Guideline #5: Make sure the underwriter has lots of experience with the types of loans you want to offer.
Part of the due diligence process is to make sure the CUSO has that expertise, as well as the infrastructure and the resources to provide what your credit union needs.
To check for underwriting expertise:
• Review the resumes of people who will be underwriting the loans. Check on their experience and areas of expertise. National Credit Union Administration regulations require that whatever CUSO is underwriting the loan needs two years of experience underwriting the specific type of loan under review.
• Get references from other clients. Underwriting a $200 million residential property is very different than underwriting a $5 million construction project for a doctor’s office.
• Consider what they’ve specifically underwritten. For example, if an individual has experience in residential investment properties, that doesn’t necessarily mean he or she has expertise in underwriting a construction project.
• Check on the compensation method. For example, make sure the compensation plan doesn’t encourage underwriters to recommend loans just to earn more money. That’s a conflict of interest. Although it’s convenient to point to closed loans as a measure of success, it’s not the only measure.
Guideline #6: Loan monitoring is critical.
What separates lenders today isn’t underwriting, but local loan monitoring and management, according to the whitepaper. A credit union needs to choose a CUSO that can help it assess a loan, monitor the quality of the loan once it’s made, and manage it or collect when necessary, on an ongoing basis.
Not all CUSOs do that. Some only do the underwriting.
CUSOs, overall, have a more entrepreneurial bent to them than the credit union culture. If not managed properly, the mix can be detrimental to the credit union, says the whitepaper. But CUSOs, managed properly, can help the credit union see new perspectives and models to help it serve members better.
For more information or to access the white paper, visit cunalendingcouncil.org; select “tools and resources” and “whitepapers.”