Like many in the industry, the $36 million TMH Federal Credit Union is used to seeing delinquent loans and charge-offs from members with less-than-stellar credit histories.
Lately, the Tallahassee, Fla.-based credit union has noticed an increase in overdue loans from members with nearly perfect payment records, said Grace Chambers, chief lending officer.
"There's really not any common denominator that I can see," Chambers noted. "It's affecting people across the board."
TMH FCU has approximately 400 accounts totaling $1 million that are in some sort of recovery phase through United Solutions Co., an information technology service and collections CUSO in Tallahassee. Chambers said the credit union took a larger loss than usual in 2008-"the biggest loss ever." The good news is since the start of the year, efforts are starting to turn around. While she cannot pinpoint exactly why that's the case (the credit union did hire a new in-house collector), Chambers is knocking on wood that 2009 looks more promising.
"We're very optimistic. The quarter has gone by and we don't have nearly as high of losses as we did in 2008," she said.
Launched in 1983 by the $201 million Envision Credit Union, United Solutions is owned by six Florida credit unions and serves more than 60 credit unions. In the 43 years Ray Cromer has been president/CEO of Envision, the Tallahassee-based credit union has recovered millions of dollars. The CUSO may collect 15% to 20% of what Envision charges off in a given year. For all of its clients, United Solutions collects about $20 million each year and has daily service collections on a portfolio of more than $820 million, said Denise Zuehlke, director of collections.
It's probably no surprise that regular recurring payments are off, and payoffs from debt have dramatically reduced for the CUSO in large part from the real estate market fallout, Zuehlke said. Most of the judgments settled are from people trying to sell their property because of liens. To provide perspective, the total dollars collected for charged off loans was 60% less in October 2008 than the total dollars collected in September that same year, she added.
"We have variations from month to month, but when I looked at that, I thought it significantly coincided with what was going on in the economy," Zuehlke said.
When most loans get to the charge-off stage, the credit union never looks at it again, Cromer noticed. United Solutions, which offers charged off loan recovery and purchase, daily collection activity, skip tracing and NSF recovery, strives to take the retrieval headaches off credit unions. The suite of services is a long way from the days when Envision had an in-house collection department, which at one point had a 4,300% turnover rate, Cromer said. With the hiring of a new manager back then, the credit union shifted its focus toward providing back-office solutions to other credit unions.
Cromer emphasized that the CUSO is not a "mill for hammering people for collections." The process often begins with a credit union being clear about their delinquency goals, coupled with ensuring privacy and other legal compliance. Envision has a program for members who were recently approved for new loans less than 10 days old. The initial person who worked with that member will circle back to find out why a payment was not been made. Cromer calls it early intervention and is convinced that familiarity can open up dialogue.
"We're trying to find the happy medium," Cromer said. "There are hard cases where you won't get any responses."
United Solutions will take it from there, especially on loans that are delinquent by 60 days or more. The goal is to do some sort of loan workout to avoid charge-off and even worse, a member filing for bankruptcy, which essentially halts the collection process. With the economy being what it is, Cromer said there's been a sharp increase in car loan defaults and repossessions. Over the last 12 months, home loans have also shown signs of stress but Envision never forecloses on a home; instead opting to get very creative with workouts that benefit both members and the credit union, he explained.
Cromer said, because he feels Envision has one of the best credit card deals in the country with an 8.5% interest rate and no penalty fees, members have been diligent about keeping their payments up. In fact, he's noticed some members will faithfully make their Envision card payments before any other cards.
"Some of the credit unions that we're talking to are saying delinquencies are starting to hold steady or slightly decrease," Zuehlke said. "We are trying to position ourselves for the future when the recovery turns things around."
To get ready, United Solutions is working on enhancing its Web site so that clients can get a better picture of account activity that includes a variety of possible ways to make payments, Zuehlke said. The CUSO is also marketing its card photo program and five credit unions have signed on to use its remote data processing system, said Jim Giacobbe, chief operating officer at United Solutions. A green 25,000-square-foot facility with solar panels and harvested lighting is scheduled to open in November.
Meanwhile, Chambers said TMH FCU will continue to reach out to those members who may "feel they are on a downward slide" and have made up their mind to give up on their financial commitments.
"I do feel that there is more loyalty at credit unions. There are a fairly good amount of people that file bankruptcy, but they tend to reaffirm with us," Chambers said.
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