Consumer LOS Upgrade Generates Big Gains for CU in Niche Markets
Credit unions are coming full circle in the current business climate that favors those who drill deep into niche markets, rather than casting a wide but shallow net. Technology has enabled businesses to locate ideal customers, reach them where they live, and speak their language.
That’s good news for credit unions like the $260 million Eagle Community Credit Union, located in Foothill Ranch, California. The credit union can’t compete head-to-head against the billion-dollar financial institutions in its market, but because of its success in niche lending, Eagle Community is enjoying double-digit loan growth and membership growth that is more than twice the peer average.
How did Eagle Community do it? The short answer is an untapped market — mobile home loans. However, the ability to capitalize on that market required the credit union to first build a strong technological foundation. At the top of the list was the need to consolidate loan origination systems. “We needed one system that was not only user friendly, but powerful,” recalls Vice President of Lending, Bob Thompson. “Our short-term goal was to improve efficiency and production by simplifying the user experience for both members and staff.”
Thompson found what he was looking for – and then some – in the Lending 360 consumer loan origination system. He said his initial expectation was that the LOS would be easier to use and an integrated system would reduce errors and further increase efficiencies.
The system quickly surpassed his expectations when Eagle Community implemented Lending 360’s automatic decisioning, cross-selling and digital membership applications.
When Thompson arrived at Eagle Community in 2016, indirect auto lending was driving loan growth, and the credit union was already using Lending 360 to process indirect loans. As of year-end 2016, Eagle Community had respectable financials: ROAA on target with peers, 5.40% loan growth and a $1.1 million net profit.
However, the credit union was losing members. That wasn’t a good trend for a credit union with 75% of its loan portfolio in indirect autos. Then, Eagle Community launched its mobile home consumer loan program. The resulting financials were pretty dramatic. By year-end 2017, loan growth had climbed above 30% and membership growth grew to 8.25%.
However, that growth rate was unsustainable on its previous LOS. Even though mobile home loans are processed like consumer loans, the platform made it very inefficient. Approval, processing and funding were manual and laborious processes that required loan officers to go back and forth with borrowers to relay loan stipulations and rates. Staff also had to create loan documents manually by enter information into PDFs.
Eagle Community fully converted to Lending 360 in June 2018. Now, top tier borrowers receive automatic approval, the system automatically populates rate, term and stipulation fields, credit reports can be shared between apps, and members can sign loan documents using DocuSign integration. Plus, once loans are ready to fund, loan documents are automatically generated by the system.
Eagle Community is now processing as much as seven mobile home loans a day, compared to just one or two on the old system. “That’s a lot,” Thompson stressed. “It wouldn’t have been possible with our current staffing using our old processing method.”
“There was a learning curve, as our previous lending platform handled queues, documents and processing differently,” Thompson added. “But once some important decisioning changes were implemented, and key staff members began understanding the system, the resulting effect in all areas was noticeable.”
The new consumer loan origination system also allows the credit union to better manage its balance sheet and underwriting. Most controls to manage loan portfolios are outside lending systems, but with Lending 360, Eagle Community management can change parameters quickly and easily across all applications. “It’s very user friendly on the back end,” Thompson said. “We can make adjustments as we go, instead of needing outside help.”
The stereotypical mobile home resident might sound like a risky prospect, but consider that as of Q4 2018, the median home price in Orange County, California was $799,000 and required a minimum qualifying annual income of $173,230. That limits many responsible, six-figure earners from entering the home mortgage market. “There’s more mobile home business here than people realize,” Thompson said. “We have 180 parks in Orange County, representing more than 20,000 units. It’s an untapped market for credit unions. The average interest rate is about 6.5%, so there’s a lot of income potential.”
And when it comes to underwriting, mobile homes have another benefit: they appreciate in value. Because Eagle Community limits mobile home loans to a maximum of 80% LTV, losses are rare. “We have about 320 mobile home loans with no delinquencies,” Thompson said. As of March 31, 2019, overall delinquencies were just 0.17% and charge offs were 0.44%.
Lending 360’s ability to populate fields automatically not only boosted efficiency, it also reduced underwriting errors that have helped maintain high loan quality. The system also helps Eagle Community analyze the performance of each loan product category. This includes the ability to run reports on products such as holiday loans, and separating them out from other personal loans. “It’s helped us diversify that product, and others, because we know exactly how each is performing. That way, we know whether to change the rate or adjust underwriting,” Thompson explained.
Thompson notes that “we had our NCUA exit interview yesterday and they were pretty complimentary. Our lending findings were very minimal compared to our last exam a year and a half ago.”
The system’s automatic document generation abilities have also allowed Eagle Community to grow another niche market — energy loans — safely and efficiently. The credit union offers loans to fund solar power, energy efficient window installation and roof replacement.
Shane Llinas, Lending Project Manager, who led the Lending 360 conversion effort for the credit union and manages the system, noted that they were able to create specialized forms within the system to manage the nuances of the niche energy loan market.
For example, Llinas programmed Lending 360 to automatically generate a UCC-1 form when finalizing an energy loan. That’s a legal document lenders file that gives them interest in the personal property of the borrower, which prevents them from selling the home upgraded by the loan without first paying it off. “That process used to be manual, but now that the system automatically pushes documents, we get a huge improvement in efficiency and reduced risk of error,” Thompson said.
In January 2019, Eagle Community launched Lending 360’s new account origination tool, driving membership growth. Previously, members were required to print out a PDF of a membership application and mail it or bring it into a branch to establish membership before qualifying for a loan. “Nobody wants to use snail mail or go to a branch anymore,” Thompson said. “It’s been a huge plus for us.”
Also in Q1 2019, the credit union began focusing on using the LOS’ cross-selling tools to increase credit card penetration and capture vehicle refinance business. ”We’re trying to take advantage of what the system can do for us, and train our staff to recognize that if the system presents an opportunity, it’s easy to generate approvals,” Thompson explained. Lending 360 also produces reports on when staff cross-sells after the system presents the opportunity, which helps track performance and success rate.
“We can coach staff afterwards to improve their cross-selling, because we truly do have great products for our members,” he said. “We’re fairly new into cross-selling using the system, but if we speak again in six months, I expect we’ll see some huge numbers in credit card growth as well.”