CENTENNIAL, Colo.— CU Direct Connect (CUDC), a provider of lending operations support solutions, has introduced Origence Lending Services as a new brand that is designed to become the lending back office for credit unions and to support expansion into new loan categories.
Moreover, said the head of the division, the new offering will help credit unions “derisk” new ventures.
Best known for its long-time position as the leader in indirect auto loans in credit unions, the company said the new division reflects its evolution, while also more closely aligning its products and services with the Origence brand, “providing Origence a more robust portfolio of lending technology solutions.”
As CUToday.info reported earlier, the company said it saw significant year-over-year growth in 2021 in both funded loans and transactions through its lending programs and services, with its lending operations solutions increasing by 105% over 2020, including a 365% increase in funded auto refinance loans, 348% increase in funded RV and motorsports loans, and 128% increase in funded auto leases.
The lending operations provider also reported that transactions across all platforms have increased 65% year-over-year.
The company said lending operations services such as stacking, letter processing, and verification calls also experienced double-digit growth in 2021.
Something to Build On
Origence CEO Tony Boutelle said the company’s name—it stands for “origination” and “excellence”––is something it is now seeking to “build off of,” which is why it has introduced Origence Lending Services as a division that is being headed by Brian Hamilton.
“It’s really about helping credit unions to do all their back office processing,” said Boutelle. “We have a lot of POS and LOS technologies that can be implemented inside of credit unions. We had these different pieces. CUDL (CU Direct Lending) is really all about the dealer, and all the lending technologies we provide to credit unions are now under Origence Lending Services.”
CU Direct remains the holding company.
Three Pillars
Hamilton said there are three “pillars” to the new division.
“One is to supplement and compliment the back office lending capacity, so processing, underwriting quality assurance, letter services, all of that,” he explained. “We can supplement credit unions by offering extended hours, weekend work, overflow, that’s been around for a while. The second area is we are now finding credit unions getting more and more comfortable with that, so they can essentially reallocate the expense they put in the back office into the member-facing, member experience side, and we become that back office by doing all of that.”
The third pillar is what Hamilton described as the “derisking of new ventures.”
“Oftentimes, credit unions, and understandably so, are hesitant to go into new product verticals, new geographic areas, or to expand a business line because it is that cart and horse thing--they have to make that big investment up front, because if they don’t they are going to fail, but if they make that big investment and it doesn’t work out well, that’s bad, too,” said Hamilton. “So, we allow them to extend into RV lending, leasing, new geographic areas they want to test, and that way they don’t have to have that new operational expense until they get comfortable with that new product line or market. And then, if they want to insource, they can insource.”
One Loan Category to Consider
There are plenty of opportunities to expand lending by many credit unions, according to Hamilton, but one in particular stands out.
“Recreational vehicles was hot during COVID and there is nothing wrong with RV lending, but you can’t dip your toe,” he said. “It’s not great for every credit union, but if you’re going to do it, do it. Credit unions should look more at leasing.”
Auto leasing is an area the company has debated for years, according to Hamilton, with a formerly hesitant Boutelle saying he has become “more open to it now.”
“The challenge for credit unions is they are not the manufacturer and the manufacturer has really become responsible for 99% of the leases,” Boutelle explained. “Now, there are more players in leasing. The collateral has become much easier to determine how much it’s worth. We are doing the reserving for leasing programs. We’re not relying on a third-party residual value company to do that. We’re doing it for them as part of the program. I think there is a lot more risk management now.”
Hamilton said he agrees, having also evolved his views on leasing.
“We both lived through the days when leasing was a bad idea,” he said.
According to Hamilton, Origence Lending Services has partnered with Credit Union Leasing of America (CULA) to perform the analytics to help manage risk.
“The other thing is that back office again that takes up resources,” he said. “But a credit union can go into leasing now without expending any of their back office resources. It’s a partnership between CULA, which does all the front-end; CUDL, which does the platform, Origence Lending Services, which provides all the processing, and a partnership with Centennial Lending, which does all the servicing on the back end.”
‘So Much to Know’
Boutelle stressed that there is “so much to know” when it comes to leasing, which is why many credit unions have avoided entering the category, beyond just the competition from the manufacturers.
“In the scheme of things it’s a loan, but it requires a lot of expertise,” he said. “We take all of that away from the credit union. They don’t have to hire that (expertise).”
But do all of those fingers in the pie that help reduce the risk also reduce the margins?
“Actually, the yield on leases are generally higher,” said Boutelle.
The new car market, of course, has seen tremendous flux over the past two years as prices have skyrocketed, affecting everything from used cars to leasing. But the higher prices haven’t driven consumers to lease more vehicles, according to Boutelle.
“Leasing has actually gone down,” he said, declining to about 26% of new car sales from 30%. “I think it’s mainly because as there haven’t been that many cars, the (original equipment manufacturers—OEMs) haven’t had to do any subvention on the leases. That’s why marketshare has gone up for banks and credit unions during COVID, because they have not put this fake money in the market to buy down rates on loans.”
But there remains a market to be tapped by credit unions, Hamilton said.
Merchant Financing Opportunity
Beyond leasing, Hamilton said the company also sees an opportunity for credit unions in merchant financing, and it has launched a partnership with Lone Star Tech to take advantage.
“We don’t confuse that with buy now, pay later--or buy now, never pay, small ticket stuff,” said Hamilton, referring to loans for solar systems, swimming pools, energy efficiency home improvements, and more. In those areas the average ticket size on a loan is approximately $14,000.
“So, through their front-end and using Origence Lending Services on the back end, credit unions can light up an entirely new capability and product offering for the membership and new member acquisition,” Hamilton said.
Using Origence Lending Services means the credit union does not have to hire someone with an expertise in the various nuances of all those categories.
“Understanding the auto industry is pretty homogenous. Every auto dealer has the same things,” said Boutelle. “Understanding furniture, the solar industry, the pool industry-- it’s completely different.”
While most of those types of loans are unsecured, Hamilton said the risk is reduced because the borrowers are typically homeowners and a credit union can place a lien on a home if it needs to.