being a credit union. Our members love to give us feedback and we made a few tweaks and have seen usage rise as a result.”
Indirect Lending
Indirect as a percentage of total loan dollars outstanding continues to rise, with credit unions over $1 billion in assets really driving the increases, according to the Lending Scorecard.
Among the CUs surveyed, the indirect loans funded as a percentage of applications was a median 25%, ranging from 18% to 32% among respondents (the overall numbers are a decline from 2017 survey participants). In terms of indirect loans funded as a percentage of approved loans, the median in 2018 was 52%, with a range of 41% to 64% (also down from 2017 survey).
With indirect cross sell, the percentage of new members was 73% (with a range from 66% to 85%), while the indirect cross-sell rate showed a median of 7% (ranging from 2% to 10%).
“This is one where 10% is kind of the gold standard,” said Cornerstone’s Brogan. “There is really a huge variance among bottom and top quartile.”
Onboarding is Critical
Pinard of Alliant Credit Union, which sees about 10,000 loan apps per month via the indirect channel, said those apps are reviewed by three underwriters available seven days a week. Alliant also does $40 million to $50 million per month in RV lending.
“What we try to do is partner with large dealership groups and really partner with those dealers so they are sending over the right applications,” he said. “One thing I would recommend, whether it’s RV or auto, is you have to manage that dealer from look to book, and if they’re not doing it you have to turn them off. As far as auto-decisioning, we are constantly tweaking, but we are around 55%. With cross-selling, we just did another journey map for our indirect members, and when we went through it we found we are penetrating at a 13% cross sell on other products. The things you are doing at onboarding are what makes that happen.”
An ‘Explosion’
Long said UWCU’s indirect program has exploded to about 1,500 loans per montha, in part because Wells Fargo exited the market in its area.
“Speed is very important. Our promise to the dealer is 10 minutes, and we are currently averaging seven minutes. We fund on the same day and we have a dedicated team. We are going to require all dealers to send electronic packages beginning the Jan. 1.”
Long said UWCU realizes it’s in the catbird’s seat for the first time in a long time and cuts off dealers if they are not performing as expected.
In terms of cross-sell, UWCU has been successful, he said, noting the credit union is cross-selling an additional loan 30% of the time on indirect loans, thanks to an outbound calling group and a lead refinery.
“Not only do we get the loan, we get the checking account, because we offer a discount on rate if they take a new checking account. It’s not rocket science; it’s about offering a deal and then taking care of them.”
Centralized Center
BCU’s Block said the credit union also uses its centralized outbound call center to reach out to new members, using different strategies for those who come via the indirect channel.
“We really try to identify the members need and right product. Our goal is long-term transactional relationships with the members, and then laying the seeds for the bigger products such as mortgages. If the member isn’t interested in having any additional relationships with us, then it’s not profitable. And we talk to the dealerships about that.”
First Mortgage
The Lending Scorecard survey data found the median turnaround time was 30-45 days among 67% of respondents, and 46-60 days among 18% of respondents. Fifteen percent turn around mortgages in fewer than 30 days.
Overall, survey respondents have 7.56 loans funded per loan officer FTE, while the figure is 2.76 per total origination FTE. Mortgage apps per processing FTE had a median of 23 (ranging from 12 to 29).
When it comes to originator compensation, 40 to 60 basis points is typically within the median range, according to Cornerstone’s Brogan.
An Assist from Quicken
Ray Lindley of Elevations said his CU remains competitive in its Boulder, Colo., market because the Quicken Loan advertisements have led people to start the process before they find out quickly what’s being delivered isn’t close to what’s promised.
About 85% of ECU’s business is purchase-based, and in its competitive market “fulfilling the loan is the most important thing for the seller, the buyer, the agent, everyone involved.”
“There is the expectation that things get done fast and quickly, but people do not yet quite understand the complexities of applying for a mortgage, and you have to establish that upfront,” he continued. “That’s really hard to do online. It takes an expert to walk someone through all the documentation involved.”
Lindley said the Realtors in its markets do not want potential homeowners to start an application online unless they talk to someone first.
“We have found that to be much more efficient,” he said. “When someone starts out online the fallout rate is four times that if they had started by talking to someone first.”
An Opposite Experience
Coastal’s Pell said in its markets the effect has been different, and Quicken is a major player among mortgage lenders, ranking third in share in the market (Coastal is fourth).
“We are sensitive to the mobile-based technology. In last 30 days we just implemented the ability to take the application mobile, but we still have a ways to go there,” he said. “We have seen about 10% of the apps shift to mobile, and we expect it to shift to 30% to 40%.”
Elevations’ Lindley said ECU observed that even if mortgage officers do their best, it isn’t often immediately known just what documentation the borrower may be missing.
“That’s why having the functionality to communicate effectively once you have the app is going to be key for the next four to five years,” he said.
Profitability
The Mortgage Bankers Association recently reported that profitability on mortgages has gone negative. But Lindley said ECU’s profitability has been actually been increasing.
“A good mortgage LO is going to make money if they service it the right way. They are going to make more money than their bosses, and you have to be able to deal with that,” he said. “We tell our LOs we will have higher rate and you have to be able to sell it. They are willing to sell a higher rate if they know you will deliver the service. Hitting the (loan close) and commitment dates is what gets people into the home and they are willing to pay more to make sure that happens.”