Lending Innovation

Award-winning CUs choose the path less traveled to find lending success.

January 1, 2012


  • Diverse loan products and flexible underwriting standards allow CUs to get to "yes."
  • Technology upgrades help CUs iron out lending wrinkles.
  • Board focus: Overall CU loan growth should increase modestly from 1% in 2011 to 3% in 2012.


Innovative lenders are able to spot new avenues for growth while others seem content to travel the same worn paths. And in an environment where consumers are reluctant to borrow, innovative lending strategies have become essential for growth.

Credit unions that won 2011 Excellence in Lending Awards exemplify innovation through their new products, revised underwriting policies, and streamlined operations.

The awards—sponsored by the CUNA Lending Council and CUNA Mutual Group—illuminate credit union lending excellence in four categories: serving members of modest means, and mortgage, consumer, and business lending.

Mortgage diversity

Indirect lending contributed to loan losses and rarely produced worthwhile member relationships for Charter Oak Federal Credit Union, Groton, Conn.

So the $687 million asset credit union exited indirect lending in late 2009 to focus on mortgage lending and attract new members with cross-sale potential.

Charter Oak Federal’s Accelerated Mortgage allows homeowners to refinance to an eight- or 12-year term at a low, fixed rate.

Roughly 90% of the more than 500 homeowners who refinanced through the program in 2010 were new members with an average loan-to-value of 45% and credit scores in the high 700s, says John Dolan, senior vice president/chief lending officer.

Accelerated Mortgages now account for one-third of the credit union’s mortgage portfolio.

“Having eight- and 12-year products instead of 30-year mortgages in our portfolio is a great deal,” Dolan says. “Plus, these members all have stellar credit scores. So it was a total home run.”

Other steps Charter Oak Federal took in 2010:

  • Moved all mortgage processing and underwriting in-house;
  • Implemented software from Mortgagebot to introduce online mortgage applications and streamline processing and servicing;
  • Reorganized the lending department and transferred six employees from other departments to the loan department to handle higher volume;
  • Expanded member business lending;
  • Added software from CU Direct Corp.’s CUDL program to offer online auto loan applications and process applications; and
  • Worked with the marketing department to use radio, newspaper, and transit system advertising to promote mortgages and other loans.

Dolan says this lending overhaul had a “ripple effect” that continually required additional changes. For example, the credit union redesigned its website to accommodate online applications and offer new products.

“It was a challenging time that required the staff to work really hard,” Dolan says.

The result was a strong team knit together by shared accomplishments, including total lending of $177 million in 2010—a 35% increase over the previous year’s $131 million.

Charter Oak Federal made 1,172 mortgages, maintained a 95% member satisfaction rating, and became the top aggregate mortgage lender in its region, beating out much larger competitors in ratings published by The Warren Group.

It expects to maintain that top ranking by completing more than 750 mortgages in 2011.

For its efforts, Charter Oak Federal received an Excellence in Lending Award in the mortgage lending category for credit unions with more than $250 million in assets.

Consistent contact

To reach potential borrowers, lenders must recognize a simple fact: It’s not your members’ responsibility to know what your credit union offers, says Greg Baker, vice president, sales and marketing, at $415 million asset
University of Kentucky Federal Credit Union in Lexington.

“It’s your responsibility to educate them, whether they need the product now or in the future,” Baker says.

Consistency is crucial if you want to reach members via their preferred channel to share information about products and services.

University of Kentucky Federal aimed to convince members that the credit union is a trusted partner they can rely on in tough times to provide great deals on loans, as well as consistent service and financial advice.

The result has been steady member growth, increasing 8.1% in 2009 to 38,717 members; 12.3% in 2010 to 43,486 members; and 9.8% as of November 2011 to 47,032 members.

A comprehensive campaign using mailings, billboards, Facebook and print advertising, and emails promoted loans and positioned the credit union as members’ trusted financial institution.

University of Kentucky Federal formed a committee of college students between the ages of 18 and 28 to connect with young members. The student committee helped the credit union launch a student loan program in 2010.

University of Kentucky Federal also reached out to indirect lending partners with efforts including a golf outing to inform participating dealers about rates and terms.

And creating an indirect mortgage group strengthened ties with local real estate brokers to offer home equity loans for real estate purchases.

A stronger indirect lending platform allowed the credit union to increase indirect loan originations from $29 million in 2009 to more than $51 million in 2010.

Automated decision engines for indirect and online applications streamlined loan reviews. Nearly half (46%) of the loans were approved through the automated channel in 2011.

University of Kentucky Federal received an Excellence in Lending Award in the consumer lending category for credit unions with more than $250 million in assets.

Next: Business targets

Business targets

When banks scaled back business lending at the onset of the recession, $900 million asset Black Hills Federal Credit Union, Rapid City, S.D., stepped up efforts to lend to local companies. In the process, it grew its business loan portfolio from $12 million in 2008 to more than
$43 million in 2011.

Ted Bangert, vice president of mortgage and business lending, says Black Hills Federal will lend to businesses of any size, but has targeted those with $1 million to
$10 million in annual revenue. These businesses are typically either young enterprises that need credit to expand or established businesses with new owners.

“These people want to take their businesses to the next level and they tend to be net borrowers,” Bangert says.

Black Hills Federal increased its business lending staff from two to nine. Lending staff called on businesses, attended Chamber of Commerce events, reached out to current business members, advertised in business publications, and participated in small-business lending seminars.

Technology upgrades included a business lending module supported by the core system, a new business loan documentation platform, and new financial statement software. Business lending procedures were refined to address underwriting, pricing, reporting, participations, risk ratings, watch lists, and problem-loan reporting.

