Sunday, May 19, 2024

About That Exceptional "Backward Looking" Leadership Thinking At SECU: Roadkill-Based Lending (RBL) ...[Don't Miss Range War Outbreak In Comments!]

 https://product-image.juniqe-production.juniqe.com/media/catalog/product/seo-cache/x800/34/20/34-20-101L/Bad-Idea-Balazs-Solti-Poster.jpg ...Yes, it was!

How do you know?  Because the 5-tier RBL system didn't even make it a year, before the "We Board" had to bury it!

😎 Bad ideas have a tendency to come with a distinctive stench, like week-old roadkill. And 3-tier roadkill really doesn't smell any different than 5-tier roadkill, does it? Sniff closely!

The one upside to the 3-tier pullback is SECU leadership doesn't have to admit and apologize for another major blunderbust.  Bad business for all members? Yep, but don't take my word for it, take another look at the SECU financials [link] - loan delinquency has jumped from $200 million to $700 million. Actual loan losses in the first quarter 2024 were $72 million [link], which puts SECU on target for @$250 million in losses for the year - unprecedented! 

😎 Something stinks doesn't it! Well, let me give you a couple of examples of SECU's RBL problem by parsing statements from one "overly self-assured, πŸ‘½ extra-terrestrial commenter" who supports roadkill-based lending, despite the undeniable financial decline:

πŸ‘½  " Credit scores strongly rank order risk. That's true for every lender, product and geography, demographic segment, etc." 😎 True! You can "rank order" any group by height, weight, race, gender, age, social status, or even some secret credit score algorithm you can't explain. The harm and disparate impact occurs through the misuse of this type "profiling" to unjustly harm the people in a group.

πŸ‘½ "Higher risk borrowers being charged more than before? Yes, but that doesn't equate to being over-charged. " 😎 Thank you for the simple, public admission and confirmation that SECU is in fact charging the members in most tiers higher rates than in the past. An SVP of Lending can be found on the internet stating the excessive rates adversely affect over half of SECU borrowers!

πŸ‘½  "If all members pay 8% for a car loan, and the market is giving 6% for low risk and 10% for higher risk, the lower risk members are subsidizing the higher risk members." 😎 If the A-tier market rate is 6% as you say, what is the harm in offering that 6% A-rate to all members, as was done in the past with best rate for all members? 

πŸ‘½ "How do you think it's acceptable and in fact desirable that a loyal, credit-worthy SECU member has to go somewhere else for their loans or pay way more than they deserve." 😎 I don't. If SECU charged all members the 6% A-rate as you described above, each and every member would get the best rate available in the market. 😎 Why do you object to being the low cost provider to all members - no risk of possible disparate impact either, is there?

πŸ‘½ "Now, everyone charged is priced according to risk." 😎 Then why are you making so many more bad loans than in the past - delinquency and loan losses are soaring? 😎 Or haven't you noticed?

πŸ‘½ "SECU losses are coming from higher risk borrowers who didn't pay a rate relative to their risk." 😎 You're saying that having a lower rate caused members to default on their loans? 😎 Really? 😎 You believe that?

πŸ‘½ "That impact [loan losses] on earnings is suppressing deposit rates, all else equal." 😎 Thank you for publicly acknowledging that the majority of SECU deposit rates are not market competitive. Informed analysts know that the "suppressed" deposit rates are the result of 1) a poor longer term investment strategy which totals @$12 billion yielding @3% and 2) the @$8 billion in recently made long-term, fixed rate mortgages which suffer from the same low yield problem. 😎 Neither of these problems were caused by the SECU membership.

πŸ‘½ "You can't rationally argue that the models, in and of themselves, discriminate, as they treat everyone the same." 😎 Are you aware that every credit bureau includes a disclaimer that credit scores are backward looking and are not predictive of the future performance of a new loan by an individual borrower?

πŸ‘½  "Credit score models, by very definition, are non-discriminatory because they apply the same factors to everyone." 😎 Are you saying that the borrowers who default are paying the higher rates in the B, C, D, E-tiers?  Have you thought through that idea closely? 😎 Doesn't "default" mean "doesn't pay"? The folks in these tiers who do repay their loans are the ones actually paying the excessive interest rates, aren't they? Charging excessive, unnecessary interest rates to members who do repay is unfair and discriminatory, isn't it? Wouldn't you call that financial harm disparate impact? 

πŸ‘½ "On lending discrimination; any regulator anywhere will tell you the fair lending risk is lower with the use of scoring models." 😎 Would you please cite a few of your sources for this statement?


... BTW why did you have to "eat crow" by abandoning the 5-tier "roadkill-based lending" model?  

