Thursday, May 9, 2024

SECU's RBL: Really Bad Lending! Now Imagine You're The Loan Officer...

https://www.breakthroughforyou.com/wp-content/uploads/2014/06/warning.jpg ... ready for your "elephant" test?

Trained you up as an SECU loan officer yesterday [link]. Lets see how you do on the test, if you have the "knack"!

Remember your mandate:  At SECU, the goals of the borrower and the lender (you!) should be the same.  After all, the loan officer (you!) works for the members, who own the credit union. Members rely on the loan officer (you!) to represent their best interests, to craft the best solution for their loan requests - to "Do the Right Thing". The transaction should be one of trust. [link]

https://clipart-library.com/data_images/44895.png 1) Decisioning - The loan process involves gathering information (an application, credit report, salary info, etc) for you to evaluate and on which to make a decision. Once all the necessary information has been reviewed, the loan request is either approved or denied. Q#1: Who makes the final loan decision - the member or SECU? Q#2: If the loan "goes bad", whose fault is it?

https://clipart-library.com/data_images/44895.png 2) Unsecured - Lending unsecured "appears riskier" than lending with collateral (car title, home mortgage - go back and review your "3 C's"! [link]), but these days most members need a credit card in order to make their way in the world (check into a hotel, rent a car, shop on-line).  Much, much "riskier" loan? No, not really. Why?  Because remember, a borrower can "only beat you once"! If the borrower doesn't repay, then certainly you wouldn't lend to them again, would you? Q#3: Why under the 3-tier RBL system do you charge a new teacher, correction officer, highway patrolman just starting out, a higher "C"-tier rate (the worst rate!) on a new credit card? Q#4: Why do you assume that young folks starting out are higher risks when they are yet to have a credit record? Q#5: Why do you now believe members are "guilty until proven innocent", rather than "innocent until proven guilty" under the fairer, same rate system? Q#6: Is this intelligent marketing to new SECU members?

https://clipart-library.com/data_images/44895.png 3) Mortgages - A mortgage is a loan against a home and is generally the best loan the Credit Union can make for many reasons - especially if your goal is to financially help the member. Under the new 3-tier RBL, SECU will no longer make a home equity loan (also known as a second mortgage) to a member with a credit score below 600, but will make a used car loan up to $25,000. SECU reported having 48,000 member second mortgages for $1.8 billion with no reported charge offs at 3/31/2024 - none, nada! (There were also no reported second mortgage charge offs in all of 2023 - none, nada!) Q#7: Why won't you make any member a home equity loan? Isn't a second mortgage "safer" (and less expensive!) than a used car loan?

 https://clipart-library.com/data_images/44895.png  4) Bias - Although not yet illegal, it is clear that credit scores discriminate unfairly against not only the young, but also blacks and females [link]. The problem is often called disparate impact [link]. RBL is a step backwards to a time of Jim Crow, a time when women weren't allowed to vote, when it was "alright" to have second class citizens who needed to "know their place" - which is generally toward the back of the economic and equality bus [link]. Q#8: How do you, as a loan officer, explain RBL to young borrowers or long-term, faithful borrowers with lower scores who are now being charged worse rates? Recheck your mandate above!

  https://clipart-library.com/data_images/44895.png 5) Opacity - Q#9: If a member calls to inquire about a loan rate, why can't you tell them the rate?  Why aren't all loan tier rates posted on line? Shouldn't your borrower know the cost of the loan?

 https://clipart-library.com/data_images/44895.png  Bonus! Q#10: Do you feel good that RBL represents the best interests of the member-borrower - or you? 

Under the new "Dumbo" lending, less than the best rates are now charged against a majority of SECU members; and, SECU loan losses and delinquency are soaring [link]:

😎 "At March 31, 2023, SECU loans which were 60 days or more delinquent totaled $294 million. The 60 day delinquent total one year later at March 31, 2024 was $700 million - up 138%.  Loan losses also have risen to $72 million for the first quarter of 2024, up by 50% (from $48 million) over the first quarter of 2023." 

... as a loan officer, or as a member-owner of SECU, did you pass the test?

 What was your answer to Q#2? ...  and Q#10?

     


 

14 comments:

  1. "Breaking News"! https://businessnc.com/secu-reports-higher-late-payments-on-home-vehicle-loans/

    ReplyDelete
    Replies
    1. Hey, the real breaking news is we're getting a New Website look ...

      Delete
    2. "The credit union is working with members to keep them in their homes. Increasing home values across North Carolina enables members to potentially sell their homes at a profit and avoid foreclosure, which also helps SECU more often recover the full loan balance, the credit union said."
      And then where do they live?

      Delete
    3. "And then where do they live?"
      Exactly ... duh ... I can't believe they printed that.
      Isn't the idea to keep them in their homes they purchased in the first place?
      This is the new/new of society ... sad but true.

      Delete
  2. 'Trust but verify' ... words to live by ...

    ReplyDelete
  3. Making a good loan is not a simple task. Several factors should go into that decision and it can be very nuanced - something a single number like credit score cannot give you. A credit score should be a tool not a decision maker. Other tools are debt to income ratio (DIR) and disposable income. DIR can be tricky as well. High income individuals may have a high DIR and still have thousands of dollars in disposable income while a low earner may have what appears to be an excellent DIR and have difficulty paying the light bill. Context is important.

    Risk layering is also applicable. If the credit score is low is there great job stability and income? If credit score is high but there has been a recent job change and income reduction that is important as well. Has there been a recent trauma or crisis - a temporary job loss or a medical issue for a household member? Oftentimes those are only temporary and should not trap the member in a denial cycle forever, or at all. Any of these factors can adversely affect the credit score in the short run but not necessarily mean the loan should not be approved.

    Previously SECU lenders had an outstanding track record of helping folks and keeping losses low. Anyone (or an algorithm) can make the perfect loan or deny the obvious bad one. But most all of us live somewhere in between and that is where the SECU culture and human touch made all the difference in the past.

    No doubt RBL is discriminatory as well as a lazy way to lend. Why not get back to making loans the right way? Give all members an equal chance at approval and at the best rate. Treat members as individuals not a number. Let credit union lenders do what they do - they’re damn good at it. If SECU leadership really does want to Do the Right Thing then they need to actually Walk the Walk.

    ReplyDelete
    Replies
    1. They can't. They don't know what they are doing.

      Delete
    2. "A credit score should be a tool not a decision maker."
      Statement of the year award...

      Delete
    3. or walk the plank ... ARR!

      Delete
    4. What about the college student who has three deferred student loans. The credit score is 725. However, they have never made made any payment. But to SECU they are an A tier borrower.

      Delete
  4. It’s reached the point for a statewide walk out. Nothing else has gotten their attention. Employees should just walk out. It’s that bad.

    ReplyDelete
    Replies
    1. Will the members show up in solidarity if they do?

      Delete
  5. RBL = rarely black lending!

    ReplyDelete