LOS Automation Allows Kings Federal Credit Union to Lend Large
When credit union executives think of liquidity management tools, loan origination software isn’t typically the first thing that comes to mind. But that’s exactly how Kings Federal, a SEG-based credit union in Hanford, Calif., is using CU Direct’s Lending 360 loan origination system (LOS).
Kings Federal is a robust auto lender, with auto loans representing about 85% of its portfolio. Thanks to its government employee, underserved community and associational SEGs, the credit union has enviable loan demand. “We are able to fund whatever amount we want,” said President/CEO Jeff Bassill. “Lending 360 gives us the opportunity to grow in a controlled environment. If we get an influx of deposits, I don’t have to rebuild the entire program. I can double my production–or turn it down–by changing just a couple of small things within Lending 360.”
That’s important for a credit union with $120 million in assets that processes 200 to 500 loan applications per month with just three loan officers, one processor and two collectors. Additionally, the credit union’s management team has only two senior managers and no VP of Lending.
In addition to quantity, loan quality is another variable the credit union is able to effectively control with Lending 360’s automation. Bassill, who has a background in indirect lending and automated loan underwriting, keeps his credit union’s automated approval rate just below 20%, even though he could get it up to 40% pretty easily by adjusting approval criteria.
Why so low? Because Kings Federal competes with a lending institution that is 100 times its size, and sometimes can’t compete on rate due to smaller economies of scale. That means many loans need a closer look.
Thankfully, Lending 360’s technology can assist with that as well. The credit union has automated several underwriting alerts that produce a more sophisticated risk profile than those that rely on just one credit bureau score and traditional measures, like length of time on the job or at a residence. “Since using Lending 360, our one year after loan origination loss rate has decreased from .23% to .15% on average,” Bassill said. “That’s largely credited to our ability to implement analytic-based underwriting criteria within the system’s decision manager.”
Automated underwriting also ensures Kings Federal loan officers and processors comply with all of the credit union’s policies and procedures. “We saw consistency improvements immediately,” Bassill said. “Before implementing Lending 360, most lending limits and guidelines were difficult to track and enforce prior to booking the loan. Now, if the loan doesn’t fall within approval guidelines or product loan limits, our loan officers are unable to proceed with approval or booking.”
In fact, loan files at Kings Federal are so consistent and well documented, they’ve received praise from auditors and examiners, he said. One area that has received significant kudos has been Lending 360’s exception drop-down menus. Credit unions can program specific wording into the system, so loan officers are consistent when documenting reasons to approve or deny loan exceptions. “The regulators like specific wording,” Bassill notes. “It’s easy for the examiner to know exactly why exceptions were made. And, it prevents loan officers from accidentally violating predatory lending laws and other regulations.”
The loan origination system’s online loan application and cross-selling functionalities have also improved the member experience. Kings Federal’s previous online loan app was used for all loan types, but with Lending 360, apps can be customized for different loan types for faster approval. When cross-selling additional loans, Bassill said his staff really likes the ability to generate a new application from the existing one with just a few clicks. “The system makes it really fast for staff to cross-sell directly, whether the member is preapproved or not,” he said.
Kings Federal chose Lending 360 to replace its core LOS, because the credit union had been using CU Direct’s CUDL system for years to process and underwrite indirect loans. That made the learning curve for staff training very short, noted Bassill.
“As a long time CUDL user, I would have to say my expectations were already high,” he said. “Lending 360 met those expectations.”