As the coronavirus (COVID-19) pandemic led to job losses and social restrictions in early 2020, credit unions offered loan modifications and forbearance provisions to ease the financial burden for members.

As 2021 approaches, the pandemic continues to plague the economy and loan default rates threaten to impair credit union financial statements, says Dan Price, president of 2020 Analytics, a CUNA Strategic Services alliance provider that creates customized loan portfolio analytic models for credit unions.

“We feel strongly that delinquency is going to start to rise nationally,” Price says. “Ultimately we’ll have to charge off some of those delinquent loans as consumers continue to struggle in this uncertain economy into the first part of 2021.”

Price uses algorithms to identify and quantify loan risk. The company’s models integrate such factors as credit scores, delinquency rates, and collateral values on loans and runs them through various economic stress-testing scenarios.

Stress testing during the pandemic has been more difficult than normal because in many cases consumer credit scores didn’t change, even for people unable to make loan payments, as financial institutions unions extended assistance such as loan modifications and skipped payments.

“There are controls in place that are meant to maintain credit quality in times of disaster,” Price says.

CUNA economists project credit union asset quality will deteriorate in the second half of 2020 and into 2021 as deferments and forbearances expire (“Asset quality”).

Fortunately, unemployment levels aren’t as high as many feared by experts. The unemployment rate peaked at 14.7% in April and came in at 6.9% in October, according to the Bureau of Labor Statistics.

“It’s significant, but it’s not as high as we thought it might be,” Price says.

In response to falling asset quality, Price advises credit unions to look at their data at a more granular level, especially with members who received extended assistance during the early days of the pandemic.

“By reaching out to these folks earlier in the process you can figure out how to manage them,” Price says. “Have they gained employment? The earlier in the process you get that information, the more likely you are to recover the loan compared to lenders who aren’t managing their data.”

Opportunities also exist for those who manage their data well, Price says.

“Because you’ve got that data, you know which members are receiving paychecks,” he says. “If you know your member is receiving a paycheck every 15 days you can feel pretty comfortable with that. You can mitigate credit risk with collateral risk.”

►2021 lending outlook