Strong Underwriting Puts Muscle Behind Indirect Loans
Despite the frustrations that some credit unions face with building long-term, multiple product and service relationships with members who come through the door via indirect lending, the loans have continued to be a meaty portion in many portfolios.
From 2008 to 2010, the years commonly referred to as the Great Recession, auto lending and specifically indirect lending, provided credit unions with a barrier against loan losses during this time, according to the Filene Research Institute. The firm recently tracked successful lending programs to find out what strategies were in place that enabled continued loan growth in the midst of a massive economic downturn.
The $1.4 billion EECU in Fort Worth, Texas, was one of the credit unions profiled by Filene. During the recession it was among the largest cooperative to capture 5% of consumer loan growth through the recession thanks to a “well-oiled indirect lending machine,” according to Joe Rossa, senior vice president of lending.
An in-house move after leaving a third-party origination system in 2007 coupled with population and steady job growth in the Dallas/Fort Worth area also helped. Rossa said marketing, underwriting and dealer relationships helped to boost its monthly indirect originations from $3 million to $6 million after going independent nearly five years ago.
“The majority of the credit unions highlighted here captured their lending growth primarily from indirect lending,” Rogers said of those profiled by Filene. “None of these was an indirect dabbler. Each cultivated strong dealer relationships, invested in technology, and set its own underwriting standards.”
Nearly 90% of loan growth at the $224 million Columbus Metro Federal Credit Union in Columbus, Ohio, relies on indirect lending, according to Tim Richey, president/CEO. A 2007 change from a fax system to a partnership with software management providers Dealer Track and RouteOne, helped boost indirect volume to 50% in the first month of implementation to 100% in the second month.