Jump-Start Your Loan Portfolio: Nine Steps

Analyze smaller segments of your loan portfolio to find opportunities.

May 13, 2013

After years of monitoring delinquency and losses, and dealing with declining loan portfolios, it’s time to get back to the business of lending.

Here are nine steps to jump-start your lending efforts:

1. Be proactive with auto loans. Offer a reduced rate to members with low balances on their current auto loans for their next purchase.

If you can steer your members to a car dealer with which your credit union has a relationship, it might help differentiate your credit union from all of the “cheap money” lenders out there.

2. Review existing home equity lines of credit (HELOC) and consider offering special incentives on new advances to members with low levels of credit-line utilization. These loans have already been booked and you’ve already expensed most, if not all, of the origination costs.

Most credit unions have activation and utilization strategies for their credit card portfolios. It’s time to have similar strategies for HELOCs as well.

3. Focus on high-potential accounts for unsecured lines of credit. These aren’t “slam dunk” borrowers who have 760 FICO scores and owe little on their credit lines; they’re members with credit scores around 670 who owe 80% or more of their cumulative revolving lines, and owe within $500 of their credit lines.

Making a credit-line decision on these high risk/reward accounts requires more than a FICO score—it requires multi-attribute credit evaluation.

4. Reach out to members on multiple platforms, multiple times rather than marketing campaigns that reach members only once or twice. At Ent Federal Credit Union, we’ve integrated our prequalified credit offers into our electronic statements, and we’ve combined e-mail reminders into an “offers” section on our home banking and mobile banking platforms.

These offers appear to our front line staff when they access members’ accounts on our mainframe. We’ve found—to no one’s surprise—that our front line and phone staff are most effective at reaching members and making sales.

5. Dedicate more resources to analyzing loan denials. Look at a large sample of your denials and you might be surprised at what you find.

Underwriters will sometimes shy away from $30,000 auto loans to “B” borrowers in favor of loans of less than $10,000. In many cases, the larger loan applications were from borrowers who had blemishes on their credit histories but had stable jobs and the ability to pay.

The smaller loans often were to borrowers with lower incomes and credit reports that were a 640 by score only, meaning they looked worse in reality. While the underwriter might think there’s only $10,000 at risk, those loans were often secured by older, higher-mileage cars.

Charging off that loan would mean losing most of the balance once the vehicle is sold, as opposed to a larger loan secured by more marketable, higher-value collateral.

6. Offer members a quick, easy process for applying for and obtaining small consumer loans.

7. Do more analysis of smaller segments of your loan portfolio to find any available opportunities.

8. Be specific with your lending goals and strategies. Instead of “make more auto loans,” try this: Make more B and C auto loans through our direct auto loan channel to members with checking accounts and at least 12 months history with our credit union, with a loan-to-value up to 100%, terms not to exceed 60 months, and exceptions up to 10% of our volume on terms to 72 months if the member has 10% down.

9. Segment your members, and then segment each group again into sub-segments. Sort by FICO score, bankruptcy score, amount of revolving balances outstanding, number of past-due accounts, and home equity and mortgage balances.

While 2013 is expected to feature slightly stronger loan growth, most credit unions will have a tough time making loan growth surpass deposit growth. Do more analysis of smaller segments of your loan portfolio to find available opportunities.

BILL VOGENEY is senior vice president/chief lending officer for Ent Federal Credit Union, Colorado Springs, Colo., and chair of the CUNA Lending Council Executive Committee.