A Green Light For Lending

Intuitive product development and positioning helped turn on the tap for new lending in a Florida community.

Every quarter, Callahan visits a high-performing credit union for an in-depth, on-site examination of what makes that institution successful. The “Anatomy” feature — which includes both written and video content — appears in CUSP and on CreditUnions.com.

The enduring lessons learned from the two-day visit with GTE Federal Credit Union are just as relevant today as they were in 2011. The credit union’s story of struggle and triumph is a timeless reminder of what any credit union can accomplish with the right resources, strategy, and mindset.

The Tampa of today is a different place than it was in mid-2010, and the same can be said of GTE Federal Credit Union ($1.5B, Tampa, FL). “Members really want to be part of this credit union,” says CLO Brian Best. “But if you don’t have active products or lending guidelines and procedures that will allow that to happen, you’ve run into an obvious disconnect.”

As lending dried up during the recession, so did much of the membership who relied upon those funds. Wooing those members back to the fold would be no easy task.

The newly reformed cooperative entered 2011 knowing it must offer better products in better ways than members had experienced in the past and also tear down any potential obstacles to member engagement. “We had to rebuild our lending mechanism,” says COO E.C. Williams. 

When it came time to turn the lending light back on, GTE was a different credit union. It had ditched several non-performing products, streamlined others, and developed a whole new ball game. 

Match the Tools to the Job

If it takes a village to raise a child, what does it take to raise a distressed community back to its feet? In its search to find out, GTE went back to the drawing board and examined its products to determine what was of use and what went unused or unnoticed. They also worked to sharpen the efficiency and transparency of many services, both among membership and within the institution. 

Newly acquired employee talent and expertise was instrumental to affecting internal consistency in GTE’s underwriting process. “We’ve hired a lot of talent who understand the lending process, not just in terms of getting loans on the books, but in terms of long-term mix of risk and how much we’re willing to absorb in the portfolio,” says CFO Brad Baker.

For example, loose underwriting in the auto portfolio had snared the product’s effectiveness in the past. When GTE renewed a push on autos, they decided to target larger dealerships and major franchises, which brought the type of quality paper the institution was looking for. 

The shift to higher quality loans also permitted the credit union to retain more leeway in providing opportunities for low-credit borrowers. “We want to be more strategic in how we turn this back on,” says Lester Santos, GTE’s head of member consumer lending. The credit union still looks at credit scores but also considers the other factors that contribute to the score.

“We’re not just looking for the A+ paper, since everyone’s looking out for those in the entire market,” he says. “We’re looking to be able to help out in a C tier too, if it makes sense.” 

This means even D paper borrowers and up still have a place in the portfolio strategy, which helps to increase the credit union’s market share, says Santos. But it’s an ongoing internal litmus test that requires follow-up with loss prevention to find the right mix of flexibility and end-line safety and soundness. 

Senior lending executives are constantly tweaking these techniques to better understand how the portfolio interacts with the marketplace, says CLO Brian Best. Creating uniquely tailored products not only helps differentiate the credit union from competitors but also creates better economic opportunities for members. 

Outside resources have also played a critical role in revamping the lending process. “We started member focus groups to bring the members back into the credit union and make them commonplace in our culture,” Best says. “If you engage them in the process, you’ll create products that are far better suited for the member, instead of just creating a product and hoping it takes seed.”

GTE is already seeing the return of stronger activity in its consumer lending and credit card segments, as well as in used autos, and has outsourced some business to cooperative CUSOs to help maximize these opportunities. But the spirit of GTE’s strategic vision lies within real estate and increasing opportunities for member homeownership.

“GTE currently services $1.1 billion in real estate loans, while holding around $548 million in first and second mortgages in its portfolio, says Kim Yarnelli, vice president of member home loan programs.” While home sales have once again begun to approach 2006 levels, the average price in the region is roughly half what it was five years ago.

“Interest rates are the lowest they’ve been in history, as is the price of a home, so it’s a great opportunity for first-time homebuyers,” says Yarnelli. GTE is also moving into  several niche markets in preparation for returning demand, including FHA loans and a new 5/5 ARM product for homes up to $750,000 (the product can adjust 2% at the end of five years and 5% over the life of the loan).  

GTE members have a role in creating success on the consumer product side, so it only made sense to go to the source when it came to creating real estate success as well. GTE currently maintains relationships with approximately 60 area Realtors, not just to facilitate the credit union as a financing option, but to be instrumental in the building of its products.

These relationships are maximized through community events like the recent rental of St. Petersburg Times Forum stadium, which brought hundreds of members and potential homeowners together with realty experts. “Their additional participation in the lending process lets members focus on the best parts of homeownership,” Best says, without being stonewalled by the intimidating parts.

To complement Realtors’ contributions, the credit union strives to deliver all real estate documents five days prior to the closing. It also employs a dedicated concierge position who follows up with all parties to coordinate any tight closing timeline or other complications.

The credit union has big goals for the future, including the origination of a billion dollars in mortgage loans, and with niche products and strong realtor partnerships, they have returned to this market in a big way.  

“We’re providing very creative ways to help get our members into a home rather than having them unable to participate because of the economy,” Best says. 

Go the Extra Mile

Delinquency and charge-offs have been falling at GTE, but as the credit union continues to position its portfolio for the future needs of Tampa residents, modifications have played a vital role in keeping loans viable and performing. 

“We’re always going to have some charge-offs and delinquency,” Best says. “But that’s important. It shows we’re taking risks for our members.” 

The credit union’s “We Can Help” program, started in 2008 and since imitated by other institutions around the nation, has allowed the credit union to restructure around $40 million in mortgage loans and $11 million in consumer loans to date. Roughly 80% of loans modified are making scheduled payments with no issues, Yarnelli says.

The credit union originally offered a two-year balloon product, coupled in some cases with lowered interest rates or extended amortization. But last year, the program was expanded to include a fixed product that extended to 40 years (with a lower interest rate) and some step-rate products to address a wider range of member needs. Whatever the member is experiencing, “we work through it,” Yarnelli says. “And we’re seeing less modification requests today than we were three or four years ago.”

GTE’s commercial lending was another make-or-break issue from the recession that had to be addressed. Hotel loans make up around 80% of the total business loan portfolio, says John Trujillo, VP of member resolution, loan administration, portfolio and special asset management. Those loans required special attention to see through to fruition.

“Having made these loans wasn’t necessarily the problem,” says Joe Brancucci, CEO of GTE. “Not having the expertise when they were made and the expertise to manage them was the problem. We had to isolate them from becoming the issue of the organization.”

To address this, GTE brought in Trujillo to manage the accounts and hold the hotel owners to task as he protected the integrity of these brands and created sustainable channels for future opportunities.

Of the 17 hotel loans held, four performed well and never had issue, says Trujillo, but the rest required tailored restructures over the past year, such as including interest only and moratorium payments. 

The majority of the hotel loans is now stable and could inflict only a minimal loss at worst, says Brancucci.

These workouts, along with the “We Can Help Program” for GTE’s consumer base, have been a great combatant against delinquency and loan loss and a vital factor in securing stability on and off the balance sheet. 

The economy is slowly changing for the better, and GTE is in the market to see members’ personal recoveries through to fruition. “Sooner or later, these people’s lives will change, and they’ll appreciate what you’ve done,” says Trujillo.

Giving the community ample liquidity to meet its challenges today is an essential step toward creating the stable membership and communities GTE hopes to serve tomorrow and for many years to come.