Behind the Scenes: Trying to make more B and C loans, part 3

Bill Vogeney
February 10, 2011 | COMMENTS

Welcome back! If you’ve been following this series, I’ve taken you behind the scenes at my credit union in order to share some of our challenges and analysis on this topic.

Our next step in the process of trying to make more B and C loans came from some hands-on work. Skip, my director of consumer lending responsible for indirect lending, pulled a report detailing one month’s worth of denials in this score range. Based on his experience, he developed a report that could allow him to consider 500+ denials in a fairly short period of time. By using a report from our lending system that provided him FICO scores (of course) along with loan amount, dealer name, LTV, debt to income, time on job, loan term and collateral, he could easily separate the best of these denials.

Having established that we did not want to bend our guidelines based on overall credit (meaning we would all of a sudden overlook multiple repossessions, recent charge-offs, etc.), Skip started looking for loans that appear to have been turned down due to an LTV 10-20% higher than our normal guidelines. The borrowers had to be able to afford the loan, so we did not bend on ability to repay. He then spent some additional time looking at the actual applications to see if it really looked like a deal we could make.

After hours of work, Skip brought his findings to share with my manager of indirect, my director of collections, and my loan review specialist. We reviewed some sample loans to quantify how much incremental volume we would generate with the adjustments to our lending policy. As it turned out, from that one month’s supply of denials (approximately 500 loans) we determined that approximately 60 could be approved with my proposed changes. Based on an average loan size of just about $20,000, I estimated it would generate about $1.2 million in volume. Not enough to retire on, but it would move the needle in our credit mix just enough to protect our competitive position.

Fast forward a month or so, and we’ve implemented the changes. It will probably take a few months to get all of our underwriters on the same page and fully committed to the goal, but already we’ve received enough positive feedback from various finance managers to tell me we’re building stronger relationships. In addition, we still have an overall credit quality mix that we can live with for the long-term. Our next step will be a loan review analysis of our new B and C loans to ensure the only change we’ve made is LTV. Wish us luck!

I hope you’ve enjoyed this short series and the steps we went through to identify a needed change in our underwriting, and our methodology to ensure the proposed changes made sense. Drop me an email if you’d like to see more material with this behind the scenes approach.

Bill Vogeney is SVP and Chief Lending Officer at Ent Federal Credit Union, Colorado Springs. He also serves as the Vice Chair of the CUNA Lending Council. He can be reached at bvogeney@ent.com.