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Carefully Serving the
        Careless Consumer
               Presenters:
            Brad Beal; CEO
      Tom Ernsperger...
About Nevada Federal
Disclaimer
Caution:
Some viewers may find
 the following images
       offensive
What’s going on?
2004 Survey of NFCU members:
    32% say they have used a payday lender
Success
          of
Courtesy Pay Programs
Credit Score Distribution
                   % of Population

                        U.S          Las Vegas
  700+       ...
Generation Y
               (age 18 – 30)


Average credit score: 635

According to USA Today, about half of Gen
Y’ers alr...
Created a new Acronym:



        “IMM”
Ineffective Money Manager
IMMs:
Includes all demographic groups
IMMs are
largely contributors of fee revenue
Learning Curve
Risk Management
Nevada Federal’s
          ®
AdvancPay Program
 Payday alternative
     (est. 2004)
Research
Over 200,000 payday loans are taken out
every week in Nevada.
On average, local consumers were paying
approximate...
Program Structure/Qualifications
 All applicants are assessed a non-refundable
 application fee, paid up-front.
    Fee do...
Program Structure/
        Risk Management

Exposure limited to $500 per.
Must have verifiable current employment.
Must ha...
Program Structure/
        Risk Management (cont’d)
One two-week extension permitted…
member is assessed another applicati...
Program Performance

Averaging approximately 900 to 1,000
AdvancPay® transactions per month.

Denial rate averaging 3% - 4...
Demographics
Average age: 43
Average income: $40,000 - $49,000
annually
Average Credit Score: 571
  67% of all users have ...
Program Performance
     2006:
         Fee Income: $245,000
         Losses: $9,100
     2007:
         Fee Income: $378,...
Breaking The Cycle             ®



                 ®
Break The Cycle loan available to those
wishing to amortize remaini...
New Start VISA           ®




Brand new credit card product currently
in “pilot” program phase.
  Looking to open 300 to ...
New Start VISA     ®




        Program Design
Transitioning from “risk-reward” to
“reward-risk.”

Due to the inherent ri...
New Start VISA Program Design
                   ®


                 (cont’d)


Credit scores of 550 to 623
$500 maximum ...
New Start VISA Risk Management
                 ®




  Daily performance monitoring.
  Collection activity begins on paym...
New Start VISA Risk Management
                 ®


                 (cont’d)




5% minimum monthly payment.
No limit inc...
Specialty Auto Finance
Nationally, nearly 1 in 5 auto loans
made in 2006 was “non-prime.”
Nationally, 12 percent of consum...
Specialty Auto Finance (cont’d)
Specialized expertise is the key to a
successful operation.
Traditional “A” credit lenders...
Specialty Auto Finance (cont’d)

Nevada Federal enlisted an outside
consultant to help design polices,
procedures, positio...
Specialty Auto Finance (cont’d)
Four credit programs designed to
cover a range of credit histories:
11.99% through 17.99% ...
Specialty Auto Finance (cont’d)
While the traditional “5 Cs” of lending
remain important, this type of lending
requires ad...
Specialty Auto Finance
      Risk Management

Slow, “managed” growth.
Collections also requires a different
mindset.
Colle...
Specialty Auto Finance
        Risk Management (cont’d)
Quicker repos: at 30 days delinquent.
Trend analysis:
     30, 60,...
Courtesy Pay,
New Start Checking®
       and
 Risk Management
Courtesy Pay


• 87% of consumers don’t balance their
  checking accounts. *
• Having a check returned due to
  insufficie...
Courtesy Pay (cont’d)


• Having a check returned is costly
  because of merchant fees.
• Inconvenient to purchase a money...
Courtesy Pay
        Program Design
Checks, ATM withdrawals, POS.
Tiered Courtesy Pay limits (65,000
members qualify; 6,00...
Courtesy Pay
          Program Design (cont’d)

Not advertised or promoted.
Notices refer members to the BalanceSM


Finan...
Courtesy Pay
         A Few Statistics

                   2006       2007
NSF Fee Income $4,448,344 $5,309,251
Refunds   ...
Courtesy Pay
         Risk Management
Daily suspect reports reviewed by staff.
Differentiate between fraud and ineffective...
Pre-established Limits

