By Ray Birch
SAN DIEGO—One CUSO is helping credit unions not only recover charged off loans, but also bring delinquent borrowers back into the credit union as members in good standing with sound FICO scores.
CU Revest said it has been able to bring 3,500 members back to CUs and more than $12.5 million in charged-off dollars since it began serving credit unions in late 2014. It was named NACUSO’s 2017 CUSO of the Year. The CUSO is owned by four credit unions—Kinecta FCU in Manhattan Beach, Calif.; TwinStar CU in Olympia, Wash.; Desert Financial FCU in Phoenix; ORNL FCU in Knoxville, Tenn.
“We are coming up on 100 credit unions in CU Revest,” said President Mike Joplin. “Our credit unions range from $19 million in assets up to $15.5 billion. And what we are doing is important for the credit unions, bringing money and members back to them.”
Scott Daukas, chief risk officer at TwinStar CU in Lacey, Wash., said his credit union has done well using CU Revest.
“CU Revest has returned 159% of the recovery they first projected when we got started. Just as important, 1,211 members have paid their debts in full and have been returned to good standing with the credit union," he said. “We like that they are a credit union focused company with credit union owners. They understand credit unions and are an advocate for credit union membership. Whenever possible, CU Revest is working with us to return former members to us as productive, participating members of the cooperative.”
Narrow Focus
Daukas added that CU Revest focuses on a niche.
“The charge-offs that have been longer than a year don’t garner as much attention from other companies that work with credit unions on collections,” said Daukas. “Using their own proprietary modeling, they are able to effectively predict who can repay these long-forgotten debts, turning a non-performing asset into income for the credit union.”
Joplin explained how CU Revest works to get money and members back to the credit union.
“We work with Distressed Portfolio Management, a licensed consumer finance company,” said Joplin. “We take the original charged-off debt and get 20% down from the member who wants to get back on their feet. We apply that to the loan, and there is no discount. So say it’s a $10,000 loan, the $2,000 downpayment brings the obligation to $8,000.”
A new set of loan documents are drawn up that provide 0% financing on the $8,000 over a five-year term.
“We use automatic account debit for each monthly payment, and once the member has made their sixth on-time payment, they get a FICO lift of 89 points,” said Joplin. “Once you pass the 650 FICO threshold, you can once again begin using credit services and are back with the credit union. We are sending members back to the credit union with rehabilitated FICOS, and three out of four we return to the CU are reapplying for real estate, HELOC and other loans, like auto.”
The Real Key
The key to rehabilitating members’ FICOS, pointed out Joplin, is the member is paying on a refinanced loan, not a charged-off debt. He also explained CU Revest won’t make the new loan if the borrower’s debit-to-income ratio is greater than 50%.
“The key is if you pay a charged-off debt, whether through a collections agency or a financial institution, you get no improvement on your FICO score,” he explained. “The only time you get credit is if you have the account resolved, paid by a refinance and marked as such with the credit bureaus. Then you have to have an open-paying account for six months.”
Joplin said that delinquencies on the rewritten accounts are below 50 basis points.
“We believe that is due to borrowers having skin in the game with the 20% downpayment and their eye on the prize, which is improving their FICO score,” he said.
CU Revest works with accounts that are at least six months delinquent. Joplin said that credit unions within CU Revest are getting 5%-8% of their charged-off funds back, after paying the costs for using CU Revest, which comes out of the money received from the collections.
Joplin said that a credit union should have at least $5 million in charged-off accounts to work with, otherwise the program is not feasible for the CU.
Advice Shared
Joplin also shared some advice for credit unions on how to manage their charged-off accounts.
“The number-one thing you don’t want to do is junk that data, put it someplace where you can’t get at it and not have current information,” he said. “That data is not worth anything to us when that is done. One of the banes of our existence is not being able to get current data once an account reaches the charged-off stage. It often winds up being moved off the core system and no one is tracking it. And even if the data is still on the core system, there is no internal protocol for posting any payments that might come. You need to have good quality, contemporary information and then access to the data to prove that a debt is owed. Don’t dump your charged-off account data or leave it twisting in the wind.”