ONTARIO, Calif.— It’s a myth that manual underwriting usually is the best way to go for credit unions, according to one person.
Manual underwriting in many cases just slows up loans that eventually get approved anyway, and fails to provide a member with the best experience, said Brit Barker, vice president of lending at CU Direct.
“We want to provide a great member experience,” he said, adding that he’s often frustrated when members are referred rather than relying on automated decisioning. Making members jump through hoops “is not an optimal member service,” he reminded.
Barker’s comments are part of a series by CUToday.info examining “Fake News” within credit unions; that is, misconceptions that need to be corrected and deserve more thought.
System approval rates for automobile, credit card or secured loans at many credit unions are only in the teens or around 20%, leaving the majority to be referred to credit union personnel. It can be that up to 40% to 45% of referred loans that get approved anyway, according to Barker.
“The (loan origination) system has the capacity of approving those loans up front,” he said.
Target for Decisioning Engines
He’d like to see the decisioning engine approval ratio rise to that 40% to 45% level. And since these systems are configurable, he’d wants to see CU executives come back and look at their setups frequently, to fine tune them.
Barker made clear he is not arguing that every loan decision should be left to the decision engines. “We want to push the loans that are tough to the underwriters,” he explained.
Brit Barker
It’s those that can be done electronically, however, where he said there should be no barriers to getting the loans done faster. “Get them done,” Barker said. “Don’t be content with ‘I’m system-approving 15% of my folks,’ ” he says.
Barker beleives many credit union managers “have a comfort level” with manual underwriting. But it will be better for members if those managers “clear out the queue of the simple loans.”
For account openings, he said members want to do it all themselves online. “Let them click all the way through,” he advocates.
Meanwhile, in other fake news Barker said he sees within the credit union community includes the practice of cutting auto loan rates in the mistaken belief that will generate more business.
“The traditional dealer sells payment rather than rate,” he says.
Other Considerations
Instead, there are other considerations to be made. “Rate is only one finger on my hand,” he told CUToday.info. The others? Term, compensation, consistency and decisioning. Decision time should be within 15 to 30 minutes.
“You have to hit four of five of those,” he said. “If you only hit two, you are causing yourself grief.”
On the mortgage lending side, Barker believes it is also a myth that home equity loans are best done through the mortgage department.
“Do them through your consumer lending team,” he recommended. “They can move them through the pipe quicker than a mortgage.”
A final issue Barker would like to see addressed is more investment in member-facing tools that improve the experience.
CU Direct offers credit unions mobile technology, configurable lending platforms, analytics and reporting, auto-buying tools, and retail lending solutions.
—Mark Fogarty