😎 How did you get that so wrong?**

https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbBH6zUq-7QvtwfyRwJmOlEXuefg1mf12Q9jIYgFlpjX4_mNAzELTduB-6CcHU1wTkqWreSSE2sghfpKmgk1kiqsbYRgqleSjCzbWdSN9RxKKXg7BRdkybWKEy4pc3_Mmee7XnAwum7PY/s16000/e-t-the-extraterrestrial-coloring-pages.jpg   ** πŸ‘½ E.T. "explains things" in the comments!
 

 

35 comments:

  1. I told my mama to stay away. She's too old to need a loan, but I can even tell her that SECU is fair nowadays.

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  2. They went from 5 to 3 tiers because they have to balance managing to reality versus managing to a blog.

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  3. Week-old roadkill? Heck it doesn't last 2-3 days for us bottom dweller credit score folks to grill that baby up!
    Board members are invited for our Memorial Day pickin!
    Bring your own money gun we can't afford one, I had to buy gas to get to work this week!

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  4. barbed wire for brains, but that's the new-new SEC?u

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    Replies
    1. More like two pints short of a quart.

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    2. Definitely a space cadet, that's the leighdership we're suffering with as employees

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  5. Logically their actions make no sense. If Risk Based Lending is the “be all, end all” stands to reason you’d be looking to expand it not contract it. Only reason you’d go from 5 tiers to 3 is because you believed something was askew in the first place. Reducing tiers to “provide a more simplistic pricing structure” is just more gobble-de-goop. You can’t talk out of both sides of your mouth and say less tiers is better because its simpler and then on the other hand say RBL is the only “fair” way to price loans. “They” are all over the place trying to justify their actions and all they’ve done is confirm they really don’t know what they are doing.

    There is a remote possibility “They” have come to the conclusion it’s a terrible look but can’t find a way to get out of it and save face at the same time. (Ok, I said remote.)

    Leaders have a vision and they lead. Unfortunately SECU currently has Directionless Leadership.

    ReplyDelete
    Replies
    1. SECU doesn't lead it follows ... Industry Standard comes to mind...
      If going from 5 to 3 is their answer ... BTW it won't work, my suggestion would be as JB offers up as a win-win... 3 to 1 with 1 being for all members.
      See how easy that was ... worked for 85 years!

      Delete
  6. "The problem with the world is not everyone has a brain, but everyone has a tongue." --Raheel Farooq

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  7. 😎 Well, this post evidently struck a nerve with the πŸ‘½ πŸ‘½ πŸ‘½ "extraterrestrial commenter"!" πŸ‘½ ET is in a bit of a tizzy! Dealing with the facts is evidently an alien idea to ET's mindset. Here's πŸ‘½ ET's latest:

    From the post: "What is the harm in offering that 6% A-rate to all members, as was done in the past with best rate for all members?"
    ET: πŸ‘½ "Then why didn't you do this in your time as CEO?"

    😎 First, as usual, you find πŸ‘½ ET won't answer a simple question... straight answers are not πŸ‘½ ET's forte. Second, as pointed out in the post, in looking for "an answer in the past" πŸ‘½ ET admits to being a "Backward Looking" thinker... much like a credit score! πŸ‘½ ET is evidently one of those folks who tries to look forward by staring in a rear view mirror!

    😎 But in answer: Thought that's what the CU was always trying to do with the fair rate for all members system. Rates do vary on a daily basis and if a member "shops" hard, admittedly there is always a "better rate" out there somewhere. For example, SECU members can check LGFCU rates right now and find "better rates" ...😎 especially on their savings accounts!

    😎 But, one way to reach a factual, documented opinion on whether SECU rates has in the past been "market competitive" is to check to see if members have been consistently using SECU as a source for loans over the years.

    😎 Here's a 20 year history:

    πŸ‘½ ET, YOU"LL NOTE THAT LOANS INCREASED IN EACH AND EVERY YEAR:

    At December 31 of each year:
    2003 $ 8.392 Billion
    2004 $ 9.540 Billion
    2005 $10.185 Billion
    2006 $10.646 Billion
    2007 $10.863 Billion
    2008 $12.136 Billion
    2009 $12.902 Billion
    2010 $13.206 Billion
    2011 $13.688 Billion
    2012 $13.750 Billion
    2013 $14.932 Billion
    2014 $16.743 Billion
    2015 $18.293 Billion
    2016 $20.135 Billion
    2017 $21.690 Billion
    2018 $23.010 Billion
    2019 $24.457 Billion
    2020 $24.605Billion
    2021 $25.426 Billion
    ....("new/new" after this.)

    😎 Looks like loans were up by over 300%. Growth in loans in each and every year.