 Class code 1 $2,000
 Class code 2 $1,000
 Class code 3   $500
 Class code 4   $500
 Class code 5 ...
Pre-established Limits (cont’d)

• Class code 6   $-0-
• Class code 7 Manual Lower
• Class code 8 $200 NS
• Class code 9 $...
New Start Checking                        ®




  15 million Americans are “unbanked.” *
  (no credit card, no ATM card, n...
New Start Checking        ®
                                          (cont’d)


   Payday lenders continue their march in...
New Start Checking (cont’d)
                            ®




Qualifile inquiry (customizable
ChexSystemsSM).
3 or less cl...
New Start Checking (cont’d)
                            ®




Class code 9; $100 first 90 days.
Class code 8; $200 after 9...
New Start Checking     ®




      A Few Statistics

4,000 New Start Checking® accounts
$19.50 monthly maintenance fee =
$...
Important Considerations
1. Serving IMMs is radically different.
2. Product development and pricing is
   important.
3. IM...
Establish Risk
    Management Operation
Participates in product development.
Monitors account activity.
Evaluates and pred...
Enterprise Risk Management


Centralized focus.
Product development.
Cross-functional IMM team.
Challenges:
    Philosophical Issues
Understanding IMM Behavior
       Staff Mindset
    Regulatory Mindset
     Risk Mana...
Opportunities:
        Meet Member Needs

          Market Potential

Reduce Dependence on Interest Margin

        Financ...
Questions
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
The ABCs of Reverse Mortgages
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The ABCs of Reverse Mortgages

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Transcript of "The ABCs of Reverse Mortgages"

