AUSTIN, Texas -- Automated lending solutions are playing an increasingly crucial role in helping credit unions deal with the new realities of the credit crunch and rate environment.
That's according to Tim Kelly, president of Teres Solutions, a provider of direct and indirect lending solutions to about 150 credit unions, and one of his young company's longtime customers, Pierre Cardenas. Cardenas is a senior vice president in charge of retail lending at $427 million Amplify Federal Credit Union, both in Austin.
"The reality of a credit crunch means more denials, period," Kelly said. "And if a credit union is going to deny more loans, it's going to have to look at more applications to maintain its existing loan-to-share ratio."
The rest of that scenario? "Credit unions auto-approve loans. They don't auto-deny them," Kelly said. "More applications mean more work and without automation, could mean higher costs as loan officers have to spend time determining whether to approve an application."
As a result, Kelly and Cardenas said, they look for ways to automate what are often the gray areas in the decision process, something they say presents credit unions in an environment of tight margins a good opportunity to, as Cardenas said, "cherry pick."
"Every loan is a good loan when you make it," he said. "But right now we anticipate more near-prime and subprime loans coming through. In fact, we're seeing more applications than we ever have, in many cases as people struggle to fight off foreclosure.
"This presents us a huge opportunity to cherry pick, and that's why it's important to us to be able to customize our decisioning engine so we can automatically approve more loans that don't require manual review," he said.
Amplify has been running Teres Solutions' SAIL software for three years and integrating it across online and branch-based channels and loan products. One of the results has been the ability to automatically approve 35% to 50% of loan applications, depending on the product. Another has been to handle more volume with the same small staff.
"In 2006, we funded $128 million in loans. Last year, we funded $176 million, almost $50 million more without adding a single new body," Cardenas said. "That's only loans funded. There was another $200 million we didn't fund. And we're doing this with two people. In fact, just one, a lot of times, when someone's off or at lunch."
In times past, a CU could simply add staff when loan application volume increased, but that's no longer the case, Cardenas said.
"One of our WIG--wildly important goals--is to find ways to become more and more efficient at what we're doing, and right now, really have to do that because of tight margins from the inverted yield curve. We really have to find ways to do more with less," he said.
Using automated tools like the SAIL platform not only help land more deals--the indirect piece is invaluable for being ready Monday morning to put the final touches on deals that members and auto dealers struck over the weekend, for instance--but also help analyze the big picture, too.
"One of the things I find that's real interesting is that unless you understand the probability for delinquency, 90-day charge-off or bankruptcy, you're kind of guessing," Cardenas said.
"But using automation to analyze your portfolios and tweak the decisioning rules is the way we have arrived at dealing with this, and lessening the inconsistencies you're naturally going to have when you have two of your people making two different decisions" from the same set of facts, he observed.
"So, really, such systems are essential to our future success, especially as the credit situation weakens, mortgage payments go up and the job market softens," Cardenas said.
Meanwhile, Amplify's lending software supplier is going to continue to work to find ways to "improve the auto approval process, give it more flexibility and make it more robust than it is today," said Kelly, the Teres Solutions president.
Broader functionality also is coming, he said, including account opening.
"That will facilitate cross selling at the member-service level," he said, "so whenever the consumer comes in to become a member, the account-opening module will give the institution the ability to cross sell loans and then automatically approve them right at that point."