CENTENNIAL, Colo. – Centrix Financial concurs with NCUA Boardmember Debbie Matz's recent comments cautioning credit unions ontheir involvement with third party indirect auto lending vendorsand also agrees due diligence is key to specialized lendingactivities. But while seconding Matz's argument, Centrix FinancialEVP Legislative Affairs Geoff Bacino stresses that, “Anybody canloan to A and B paper, and sure non-standard can be risky. But ifit's managed and overseen properly it can be an effective way forcredit unions to add new members and continue serving theirexisting membership base.” Founded in 1990, Centrix Financial is aleading provider of special finance auto loans, through itsPortfolio Management Program (PMP). The company has underwrittenmore than 125,000 loans totaling over $2.0 billion since 1998. Ithas agreements with nearly 7,000 auto dealers and over 200financial institutions. “Credit unions have to do their duediligence if they're using a third party vendor for any type ofproduct to make sure they stay on top of game,” says Bacino.“Credit unions also have to recognize that when we talk about anon-standard member, they're a different breed of cat and creditunions have to be ready to treat them like that. In that sense it'sno different than any other part of their operations. “There isjust so much A and B paper, and if credit unions want to serve theunderserved and what we prefer to call the non-standard borrowerrather than the subprime borrower, then credit unions have to bewilling to look at alternative lending products and ways of meetingthe borrowing needs of these members,” he adds. As proof ofCentrix' commitment to due diligence, Bacino said the companyrequires every credit union coming on to its program to attend atwo-day due diligence seminar in Denver offered by the companywhich he says covers everything about the Centrix Financial programand business model such as how loans are underwritten and thecompany's collection methods. Regarding Matz's assertion that“credit unions should never delegate loan authority to a thirdparty vendor” and her concerns that third party vendors are notusing their CU clients' underwriting standards, Bacino concedesthat Centrix Financial uses its own underwriting standards, “butwe're willing to tweak them if a credit union needs us to.” Eachcredit union doing business with Centrix Financial can choose notto accept the company's underwriting standard, he says, “but ifthey don't want to accept them they have to do the loan on theirown.” Bacino defends Centrix Financial's policies, saying, “If youwant to get involved with the non-standard borrower, we say theseare tried and true underwriting standards. We've been doing thisfor seven years and have a good track record. Every credit union onthe Centrix program has made money, none have lost money. I don'tthink you could say that about all credit unions that manage theirown indirect lending programs.” Credit unions need to realize, saysthe Centrix Financial executive, that the C and D borrower is thefastest growing segment of the lending community. If credit unionsare going to say they want to get involved serving these borrowers,then they need to understand who these people are. As well as whothey're not, Bacino emphasizes. “The stereotype is they're someonewho's a deadbeat and not willing to work. In fact, the typicalnon-standard member is someone who's lost a job or been affected byhealth-related insurance problems or marital problems. Theoverspender is the exception, not the rule.” The bottomline, saysBacino, is “good people sometimes find themselves in unfortunatefinancial circumstances. By lending to these members we're tellingthem maybe they've had a problem in the past, but we want to helpthem get back on the road to financial health. When we'reconsidering making a loan to members like these, we want a memberwho is trending up – they've worked at a job a long time andthey're making inroads into paying off unsecured debt. There areplenty of borrowers like these out there for credit unions toserve.” Bacino agrees that lending to the non-standard borrowerinvolves higher levels of risk, “but that risk can be overcome,” hesays. One way is to have a good collection method. Without that, hesaid, the lender runs the risk of not getting members to make theirloan payments. He says Centrix also mitigates risk to credit unionsthrough the company's insurance policy. When Centrix approves anauto loan for a C or D borrower, Bacino says the company contactsthe member by phone to welcome them to the Centrix program andexplain what's expected of them regarding loan payments. Accordingto Bacino, Centrix Financial approves one in 10 loans. As for theloans the company rejects, Bacino says the dealer can make the loanor “peddle” the loan to other financial institutions. “You can'tkid yourself, you just can't make a loan to everyone. It's abusiness decision every credit union has to make,” he says, adding,“A credit union has a right to turn down any loan we send them. Thefinal decision is always the credit union's.” In the end, saysBacino, each credit union should be comfortable with the loans itmakes. Credit unions need to be constantly vigilant with allvendors they're doing business with, he advises. -

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