By Ray Birch
SYRACUSE, N.Y.—Credit unions must pay attention to how they will to transition members from forbearance to payment again, cautions one analyst who says an effective plan will help stem loan losses.
Most critically, credit unions need to be “laser focused” on their loan modifications and payment deferrals, according to Jacob Corlyon, co-founder and CEO of Capital Collection Management (CCM).
“They need to be segmenting and looking at this group receiving forbearance to transition these borrowers back to repayment. Many institutions have given a good-sized population of borrowers relief,” Corlyon said.
Corlyon said his concern is many borrowers have become accustomed to the “new normal” of not having a monthly payment and may face problems getting back to paying once again.
“There are a lot of defaults coming, but we think that those lenders that do a good job working with members now, first looking at the data, can lower their loan losses,” Corlyon said, adding he is worried many CUs are not taking such steps as they focus on helping members survive the health and economic crisis.
As CUToday.info has reported, economists are forecasting credit union loan losses could double or even triple from pre-pandemic levels, and quarterly CU performance data already indicate many have moved funds to their allowances for loan losses.
What the Data Show
CCM data show 25% of Americans say they are extremely or moderately concerned they will not be able to pay their bills on time in the next three months. Americans aged 60-plus are more likely than younger Americans to say they are not at all concerned they will not be able to pay their bills on time. Specifically, the concern is shared by 20% of those age 18-29, 28% age 30-44, 26% age 45-60, and 52% age 60-plus.
“Men are more likely than women to say they are not at all concerned that they will not be able to pay their bills on time—34% vs 27%,” Corlyon said.
CCM is telling institutions with which it works it is critical they “really know” their members to who have been provided loan forbearance.
“You need to be running an analysis on that population so that when the first payment comes up when they're out of deferment you can provide the necessary level of help for each,” he recommended.
Survey Recommended
Corlyon said to provide the proper level of help, the credit union must also survey and segment members based on their projected ability to repay.
“Send a survey to these borrowers and get an update on their current financial situation and what is their likelihood of coming out of this needing additional help,” he said. “Then you can start to pair your team to go after those tranches of people.”
He said those borrowers the data and survey responses indicate will not need additional assistance can be crossed off the CU’s follow-up list.
“Credit unions staffs are not big, and this can be a large task, so you have to eliminate those you believe won’t need help,” he explained. “But then you need to send your teams to work with those borrowers who need some assistance, and then become very focused on those that need a great deal of help—such as those who are still out of work or whose business has not come back—and provide additional forbearance or a loan modification. You will have to be creative and look at other solutions for this base of borrowers.”
‘You Can’t Delay the Inevitable’
Jacob Corlyon
Corlyon emphasized the standard debt collection practices are not thrown away.
“Those practices are not necessarily tossed out the window, because you're still going to have to go through your collections processes,” he said “There's going to be a point to where the institution cannot continue to give someone a deferral. You can’t just delay the inevitable.”
Corlyon said he is already seeing some credit unions doing a very effective job of analyzing and helping members who have received payment deferrals.
“We have seen some who have been surprised by the level of work that lies ahead, and then there are those who have found the problem may not be as big as expected,” said Corlyon, who added the analysis can help a credit union more accurately provision for loan losses.
Uncertain Over Trend
As CUToday.info has reported, consumers have cut back on their use of credit during the pandemic and have been posting record savings numbers. Corlyon said CCM is uncertain if those trends will help consumers get back to making their monthly payments.
“I think those things are encouraging,” said Corlyon. “I think there is a population of people who are really benefiting from the assistance as well as being able to save money from reduced expenses, such as travel. However, there's still a population of people hit hard by the pandemic, and they tend to be the lower income tranche of the U.S. population.”