Given the stall in lending activity for many in the industry since the recession, AltaOne Federal Credit Union was expecting to see negative signs in its auto loan portfolio at the end of 2011.
Rich Wendt, assistant vice president of lending at the $539 million credit union in Ridgecrest, Calif., said the goal was to increase auto lending on both the direct and indirect lending sides while boosting yield and enhancing revenue.
“We exceeded our goals last year,” Wendt said. “We came in ahead of our business plan.”
That auto lending growth came through a program that helped AltaOne offer loans to members with less than stellar credit scores while mitigating the financial institution's risk. The credit union partnered with Open Lending Inc., an auto loan underwriter based in Austin, Texas.
The firm’s Lenders Protection risk management program offers default insurance coverage that allows for the approval of near to nonprime auto loans. The program features loan terms up to 72 months, loan to value ratios up to 125%, not including additional loan products, vehicles up to seven model years old, and eligibility for borrowers with credit scores as low as 580.
Wendt said AltaOne brought in $34 million in indirect loans and another $28 million through direct in 2011. From October to the end of last year, the credit union booked nearly $2 million through Lenders Protection and another $900,000 in January. With a strong start to 2012, the plan is to build even more.
“This year, our goal is to be more aggressive,” Wendt said. “We expect to grow many of our loan portfolios–commercial lending, real estate and consumer lending.”
While AltaOne’s auto lending growth revved the portfolio’s engine, the credit union had to swerve around many potholes brought on by the recession. Wendt said competition is extremely intense in the area. High unemployment among its members was a concern. In some parts of Kern County in California, the unemployment rate was 30%. Delinquencies and foreclosures were also worries in 2008 and 2009. Even though a turnaround started in 2010 and 2011 was a banner year, Wendt acknowledged that some of these same issues may continue to be a challenge this year.
“We still have people living from paycheck to paycheck in some cases,” he said. “Delinquency is still a concern and foreclosures throughout the country have not sorted through. I don’t think the public is quite buying into the recovery just yet.”
To counter the country’s economic aftermath, AltaOne’s use of Lenders Protection allowed the credit union to continue to lend and manage risk efficiently, Wendt said. A variety of interest rate promotions helped as well. What made a huge difference in 2008 and 2009 was when competitors scaled back their efforts.
“When banks and captives cut back their lending and what they were doing for franchise dealerships, we were there,” Wendt said. “We worked very hard to improve our processes to be as efficient and timely as possible including guaranteeing a decision with 48 hours.”
The $2 billion Veridian Credit Union in Waterloo, Iowa, had engaged in a large amount of auto lending when it started seeing the competition drop out in 2009 and early 2010, said Kara Van Wert, manager of consumer and indirect lending. Like AltaOne, the voids also opened up opportunities for Veridian to grow its portfolio.
“The biggest group we’ve been able to help are those that don’t fit into our current [loan criteria] guidelines,” Van Wert said.
Veridian also used the Lenders Protection risk management program. Through extended terms, members with credit issues were able to get a loan. The credit union has been involved with the program since 2008 but stopped its lending activity when Open Lending was going through a transition with a larger industry company.
When Veridian started back up in March 2011, Lenders Protection indirect loan volume was 5% and had increased to 8.5% in July. By December, that figure grew to 10.5% and in January, indirect volume had climbed to 15.7%. After the credit union started getting the word out to dealers that it was back in the game, its indirect portfolio grew. Dealers became more acclimated to things like additional paperwork such as verification of income, which Veridian normally requires, Van Wert said.
“My favorite part is being able to lend to people who otherwise would end up at a finance company where rates are as high as 29%,” Van Wert said.
Unlike other parts of the country, some states in the Midwest didn’t collapse as hard under the weight of the recession, she added. In Veridian’s area, the region was insulated from heavy mortgage fallout since much of the locale is surrounded by farmland.
“It’s not like we didn’t see any of it and those affected by it, but we were able to still lend,” Van Wert said. “We’re not putting the credit union in jeopardy when we make these types of loans.”
To grow its auto loans even more, Veridian launched a large marketing campaign for its recapture program in February. The credit union is looking closely at those loans that are near payoff for new opportunities. Van Wert said recapture has been very popular with members as lenders are recognizing that borrowers will go elsewhere. Still, she recognizes that the competition can be cutthroat.
“It’s been very aggressive. Some of the larger banks are offering rates under 2%. We can’t beat 0%,” Van Wert said.
The start of 2012 has been the best kickoff year for Open Lending, said John Flynn, president/CEO. The firm now serves 85 credit unions. “So many people have seen their credit scores drop significantly over the past two years, Auto lending is picking up. The number of units being sold will be huge this year.”