No borrower is perfect, which is why reviewing applications can sometimes seem like an exercise in rejecting loans instead of making them. Three credit unions, however, are trying to reverse that outcome by introducing practices that give underwriters more reasons to approve. Often, that means training front-line staff to ask more probing questions, especially about any negative history.
Even underwriters are being challenged to think differently because these credit unions are also changing the relationship that loan originators have with underwriters, who have always had the final say. But as credit unions increasingly ask their front-line staff to act as member advocates, that power structure is slowly shifting to permit loan originators to appeal an underwriter’s decision if they disagree. That can be tricky both for the message it might send to employees about how they’re doing their jobs and for the potential to escalate what can occasionally be a contentious relationship between loan originators and underwriters.
“It’s almost like the Hatfields and McCoys sometimes to try to get the central lending and branch staff to understand they’re on the same team,” says Ruth Jenkins, CEO of Heritage Federal Credit Union ($441.1M, Newburgh, IN), which plans to train front-line staff to think more like underwriters and allow them to appeal decisions. Questioning those decisions gives the branch staff an opportunity to have more conversations with underwriters about those gray areas, she says.
No More Pingpong
Before that conversation can happen, though, front-line staff — whether loan officers or financial service representatives — have to collect all the pertinent details, which often takes multiple attempts, frustrating all parties involved.
“We talk about it as pingpong because the loan starts with the front-line staff and goes to the underwriter who sends it back with a question, and it just goes back and forth,” says John Phipps, Heritage’s chief lending officer.
Eliminating that tennis match is why Cynthia Negri, executive vice president and chief lending officer at Redwood Credit Union ($2.2B, Santa Rosa, CA), wants to train and certify front-line staff to have a more sophisticated understanding of lending. The goal is to not only capture more loans but also improve service, she says.
Besides training loan originators to anticipate the underwriter’s questions and get all the answers on the first try, Negri also wants her front-line people to make sound decisions that don’t waste anyone’s time. So, for instance, if an applicant lacks the income for a $30,000 loan, Negri wants her front-line staff to anticipate the conditions an underwriter would make to approve the application and adjust it accordingly. Perhaps, the loan amount could be for $20,000 or the borrower could put more money down. That last point of whether the member can pay more money upfront is one that many front-line employees forget to ask.
In some cases, another loan might be the last thing a member needs, and that’s where a more sophisticated understanding of lending can help front-line staff identify a better option.
“Sometimes, these people are struggling from a cash flow standpoint, and adding one more monthly payment sets them up for failure,” Phipps says. “If we discover the true situation, then we can take a look at all their debt and see if it’s structured appropriately.”
A Diplomatic System Of Appeals
With better questioning upfront, loan originators also have the knowledge they need to make a strong case on a rejected applicant’s behalf by pointing out, for example, that the individual repaid a previous loan or has always carried positive account balances. At Georgia’s Own Credit Union ($1.8B, Atlanta, GA), loan officers have always been allowed to appeal an underwriter’s decision but until recently few of them did.
“There was some hesitancy about going over somebody’s head to get a second opinion,” says Bonnie Kimmey, senior vice president of lending and operations at Georgia’s Own.
So the credit union has taken steps to smooth the way, helping everyone become more comfortable with the policy, which is educational rather than punitive.
“We’ve told our loan officers that they’re the advocates for the members and need to go to bat for them,” Kimmey says. “And we’ve told underwriters not to be defensive when that happens.”
An application that a loan officer believes needs another look goes to a different underwriter, and if the loan is approved, the second underwriter explains to the first the reasons for approving. Heritage plans to introduce a similar policy but has front-line staff ask a lending supervisor to take the application to an underwriting supervisor for a second review.
In the four months since Georgia’s Own has actively encouraged appealing underwriting decisions, the credit union approved $9.1 million in additional auto loans compared to the preceding four months. The appeals process isn’t responsible for all that growth but certainly is for some, Kimmey says.
Besides helping underwriters spot convincing information on the application that they missed the first time, the appeals system also exposes them to more of lending’s gray areas because senior managers share the rationale for revised decisions with the entire team. Heritage, meanwhile, is already teaching underwriters about when to make a reasonable exception to approve a loan. Sometimes, that requires helping underwriters view the facts differently. If a loan request is just a few percentage points higher than the maximum loan-to-value ratio, Jenkins has underwriters calculate what the difference is in actual dollars.
“If the difference is $500, I ask them if they would give this person an unsecured loan for that amount,” she says. “If so, then maybe we need to make an exception.”
Appealing an underwriter’s decision may prolong the final verdict but only for the affected applicant. Heritage currently has three underwriters and Georgia’s Own has four with a few senior managers who pitch in as needed. Eventually, employees will get so good at spotting good lending opportunities that the number of appeals will dwindle. At the end of the day, Kimmey says, “We’re trying to lessen the number of requests for a second look because we made the right call the first time.”