The New Loan Challenge

Michael Bartlett
December 16, 2009 | COMMENTS

There's an emerging challenge for credit unions when it comes to lending: dealing with the "newly credit impaired."

Lloyd Gill, executive vice president of City County Credit Union in Fort Lauderdale and chairman of the CUNA Lending Council, said that challenge also presents an "opportunity."

"This might be a person who has 30 years of good credit, but maybe just lost his job," Gill said of the "newly credit impaired." "This person doesn't need help learning how to manage his credit—he might have a credit score of 800. The problem is he just lost his job and cannot get a loan. If credit unions deal with people like this as individuals and listen to their stories, that is an opportunity to get new, loyal members. When these people become re-employed, they will have the ability to repay. Eventually, they'll need another car, and then they'll be loyal because their credit union helped them out when they needed it."

Meanwhile, during CUNA Lending Council's recent conference, Gill said the Council is focusing four key areas:

• Education on loss mitigation and portfolio management: "Loss mitigation is especially important on real estate loans, but credit unions need help in all areas, including collections and loan modifications," he said.
• Pricing strategies: Gill said credit unions cannot "save their way out" of the current economic slowdown simply by cutting expenses. Instead, he argues, they must find ways to increase income by reexamining and adjusting their pricing.
• Lending to the newly credit impaired: this takes a "special structure" that credit unions must be educated about, he said.
• Advocating against excessive regulation: the Lending Council 's Regulatory Committee has been a "sleeper" committee for years, Gill noted, but in the last 12 months it has become a watchdog for credit unions. He said there is "so much legislation floating around Congress that could be burdensome on credit unions. The committee's members work with CUNA's Washington staff to let lawmakers know about unintended consequences on the credit unions themselves and their members."

Anecdotally, credit unions seem to have moderate to good loan demand, Gill said. Although it is not as robust as in a good economy, he said credit unions are stepping up to lend as many banks pull back.

"A lot depends on what region people live in. I'm from Florida , and people from Florida, California, Nevada, and Arizona are experiencing negative ROAs. In Wisconsin, people are seeing positive numbers and loan growth. There are some problems with unemployment in some states, but they are fewer and more manageable. But still, even in my area credit unions have money to lend," Gill said.

As for recovery, Gill expects economic conditions to stay poor for several months—but not get much worse—before a slow recovery sets in. He expects there will not be a "meaningful recovery" until 2011.

"Housing and unemployment are the two main drivers," he said. "Consumer sentiment probably is the third big factor. If someone is afraid he is going to get laid off, he's not comfortable going out and buying a washing machine. That is difficult to get our arms around."

This article appeared at www.cujournal.com and is reprinted with permission.