DALLAS – For Credit Union of Texas, the plunge into subprime auto loans last January with an outside vendor was pursued with a bit of skittishness, admits Thomas Neice, senior vice president and chief financial officer. But doubts have since eased as the Dallas CU has discovered the subprime market provides attractive yields and growing volume, "and we don't have to be overly worried about safety," declares Neice. The $1.2 billion CU of Texas numbers among more than 125 CUs, many of them spread across Texas and Western states signed up with Centrix Financial, a specialty suburban Denver firm which seems to have carved out a growing niche in the subprime field. Centrix, located in Englewood, Colo. and which describes itself as a 12-year-old financial and risk management firm, for months now has been signing up state leagues for turnkey programs to permit member CUs to enter the special financing auto loan market. "So far this is a program that is showing us some nice yields–13% – and we're not burdened with collection and servicing or signing up dealers," commented Neice whose CU subscribed with Centrix after hearing about the service at an industry conference. This spring, Centrix has been actively courting CUs at state League annual meetings, having won endorsements from 13 Leagues. "Now we want to move East and we are doing that aggressively," said Robert E. Sutton, chairman and CEO of Centrix. Discussions have been under way with the North Carolina and Georgia Leagues, said Sutton, "and we have high hopes of getting introduced in Massachusetts." He added that Centrix hopes to make announcements of new enlistments "within the next several months." At the same time, Centrix, he said, has been working closely with regulators, making presentations at NCUA examiner meetings "as part of a continuing education process" to increase their comfort level with the guarantee and securitization system. Under its Portfolio Management Program, the Colorado firm markets, underwrites, packages and services individual non-standard auto loans and provides an insurance-based guarantee against principal loss. The firm also does collections, repossessions and resales. Centrix maintains portfolio yields for loans made through PMP have exceeded 11%-13% on an annualized basis depending upon the specific CU portfolio with "benchmark" loss ratios at under .5%. The firm claims its concept of dealing with dealers and CUs "one loan at a time" is successful since the loan "is insured when it's made." In some other institutions, Centrix claims, the loans are insured after they have been placed on the books and have a period of time to mature. Underscoring Centrix' growth curve, Sutton noted that the firm is currently putting 1,800 loans a month on the books, and by the end of next year that number is expected to climb to 6,000-7,000. As of May 31, there were $329 million of origination loans and $244 million in outstanding loans-those that that the firm is directly doing collection and servicing. The $244 million represents 17,749 active loans and the average loan at time of origination is $15,000. Neice of Credit Union of Texas maintains the idea of "shielding our losses" on subprime loans was a factor in deciding to go with the Centrix program. "We don't have to sit and wonder" about the severity of losses adding "there is always a risk, don't get me wrong." But recent numbers at the CU, formerly known as Dallas Teachers Credit Union, show the program is indeed attracting members. The CU currently has $18 million out on Centrix loans. "We had $6.3 million last month and halfway through June we already have $4.9 million," declared Neice. With many CUs currently quite liquid and "wanting and needing" to make loans in the current environment, Sutton is obviously bullish his program will catch on in new markets. "This is a market that will always be there and which we think credit unions should take advantage of." Not all state Leagues have been quick to jump on the Centrix bandwagon. Montana, for instance, said two years ago that while it thought the program was a good idea, there were too few dealers and little competition to make it worthwhile. Also there were added costs that had to be borne by dealers and that made the program less attractive. "Not every market is ideal for us," said Jason Love, Centrix vice president of sales. "I'm not sure the program will work economically in North or South Dakota," but that does not preclude individual CUs signing up with Centrix, he said. Centrix said it is eager to win an endorsement from the California League, with executives from that association visiting in Denver last week. [email protected]

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