Handling Post-Recession Repossessions
CUs work fast and smart to keep repos under control.
To turn around recession-related increases in repossessions, credit unions have beefed up their loan-assessment processes and initiated faster action on collection procedures. They’ve also worked diligently to help members avoid repossessions.
Redstone Federal Credit Union, Huntsville, Ala., with $3.1 billion in assets, saw repossessions increase roughly 20% during the recession. “Things stabilized during some months of 2010, and consistently since the first of the year,” says Joe Newberry, president/CEO.
“We work with members the best we can so we don’t have to repossess,” he adds. “And we don’t repossess after one month, like banks do; we look at payment deferrals up to 90 days, if necessary, depending on the circumstances.”
Debt restructuring is also an option. “That’s more on the business side than the consumer side,” says Newberry. “We’re the largest SBA [Small Business Administration] lender in Alabama and we have a lot of start-ups.”
Preventing repossessions starts with strong underwriting, he notes. “We’ve tightened our unsecured credit criteria. But even there, it’s not a science. You never know if someone will have a health problem, marital problems, a job loss, or fewer work hours. That’s what drove a lot of our repos.”
Credit unions have an advantage, Newberry says. “We really care about our membership and will do everything we can to help members through the most difficult times in their lives. Congress has mandated credit unions to work with people of modest means, and that’s what we do continually.”
Repossession policies should be broad enough to encompass different circumstances, he says, but within regulatory guidelines, which “provide consistency in what you do. But with these situations it isn’t one size fits all.”
Redstone Federal reviews all policies annually, and also when the economy or other factors drive procedural changes. “When we tightened our credit criteria, management made policy recommendations to our board governance committee, which brought them to the full board for approval,” Newberry explains.
When repossessions were high, the credit union added a second vendor for both auto repossessions and auto auctions. “For other credit unions still seeing increases, I’d recommend looking at other repo vendors and sites that can help you facilitate the transactions. It helps you handle volumes quickly during stressful times.
“Also, from an enterprise risk management standpoint,” he adds, “it’s good practice not to be dependent on one vendor that might go out of business.”
Repossessions didn’t increase during the recession for $48 million asset Ohio [Dublin] HealthCare Federal Credit Union. “We’re fortunate with our field of membership; most members have stable jobs in health care,” says William Butler, president/CEO.
The credit union had about 10 repossessions in both 2009 and 2010, and six so far this year. “Our focus is really to keep members and their collateral together as long as possible,” Butler says. “A repo is a last-ditch effort.”
Timeframes don’t drive repossessions, agrees David Cottone, vice president of lending. “Member engagement dictates whether we’ll repossess. If we believe members are making their best efforts to pay, we’ll work with them.
“If they’re going through financial difficulty but we’re seeing regular payments—and more important, a plan—we’ll be patient with them,” he adds. “In some cases we’ll let a loan go 60 or 90 days delinquent.”
Often, if a member isn’t engaging with the credit union, it’s from fear or embarrassment, says Cottone. “Once we break down that barrier, they’re more cooperative.”
This strategy has been tremendously successful, Butler notes. “Granted, it can make our delinquency rate a little higher, but we’ve had success in getting rates in shape.”
Staff often get members’ cooperation in returning cars. “Members know it’s best for them,” says Cottone. “We can make modifications to loans, and we have a very high percentage of members making deficiency payments after a car is repossessed and sold.”
The credit union underwrites aggressively, and will carry low credit score loans to serve members having financial difficulties. “It’s absolutely possible to mitigate risk if you have smart underwriting and know your members,” he says.
The credit union’s written repossession policies are based on regulations rather than timeframes. “If they’re based on timeframes, you get forced into a structure that’s not in the credit union’s or the member’s best interests,” he says. “It comes down to empowering your collectors to do the right thing.”
NEXT: Minimize losses
During the recession, repossessions were as high as 57 units a month for $553 million asset Amplify Federal Credit Union, Austin, Texas. “That was the worst we saw,” says Kendall Garrison, senior vice president of lending. “And two repos a day doesn’t make for a happy life in the collections area.
But increased delinquency rates presented another opportunity for the credit union to fulfill its mission and help people with the wherewithal and desire to pay, he says. “And for those who couldn’t, we moved them through the process as expeditiously as possible.”
“As the economy improved and we launched programs to help members understand their situations, our delin-quencies fell to 20 to 25 repos a month,” says Paul Trylko, president/CEO. “Those numbers are manageable for a portfolio our size” ($411 million at press time).
Staff also have increased scrutiny of individual loans. “If there’s a short-term issue we can work with a member to resolve, that’s our first, best choice,” Garrison says. “If there’s no possible way for a member to become and stay current, we do the repo very quickly and sell the auto at the highest possible dollar amount to minimize losses to the member and the credit union.”
Amplify Federal evaluated methods for efficiently disposing of autos. “We tried direct sales, selling at a repo agency, and local and national auto auctions. We found auto auctions the most efficient,” says Garrison. “As the economy has improved, we now find we’re getting about 88% of book value at auction.
“We’ve also improved collections and delinquency monitoring with Akcelerant software,” he adds. “It extracts data from our core processing system and allows us to make collections, foreclosures, and asset dispositions more efficiently.”
The credit union’s broad and department-level policies detail how to process delinquencies and repossessions. “NCUA gives extensive guidance on what policies should include, and we review them annually, at least, and revise them to reflect current economic circumstances,” says Garrison.
The key to limiting repossessions is to work early-stage, 10- to 15-day collections, he says. “That’s really the point where you should realize you might have a larger problem down the road.” And the sooner you recognize you have a repo to deal with and take action, he adds, the smaller your loss will be.