Credit unions participating in Callahan & Associates' FirstLook program reported an increase in repossessed vehicle assets. Since September 2008, repossessed inventory increased 4.5%, reaching $290.5 million at the end of the third quarter. Although asset quality measures increased at a slower rate in the third quarter, the unemployment rate reached 10.2% in October of this year. With unemployment rising, credit unions might see foreclosed and repossessed assets continue to increase before beginning to decline.
The volume of repos at Community First Credit Union of Florida ($1.1B in Jacksonville, FL) increased significantly in the past two years, primarily because of the local economic environment and an indirect lending program popular from 2004 to 2006. The credit union is currently experiencing much higher proportion of direct voluntary repossessions.
It is necessary for the credit union to take action against delinquent borrowers, but it is more circumspect than it might have been years ago. Susan Verbeck, VP of Lending at Community First says, "If this is the borrower's only means of transportation, there is no benefit in taking their means to find employment, so we have lengthened extensions [time and frequency] to allow an extra 30 to 90 days to find employment before we repossess.
"If the situation is underemployment we work with the member to find an affordable payment that makes sense for the credit union and keeps them in the car and able to work. Sometimes this is a short-term work-out modification, other times it is a refinance, depending on the circumstances, age and value of the vehicle."
Community First normally outsources remarketing after the repossessions to ensure minimal staff effort with maximum value, however about six months ago it explored a new option and partnered with five area credit unions for a consolidated repo sale.
In a collaborative effort, the credit unions stated terms to ensure they wouldn't be competing for financing, new members or the sale. The credit unions held the sales event at a lot owned by the largest credit union. The event was one viewing with no haggle pricing and accepted cash only or pre-arranged financing. Verbeck says "The day before the sale, the lot was open to the public for viewing. The next day people were allowed in – in groups of ten to prevent jostling – to "claim" the car they wished to purchase."
The event was successful in moving inventory at a slightly higher value ($500 - $600) than auction, but Verbeck says there was significant staff time in coordinating the mass sale. Weeks prior to the sale, the credit union completed a direct mailing with vehicle loan offers to pre-approved members. Many of those members attended the sale with offers in hand, which were accepted in lieu of financing or cash.
Additional marketing efforts included email marketing to members, notifications on the credit union's website and posted flyers in area branches. Verbeck notes, "The sale was extremely effective in moving vehicles, though we did have a few boats and RVs left over. One surprise for us was to see members camping out Friday night so they could be the first ones in on Saturday morning."