Lending Solutions in Rough Waters

Lending Solutions in Rough Waters

Credit Union Business magainze

by W.B. King

The mortgage crisis brings troubled waters to the CU industry, but like a lighthouse shining in the frightening dark, experts offer advice to steer your CU in the right direction and guide you safely home.  Their preparation strategies are essential to maximizing efficiency while waiting out the storm.

During an annual barbeque get-together with old friends, baseball banter and back-to-school woes were replaced by a twilight roundtable on the mortgage crisis.  Among those in attendance was a sharp, seasoned vice president for a national bank who commented about the FDIC’s seizure of Indy-Mac.  He likened the deleopment to that of “financial flu.”

I looked past the table for a moment to see a few children wazing brilliant sparklers.  Their faces were aglow with amazement as the nightime fell.  Within seconds, however, the distant shine turned to darkness.  They waved spent sticks in the air all the shile asking for more…more…more.

“What happens if that flu spreads?” someone asked while inquiring about more hotdogs.  The banker said a financial instituation’s immune system is its capital.  Thus, if the capital is solid, it can fend off the latest, pervasive industry illness.

Who is Immune?


While driving home from the party, I thought about credit unions and respective immunity.  I also thought about sparklers.  Those deserving kids all wanted another round of brilliance but there was simply no more novelties to hand out.  As I drove, I recalled a conversation I had with president and CEO of Samaha Associates, Sabeh Samaha.  “Consumer lending is the innermost core… it is the DNA… the double helix of the credit union.”

Samaha’s Chino Hills, Calif.-based firm provides credit unions with consulting services including analysis, planning, implementation and documentation in the technology and e-business environments.  A few days later with thoughts of flu, hotdogs and sparklers swirling through my head, I decided to touch base with him to get his impression on the mortgage crisis and how it’s impacting the credit union industry.

“Credit unions have to first determine how they will maximize efficiency in light of a compressed interest rate market,” he notes.  In doing so, he says creid unions must decipher how they will approach both commercial and business lending.  The answer to the aforementioned will pose additional issues such as the implementation of an end-to-end solution for optimizing an existing core solution.

The price tag differs.  Implementing a core operating system with a staff of two experienced professionals, for example can cost upwards of $200,000 and take six months to roll out, whereas optimizing an existing platform costs $50,000 to $100,000 and requires, on average, four months from discovery to launch.

While Samaha points out that these are conservative estimates, he makes one point crystal clear.  “If a credit union is implementing a new system it will have to pay for experienced employees; otherwise, they are playing a very dangerous game,” he continues.  “For credit unions that are optimizing, they should have experienced professionals already in place.  You can’t simply ramp people up in mortgage lending.  It’s not something you can sit around and wait for them to learn.”

With analysts predicting that the market will finally hit bottom in the alst quarter of 2008 or the first quarter of 2009, credit unions that are looking into enhancing their services might be best served by doing their homework.  Preparation is essential while they wait out the storm.

Sailing through the Storm


Oftentimes on the infectious show “Deadliest Catch,” captains and deckhands are forced to face the strongest of Bering Sea storms in order to meet quotas.  Despite being battered, bruised, cold and sometimes bloody, these seafarers possess a sense of optimism.  This was the feeling I got while speaking with Barry Malone, vice president, sales for Financial Industry Computer Systems, Inc. (FICS)

“Credit unions currently have a window of opportunity to become their members’ lender of choice during this tough lending environment,” says Malone. “With the right mortgage technology, credit unions can become very efficient and realize an ROI in less than a year’s time and expand their member base at the same time.”

Samaha agrees with Malone when he says that the majority of credit union platforms do not contain mortgage origination functionality.  Instead, platforms generally consist of basic mortgage servicing functionality, which in turn forces credit unions to seek thrid-party vendors to automate the entire mortgage process.

“A good LOS will allow a credit union to pre-qualigy and educate their member, originate process, underwrite, track, close and fund a mortgage loan in a very efficient manner compared to using a consumer-based tool the core systems provide,” Malone continues.  “If the credit union desites to retain the member relationship and service the loan but wants to sell it on the secondary market to an agency like Fannie Mae or Freddie Mac, then a product [that is] compatible with all the agency regulations is a must.”