Wednesday, May 8, 2024

Lending At SECU: RBL - Risk-Based Lunacy? The Elephant In The Room... The "ELT" says: "What Elephant?"*

   * Hint: rhymes with mumbo-jumbo.

Lets get back to Lending 101! Remember we talked about making a loan isn't exactly brain surgery [link].  At a credit union, the goals of the borrower and the lender should be the same [link]. The credit union loan officer should seek only to make a sound loan which is of benefit to the member - and which will be repaid without hardship by the member.

A lending decision is based mostly on determining if the member is 1) willing and 2) financially able to repay the loan. That evaluation used to be called the "3 C's" - character, capacity, collateral. 

"Capacity" simply means having enough income to make the loan payment without hardship. "Collateral" is something of value (a car title, for example) which the CU can "take back" ("repossess" in the car example) to limit risk and potential loss, if the member fails to repay.  And first among equals is "Character", which is the lender's judgment of a borrower's willingness to repay the loan. 

As you know from just living, some people will always do what they promise, some folks never will. You want to lend to the "always wills" and avoid the "never wills". Simple as that and as we noted, not exactly brain surgery. But let me assure you, the ability to judge character is a unique skill, an intuition, a fine art, a knack which not all folks haveA rare blend of intelligence, savvy, empathy, and compassion.,width-640,resizemode-4,imgsize-102534/2006-winner-Colonel-Sanders.jpg Character judgement is greatly enhanced by another age old lending axiom: "KYC"No sorry, you got that wrong; Colonel Sanders is "KFC"! "KYC" is the abbreviation for "Know Your Customer". The basic concept is that the more the loan officer knows about the borrower, the better the decision. Hard to argue with that idea hopefully.

As we've seen with the upsurge in loan losses and delinquency [link], the elephant in the room is that the highly regarded professionalism and effectiveness of lending at SECU appears to be collapsing. Lending  at SECU now seems plagued by insensible policies, poor decision making, and a failure to "KYC"!

 ✅ Tomorrow we'll take a look at 5 warning signals of questionable lending practices in the areas of:

  1. Decisioning 
  2. Unsecured
  3. Mortgages
  4. Bias
  5. Opacity  ... "the d-u-m-b-o signals".

😎 Since you're now a trained lender; and, of course, intelligent, savvy, empathetic, and compassionate...lets see how you do on a few lending questions tomorrow! Okay? Stay tuned....


Okay!... I'm all ears!