    😎 Sorry to disappoint you! Not trying to discredit you...don't think you need any help with that.

    ReplyDelete
    Replies
    1. Are you suggesting that loan growth automatically means that SECU was a competitive as it could have been?

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    2. Yes! I believe that SECU members are fine folks and smart. They didn't use SECU because they got a bad deal!

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    3. There in lies the difference. You believe in the members, they despise the members ...

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  8. My word! πŸ‘½ ET has now gone from tizzy to hissy!

    πŸ‘½ ET: "Documented factual opinion? You most often cherry pick and misapply single points of data when they support the narrative... πŸ‘½and, talking about looking to the past....? πŸ‘½How do you say that with a straight face?"

    Well, πŸ‘½ET is absolutely right! I do try to "factually document my opinions". 😎 Got me on that one! Those loan totals were πŸ‘½ "cherry picked:" directly from the reports SECU files with the federal regulator, NCUA.
    😎 I thought they were legitimate #s!

    Would again ask πŸ‘½ET to stop spouting and simply answer the question: 😎 "What is the harm in offering the A-rate to all members?"

    Looking for a straight answer from πŸ‘½ ET with a straight face... 😎 well mostly.

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    Replies
    1. What would the A paper rate be for a personal loan?

      Delete
  9. Guess it would be fair to let you know that πŸ‘½ ET did answer the following question from the blog:

    From blog: "😎 You're saying that having a lower rate caused members to default on their loans? 😎 Really? 😎 You believe that?"

    πŸ‘½ ET said the following: "Of course lower rates aren't driving defaults."
    "Of the losses coming today, a disproportionate amount (e.g loss rates) are coming from lower tier borrowers that not get a higher rate so the CU gets paid for the risk, but they got the "A' rate before and we're priced for the risk to the CU."

    😎 Y'all got that?

    😎 Yeah, me neither...

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  10. The same rate for all has worked for a long time through many different financial environments. What has changed to cause all the current problems?

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  11. Chris Ayer’s reminds me of Mike Johnson speaker of the house.

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  12. πŸ‘½ ET is still at it! Even after the Board has admitted the 5-tier RBL was a failure.

    πŸ‘½ ET pontificates: "SECU has not historically offered the lowest rate in the market. The "A-tier" members have almost always been able to get better rates elsewhere."

    😎 This is kinda like having a conversation with one of those gerbils running in a circular cage... lots of motion but not much underlying sense to it. But lets keep at it...

    πŸ‘½ ET seems to live in a world where "documenting your factual opinions" (see comments above) is not a standard πŸ‘½ ET must meet. Words like "historically" and "almost always" can be a little sketchy at times. πŸ‘½ ET obviously does not like to be challenged! πŸ‘½ ET doesn't even like to spew under a real name. Not sure why?

    😎 But lets get back to business... πŸ‘½ "backward looking/thinking" πŸ‘½ET states that "SECU has not historically offered the lowest rates in the market". The 20+ years of never miss loan growth (see actual #s above) might leave some room to question that very broad statement, but...


    😎 Hey lets not argue! Let me agree with πŸ‘½ ET! So, mistakes and loan mis-pricing were made in the past, I accept responsibility and apologize.
    😎 I won't be making those mistakes ever again - promise.

    😎 Now that we've resolved that problem, πŸ‘½ ET let's stop looking in your "rear view mirror" and talk about the future, okay?

    😎 Here's your question ET: "What is the harm in offering your market competitive, A-rate to all members?"

    Now don't get in a tizzy or throw a hissy, just answer the question with a straight face.

    😎 Include your name if you like.






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    Replies
    1. The gerbil is back running furiously in that circular cage... here's the πŸ‘½ET response to above [11:58am]:

      πŸ‘½ ET says: "But this doesn't answer the question. What I was asking is why, during your time as CEO, did SECU *not* offer the lowest market rate to all membership? You keep avoiding this question and showing SECU's historic growth. That's not the question. You could have offered a lower rate to *all* members but you didn't. Why?"

      Well, thought I did answer by stating the goal was always to provide the lowest rate possible, but:
      "😎 Hey lets not argue! Let me agree with πŸ‘½ ET! So, mistakes and loan mis-pricing were made in the past, I accept responsibility and apologize.
      😎 I won't be making those mistakes ever again - promise." Is that not clear πŸ‘½ ET?

      😎 So, hate to do this to you πŸ‘½ET, but that leaves you with no "backward looking/rear view mirror gazing" excuses for not answering the following question: "πŸ‘½ ET! "What is the harm in offering your market competitive, A-rate to all members in 2024?"

      😎 Stop squirming, it's very unbecoming!


