This Article first appeared in the August 2001 issue of the Callahan
economic conditions have led some credit unions, including ours,
into a situation of excess liquidity. There were various reasons
for this, among them that in anticipation of Y2K we wanted our liquidity
to be high. Not long before Y2K our loan-to-share ratio was around
80 percent. Not long after, it was around 65 percent.
The best thing
to do with member savings in general, and excess liquidity in particular,
is to make loans, because loans create the highest returns. Accordingly,
we made an effort to increase our loan portfolio. We undertook to
do this in a number of ways.
We began by
merely making our position known to persons and institutions we
had dealt with in the past. When we had eased off on our participation
lending in 1999, relationships went slack. So this year an immediate
and easy means of increasing our lending was just getting the word
back to them that we had money we wanted to lend. ''We're back,''
was the message. Slowly but surely the phone began to ring again.
we were in a pretty good position in that the loan portfolio we
were carrying is strong. One offshoot of cutting back on lending
before Y2K was taking only the best borrowers. We dramatically raised
our credit standards; in fact, our decline ratio rose from 23 to
41 percent. We looked for really high-quality assets. We did that
by offering great rates. We also restricted our new account business
established through the indirect auto loan channel.
So when we did
go back into the participation loan market with our message that
we had money to lend, we had a good track record with people, strong
relationships and a good crop of loans on our books.
worked on post-Y2K was participation loans. This has been especially
successful with faith-based organizations and credit unions. Churches
or similar faith-based groups go to their credit unions (often faith-based
themselves in name or spirit) and ask for loans. When these credit
unions cannot meet the amounts requested by their members they offer
us a portion.
We have a good
many of these loans, and they have been excellent for us. In seven
years of having this kind of loan collateral on our books, no faith-based
loan has ever been delinquent or sold at a discount. The loan purpose
is not always to build sanctuaries or parish halls. The loans more
likely cover the cost of buying homes or other property near the
church that the church will later convert to parking areas. Many
are for buying commercial properties used for cash flow and investment.
Others are for education facilities for church-operated schools
or day care facilities.
Most have a
loan-to-value ratio of 30 to 50 percent. About 85 percent of them
are fixed-rate, 5-year balloons. Ten percent are 7-year balloons.
The originating credit union administers the loans. Only very rarely
have we intervened in any way, and this has normally taken the course
of meeting the persons in charge. Of course, we practice our normal
due diligence before participating in any loan.
Real Estate and Taxi Lending
In a like manner
we engage in participation loans with other credit unions which
bring us commercial real estate loans. These are generally for light
industrial projects, apartment buildings and business parks. Generally
they are 30-year amortization, 5-year balloons. Most have loan-to-value
ratios of 50 to 60 percent; none are higher than 70 percent.
We also deal
in New York City and Boston taxi medallion lending. The value of
taxi medallions has declined slightly in recent years, but none
of our loans in this field has suffered delinquency or loss.
Approvals and Auto Lending
We are very
happy with our mortgage lending channel at our Website, which has
been extremely active, in fact, ''on fire.'' Most of the
mortgages granted are jumbos, here in California, over $275,000.
Members connect to our Website, and the mortgage link takes their
application out via Prime Alliance to Fannie Mae, which pre-approves
them online and gives them an APR. Days are saved for the applicant,
and all this leaves very little work for our staff to do. The close
rate is higher than with walk-ins.
Our auto lending
has been strong, also. We work with CUDL (Credit Union Direct Lending)
for indirect auto loan business. We also promote off-site used car
sale events with local dealers. But we stress the ease with which
members can get loans. They can be approved at a car dealership
and get the car right away with no aggravation. We let them know:
No waiting, No surprises, No last-minute changes ever. They respond
Only in credit
card lending have we experienced no-growth. People have been paying
off credit card debt, and we don't argue with that. We present a
great card, but offer no teaser rates and as a result may not snare
as much new business as the for-profit companies do.
One last note
on lending. We switched from our core data processor's loan application
system and use our in-house ''Loan Hunter'' software for
Internet applications as well as at our employees' desktops. Now
when members log in they are getting the same evaluation as those
who telephone or walk in. It's saved needless steps for members
and duplications for us.
All of the above
have helped us send money out to the people who need it and serve
all our members by creating good returns back to the credit union,
creating for us good cash flow and a strong balance sheet.