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.
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