Credit unions can expect 12% loan growth this year, up from nearly 11% in 2014, CUNA economists report.
But despite this rosy forecast, challenges still exist for credit union lenders, according to Harvey Foster, product manager, Lending Solutions, for Fiserv; and Bill Handel, vice president of research for Raddon Financial Group.
These challenges include:
• A continued decline in mortgage refinancing volume. Mortgage refinancing volume in 2014 is about half of the volume in 2013 and one-third of the 2012 volume. This decline is likely to continue, especially if long-term interest rates increase.
• Changes to “qualified mortgage” (QM) standards. It may be more difficult for some members to qualify for even the most basic mortgages. Lenders should be aware of this, and factor it into their strategies and income road-maps accordingly.
• The falling profitability of new-auto lending due to intense competition and higher dealer costs. “This is why it will be important to reduce your dependence on vehicle lending in 2015, “Foster says.
• Affordability issues. Generation Y represents the next big opportunity for home ownership. But accumulating at 20% down payment will be difficult for many in this generation.
To address these challenges, Handel and Foster advise credit unions to:
• Create a diversified growth plan, rather than focusing on only one or two lending areas.
• Look at emerging market segments and tailor lending options for these groups. Consider offering first-time home-owner programs of first-time borrower programs for those with no credit history.
• Continue to focus your value proposition around member’s financial health. Many organizations have done well promoting financial check-ups in which members receive options to refinance existing debt carried at other financial institutions.
• Change how you market loans. Consider creating personalized campaigns and using new marketing avenues, such as mobile banking apps to directly reach members with curated messages.
• Consider additional loan offerings such as the Small Business Administration loans and subprime auto loans.
“While all of these suggestions can be effective,” Handel says, “each credit union must work out its own strategy based on its local marketplace and competition.”