      Delete
  13. 😎 Yikes! That didn't take long! Got another rolling rant - from πŸ‘½ ET - full pager !

    Unfortunately, πŸ‘½ ET hasn't found the time or willingness to answer simple questions though. SOSO!

    😎 Or use a real name.
    The "new/new" definition of transparency?

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    Replies
    1. Not ET, but I believe the harm in offering the same “A-Paper” rate to all members would be an “A-Paper” rate that is higher than could otherwise be charged.

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    2. If there was ever a time that offering all the "A paper" rate was needed, its now. And the flat rate offered previously would be the best in most markets right now. If you offered 6.25% for everyone, all paper would win.
      The bigger issue would be volume - SECU can't take the volume that would create.

      Delete
    3. From past experience, the branches can handle most anything. If "Raleigh" will just get out of the way, they'll always deliver for "their members".

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    4. The present CEO spent decades in SECU Employee Education training these very employees you are speaking of. One year in as CEO and she continues to listen to her New Hires instead of the accomplished SVPs all across the state who know how to fix this mess Raleigh has brought upon the credit union. Has she no confidence in the job she did in Staff Development for all those years? Or worse, does she simply not care about what is happening to SECU? Continued waste of high paid salaries for non-working Executives and loan losses climbing daily would cause most CEOs to change course. A very sad thing to see taking place in what once was a top notch organization. 4 in 24.

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    5. The board has to be pushing these policies and supporting the Leighdership. The board could change all of this today. Set all the rates the same. Increase the bottom of the barrel savings rates. Decentralize. Reinstate training and advancement opportunities for employees. DO the Right Thing for the members at SECU! 4 in 24 and all of this will happen.

      Delete
  14. The bottom line is this, was SECU successful for 85 years with upward growth in all different kinds of financial environments and how are they doing under the new revised SECU?

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  15. Your argument shouldn't be RBL causes bad financial outcomes or that scoring doesn't work. You can't win that argument. It should be "So what. The impacts are known and accepted, but RBL is not the right thing to do for SECU. We don't want to treat our members like numbers just because others do, and we can afford to take the right risks at a fair price for our members." cont'd.

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  16. so I'll await the ridicule for my lengthy rant. Fair to ask for an answer and like it or not, you got one. Fun to spar. There is some real genius in how the model worked and the whole equation (e.g. decentralized collections, which is a huge contributor to higher losses). That said, this is my last "post." I have better things to do, and I hope you do as well.

    Best,

    ET

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    Replies
    1. This one is probably just a troll, because unfortunately there is still more to come from the name bashful πŸ‘½ ET. Stay tuned.

      Can't publish, with a straight face, the ones that encourage : "Why don't you go ["get intimate with"] yourself" or "You're a ["getting intimate with yourselfing"] idiot", but it's a real firestorm out there in the πŸ‘½ ET comment "space"!

      Delete
    2. Was asked to clarify "7:46 am". Well, here goes if you want a little darker glimpse of πŸ‘½ ET:

      [ the following πŸ‘½ response was in answer to a question of why SECU was prohibiting lower score members from borrowing against their homes - a highly safe, secured loan for the CU]


      πŸ‘½ 'You’re a f***ing idiot. People with poor credit don’t have houses to use as a second mortgage for lending. I stopped reading because you have no grasp on the reality of the world. You’re stuck in your pea brained mentality. I love seeing everything you “worked” for get chipped away little by little everyday "


      [BTW note: Clearly πŸ‘½ ET hasn't - as claimed - "stopped reading" the blog ! Not the only πŸ‘½ ET claim which is a bit odd, off base.]

      Hysterical outbursts aside, my greatest fear is that ET works for SECU and its' members. Although such an attitude might explain a lot of what has occurred at SECU from the boardroom on down...

      Delete
    3. JB, like 7.46 said: Why bother sparring? Because they have NO RESULTS, ONLY 'WORDS'. Agree with this statement. When you are losing sorely and being proven wrong repeatedly and your ego is too big to accept it and listen to anyone, the only out is you can have is a hysterical outburst.

      Delete
  17. Maybe ET should "phone home" before digging his hole any deeper

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  18. Hard to wake up someone pretending to be asleep. History stands. Not a year or 2, but 85 years of 'consistent' 'forward' growth' VS past few years of 'consistent' 'backward' 'slide'. ET et al are still fighting tooth and nail. Comical. Why bother sparring? Because they have. NO RESULTS, ONLY 'WORDS'.

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  19. Bull in a China shop. Barge in, destroy everything and then when chased away go to the next place to repeat it all over. No use blaming the bull. The bull came in because the door was opened. Anyone remember Hazy Gym?

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