NASHVILLE–The results of a newly released survey reveal some trends in credit union lending.
The CUNA Lending Scorecard Report researched and compiled by Cornerstone Advisors in conjunction with the CUNA Lending Council was shared with credit unions attending the Council’s annual meeting here.
Presented by Ryan Brogan and Melissa Rogers of Cornerstone Advisors, results were shared around four areas of lending: Direct Consumer Loans/HELCs, Credit Cards, Indirect Loans, and Mortgage Loans. The research was conducted during the summer of 2017 and had 55 CU participants with a median asset size of $1.04 billion.
Here’s an overview of what was found in the four areas:
Direct Consumer Loans & Home Equity
Looking to core or non-core providers in the lending process, 22% of participants said they were using their core system. Of the 78% that are not, MeridianLink, CRIF, CU Direct and Temenos were the leading providers listed, but Rogers noted the survey found numerous other providers, as well.
When asked about underwriting, 60% are using centralized underwriting. At the median, 284 loans are being processed monthly per FTE. At the 75th percentile, however, that number rises 449 loans per FTE. A consistent theme in the research was the larger the CU, the more efficient and productive its employees. Of those CUs at the median or better, 76% use centralized lending.
Thirty-four percent of CUs were using a hybrid (have centralized lending but some people are also involved in reviews and overrides) underwriting approach, while just 6% were decentralized.
Where does auto-decisioning fit?
Rogers said the Cornerstone study found that again the larger the CU the more likely auto-decisioning is used, as the volume requires “some help to get through this.” Rogers added that auto-decisioning does increase productivity, but a credit union doesn’t need to auto-decision in order to be highly effective.
In terms of gathering and capturing loan apps, Rogers noted that from 2014-2016 the Cornerstone report found a decrease in the number of online loan apps being taken. The Cornerstone report on CUs overall typically shows lower numbers than CUs that are part of Lending Council, again likely due to asset size. Twenty-seven percent of Lending Council CUs, for example, use online apps for home equity, versus 16% of CUs in the Cornerstone Report.
Credit Cards
“Credit card debt in the country is increasing, as we know,” said Rogers, with CUs holding about 6% or 55% of total outstandings. “We have all these folks who now have access to credit; the largest number of people since 2005, so everyone is trying to capitalize on cards. “
Rogers said the Cornerstone report found top performing cross-sellers on auto loans have a credit card penetration level that meets or exceeds the peer median of 20%.
She further noted the survey found credit card approval rates are increasing, and the process at many CUs might be to blame for not getting cards into members’ hands, even as the credit card pull-through rate also continues to improve. Rogers said the survey found 75% of applications are being approved, but just 62% of cards are delivered to the approved applicant, which is the result of some glitch in a CU’s process.
In looking at efficiencies around cards, overall, when it comes to productivity as measured by the benchmark of Cards Issued Per Credit Card FTE, it varies widely by asset size. CUs of less than $1 billion in assets have a median of nine cards per FTE per month, versus 21 at CUs over that asset threshold. Indeed, the worst-performing CU above $1 billion still did better than the best-performing CU of less than $1 billion in assets, Cornerstone found.
Indirect
This survey area had the lowest response rate (about one-third the size of other surveys), according to Brogan. Of those that did respond, they were averaging 3,000 indirect loan apps per month, primarily using MeridianLink (35%), CU Direct (29%) and CRIF (18%).
The survey found the percentage of indirect applications that were auto-decisioned was 19 in the Lending Council survey, up just one percentage point from the median in the 2016 Performance Report. Brogan said he was surprised to see that number remain so low given the importance of quick turnarounds.
Where Cornerstone has found an increase is in the percentage of loans funded from indirect applications, with 32% of CUs in the Lending Council survey funding loans. The percentage of loans funded of approved direct applications in the Lending Council survey was 57%--the highest figure Brogan said he has seen.
Meanwhile, when it comes to what Brogan referred to as the “ever-elusive indirect cross sale,” the survey found low-performers at 3%, but the 75th percentile had a 10% cross sales rate to indirect borrowers. “This is a notoriously tough area,” said Brogan. “What we found is that for those in the top percentile this is a dedicated function. They call, they get in touch with new members, this is part of onboarding and they are religious about it.”
Mortgages
Overall, productivity gains in mortgage lending were flat year-over-year, the Cornerstone Study found. For Lending Council CUs, the average number of mortgage loans closed per Total Origination FTE per month was 2.59, a decline from the 2.82 found in the 2016 survey.
“It signals that since 2015 we’ve been thinking a lot about regulatory changes and a lot of new systems, and this could indicate we’ve been focused on those other areas rather than driving process and efficiency,” he said.
Mortgage Loan Apps Per Processing Sales
Assistant FTE went from 21 in 2016 to 18 in latest study.
But on the flip side, in looking at Mortgage Loans Closed Per Originator FTE per month, the number was 8.18 in the Lending Council Survey vs. 7.6 in the 2016 performance report.
Other findings in the Cornerstone Research related to mortgages.
- Looking at the compensation model of originators, 61% used primarily a fixed/base salary, vs. 39% paying primarily based on commission
- When it comes to mortgage strategies, 59% are in-house, 41% are using sub-servicers
- 55% of loans are funded with 30-45 days of application; 25% in 46-60 days
According to Rogers and Brogan, the topline takeaways from the latest research are:
- Productivity benchmarks indicate an opportunity to get more out of our technology investments: integration, workflow, decisioning and cross-sell automation
- The single origination platform remains a “unicorn” and we’ll be managing multiple vendor relationships and varying levels of integration for the foreseeable future
- There is a clear correlation between scale and efficiency, but smaller CUs shouldn’t be discouraged, as opportunities abound for those with “MacGyver” approaches to incremental improvements
- You can’t manage what you can’t measure. There is opportunity to truly “own your data” and leverage benchmarks with frequent re-calibrations and course corrections