An annual review by an outside loan consultant helps the credit union find weaknesses in its portfolio. “It’s easy to book loans, but afterward there’s a lot of obligation for safety and soundness to your members,” Bangert notes.

Black Hills Federal received an Excellence in Lending Award in the business lending category.

Double win

Latino Community Credit Union in Durham, N.C., achieved a rare double win in both the mortgage lending and low/modest means award categories.

Erika Bell, vice president of strategy and services for the $102 million asset institution, cites several key factors to Latino Community’s success:

  • Creating a comprehensive package of products and services;
  • Hiring a fully bilingual staff that represents the community it serves; and
  • Offering loans that build credit and move people along the lending continuum without requiring a formal credit history.

“It’s a mistake to think that a credit score is going to provide you with an accurate assessment of someone’s creditworthiness, particularly in underserved markets,” Bell says. “We’ve been able to hone our underwriting criteria based on our members’ needs.”

Mortgage products are designed to help members purchase their first homes. Options include two-year, adjustable-rate first mortgages and fixed-rate mortgages with terms of 15, 20, 25, and 30 years. Members can obtain 90% mortgage financing without a formal credit history if they provide three alternative credit references for a minimum of 12 months, with at least two from utility companies.

Partnerships with Latino, religious, immigrant, and social justice organizations help Latino Community reach current and prospective members. State Employees Credit Union, Raleigh, N.C., provides back-office services and serves as a mentor for compliance, information technology, and data services. This allows the credit union to focus on developing policies and products that meet its members’ needs. “We’re proud of the way we buck the assumption that low-income or underserved equals higher risk,” Bell says.

Next: The "yes" approach

The ‘yes’ approach

When members without “A” or “A+” credit ratings apply for loans, the response at many financial institutions is an automatic “no.” But $163 million asset Texell Credit Union, Temple, Texas (which won the Excellence in Lending  Award for consumer lending, less than $250 million in assets), developed diverse lending products that made it possible to say “yes” to members who might otherwise not be considered “creditworthy,” says CEO Tony Hale.

“We introduced a lot of loan products that are small in size but reached a lot of people,” Hale says. “It reintroduced us to our members as the place to go for loans.”

These products include:

• Credit builder loans, which help members rebuild their credit histories and establish emergency savings. A member who qualifies for a $600 loan, for example, can get $100 immediately while $500 is placed on hold in savings. As payments are made, the member gradually gains access to the savings balance.

• Holiday loans, open to borrowers who are members for at least one year and have qualifying direct deposits. The first holiday loan allows members to borrow up to $1,000 and repay it over 12 months. If members make payments on time, they qualify for a $1,200 loan the following year and more in subsequent years.

The program generated loans totaling more than $500,000 in 2008, $1.1 million in 2009, and $1.6 million in 2010.

• Employer loans combat payday lending with small loans of up to $500 for members with direct payroll deposit. If members make payments on time, interest is refunded at the end of the loan.

Internally, Texell prepared front-line staff to say “yes” more often to members’ requests by adopting a new sales culture focused on aligning loans and other products with members’ needs. The most difficult part of moving to a sales culture was reassigning employees who were unsuited to sales, or watching them leave to take jobs outside the credit union.

“You can’t send out an e-mail and say, ‘starting Monday we’ll have a sales culture and everyone needs to sell more,’ ” Hale says. “We get very specific in terms of each employee and each branch and what we expect them to do on a daily basis, and we give them techniques to help them succeed.”

A sales specialist is expected to make about $240,000 in loans each month, while call center loan consultants are expected to generate $700,000 per month in loans. All employees with sales duties work one or two nights a month to make outbound calls.

Training, rewards, and incentives help sales staff reach their potential and maintain a lending satisfaction score of 4.87 on a five-point scale.

“If you put everything in place and then get out of employees’ way, they’ll amaze you,” Hale says.

Mobile Lending Can Spark a Youth Movement

As more people use mobile devices to access the Internet, it follows that more consumers will use these gadgets to obtain loans, says John Putman, CUNA Mutual Group’s director of lending business systems.

As a result, “credit unions need to make sure the usability of the loan application is suitable to that device,” he says. “You should access your credit union’s online loan application from a smartphone device to see how user-friendly it is.”

This is especially important for credit unions seeking to attract younger members. While the average age of a credit union member is 47,
users of CUNA Mutual’s Smartphone Loan technology have an average age of 29, Putman says.

“Credit unions that want to attract younger members need to pay attention to the technology those members prefer,” he says. “Very often, it’s mobile.”

The Smartphone Loan technology lets members apply for loans anywhere they can take their smartphones. The technology is a mobile version of CUNA Mutual’s product, which nearly 600 credit unions use.

When a member applies for a loan with a smartphone, the application data is sent to the credit union’s loan origination system for an underwriting decision. A few seconds later, the member receives a response and the application appears in the credit union’s loan queue.

Loans made through the mobile channel average about $8,000, typically for used cars. That compares to $11,000 for loans made via, says Putman.

Today, more than 500 credit unions have received loan applications via Smartphone Loan for $71 million in loans.

Mobile application completion rates are “well above 50%,” he adds, compared with 40% to 50% for all Internet loan applications. Putman attributes this to the Smartphone Loan application’s “simpler design, which means members can make it through without too much difficulty.”

Putman says CUNA Mutual will make a significant investment in technology in 2012 to take advantage of device hardware, namely the camera and global positioning systems. “This is a channel that can generate significant income if the credit union does it correctly.”