  1. 1. Carefully Serving the Careless Consumer Presenters: Brad Beal; CEO Tom Ernsperger; SVP Lending Pete Jenkins; SVP Administrative Services
  2. 2. About Nevada Federal
  3. 3. Disclaimer
  4. 4. Caution: Some viewers may find the following images offensive
  5. 5. What’s going on?
  6. 6. 2004 Survey of NFCU members: 32% say they have used a payday lender
  7. 7. Success of Courtesy Pay Programs
  8. 8. Credit Score Distribution % of Population U.S Las Vegas 700+ 54% 42% 650 - 699 13% 16% 649 - or less 33% 42% Source: Experian
  9. 9. Generation Y (age 18 – 30) Average credit score: 635 According to USA Today, about half of Gen Y’ers already have at least one charge-off on their credit report.
  10. 10. Created a new Acronym: “IMM” Ineffective Money Manager
  11. 11. IMMs: Includes all demographic groups
  12. 12. IMMs are largely contributors of fee revenue
  13. 13. Learning Curve
  14. 14. Risk Management
  15. 15. Nevada Federal’s ® AdvancPay Program Payday alternative (est. 2004)
  16. 16. Research Over 200,000 payday loans are taken out every week in Nevada. On average, local consumers were paying approximately $16 per $100 borrowed. Equating to approximately $80 to obtain a $500 payday loan. NFCU obtained legal guidance in structuring our program. Key: Reg. Z exempts an “application fee” from consideration as a finance charge if the fee is charged to all applicants, regardless whether the credit is actually extended.
  17. 17. Program Structure/Qualifications All applicants are assessed a non-refundable application fee, paid up-front. Fee does not vary by the amount requested. Interest rate is 0%. Maximum transaction amount: $500 Maximum term: up to two weeks. Must be member in good standing. $40 application fee if direct deposit with NFCU. $50 application fee if no direct deposit.
  18. 18. Program Structure/ Risk Management Exposure limited to $500 per. Must have verifiable current employment. Must have a satisfactory Teletrack® report (NFCU also reports to Teletrack®).
  19. 19. Program Structure/ Risk Management (cont’d) One two-week extension permitted… member is assessed another application fee. After two-week extension, AdvancPay® must be paid in full, then member can apply for a new AdvancPay® if desired. SM Balance financial counseling program flyer extended with each transaction.
  20. 20. Program Performance Averaging approximately 900 to 1,000 AdvancPay® transactions per month. Denial rate averaging 3% - 4% per month. Most delinquent AdvancPay® loans are cleared with next direct deposit.
  21. 21. Demographics Average age: 43 Average income: $40,000 - $49,000 annually Average Credit Score: 571 67% of all users have credit scores of 599 or less. Conduct an average of 10 AdvancPay® transactions per year. 90% are homeowners!!
  22. 22. Program Performance 2006: Fee Income: $245,000 Losses: $9,100 2007: Fee Income: $378,000 Losses: $30,000 Does not include origination, servicing, collections, and other costs.
  23. 23. Breaking The Cycle ® ® Break The Cycle loan available to those wishing to amortize remaining AdvancPay® balance. 15% rate for terms up to 12 months. Members utilizing Break The Cycle® cannot obtain an AdvancPay® until loan is paid in full. 12/31/07: 125 loans @ $33,000 outstanding; 4 loans @ $830 delinquent; 19 loans @ $4,400 charged-off.
  24. 24. New Start VISA ® Brand new credit card product currently in “pilot” program phase. Looking to open 300 to 400 cards on a limited basis and gauge performance. Designed for members who have had trouble managing a credit card in the past. Many of today’s routine transactions require a credit card (car rentals, airlines, online shopping, etc).
  25. 25. New Start VISA ® Program Design Transitioning from “risk-reward” to “reward-risk.” Due to the inherent risk involved with this type of borrower, many of our “rewards” must be obtained upfront: fees.
  26. 26. New Start VISA Program Design ® (cont’d) Credit scores of 550 to 623 $500 maximum credit limit 18% APR $49.95 application fee $15 monthly fee No grace period Various other associated fees: overlimit, returned item, cash advance, etc.
  27. 27. New Start VISA Risk Management ® Daily performance monitoring. Collection activity begins on payment due date. Card usage suspended at 7 days past due. Lower “overlimit” tolerance.
  28. 28. New Start VISA Risk Management ® (cont’d) 5% minimum monthly payment. No limit increases for at least 6 months. Borrower must re-qualify for new limit. Borrowers can “graduate” to traditional VISA® products after 12 months of satisfactory performance.
  29. 29. Specialty Auto Finance Nationally, nearly 1 in 5 auto loans made in 2006 was “non-prime.” Nationally, 12 percent of consumers have at least one late auto payment. In order to provide vital lending services to those in need, we need to adapt our current lending models to fit today’s borrower.
  30. 30. Specialty Auto Finance (cont’d) Specialized expertise is the key to a successful operation. Traditional “A” credit lenders (and underwriters) may have trouble adapting. Consistency is important: credit decisions, credit stipulations, collection messages, member and dealer service.
  31. 31. Specialty Auto Finance (cont’d) Nevada Federal enlisted an outside consultant to help design polices, procedures, position descriptions, pricing models, risk management reports, etc. Although an outside consultant was enlisted, all policy, procedure, and individual loan decisions are made by the Credit Union: DON’T RELINQUISH CONTROL!
  32. 32. Specialty Auto Finance (cont’d) Four credit programs designed to cover a range of credit histories: 11.99% through 17.99% (first time buyers). As a Federally chartered credit union, our risk management approach is tempered by the maximum 18% allowable APR.
  33. 33. Specialty Auto Finance (cont’d) While the traditional “5 Cs” of lending remain important, this type of lending requires additional considerations. VERIFY, VERIFY, VERIFY!! “Debt-to-Income” AND “Payment-to- Income.” BKs, repos, and foreclosures are not necessarily “deal killers.” Collateral will tend to be older, higher in mileage.
  34. 34. Specialty Auto Finance Risk Management Slow, “managed” growth. Collections also requires a different mindset. Collection contacts begin on payment due date.
  35. 35. Specialty Auto Finance Risk Management (cont’d) Quicker repos: at 30 days delinquent. Trend analysis: 30, 60, and 90 day delinquency trends. First payment defaults. Dealer performance (volume, funding, fraud). Static pool analysis (after 6 months of origination).
  36. 36. Courtesy Pay, New Start Checking® and Risk Management
  37. 37. Courtesy Pay • 87% of consumers don’t balance their checking accounts. * • Having a check returned due to insufficient funds is an embarrassing and humiliating experience. * Moebs Services, an economic research firm
  38. 38. Courtesy Pay (cont’d) • Having a check returned is costly because of merchant fees. • Inconvenient to purchase a money order or cashier’s check and go retrieve the unpaid item.
  39. 39. Courtesy Pay Program Design Checks, ATM withdrawals, POS. Tiered Courtesy Pay limits (65,000 members qualify; 6,000 users). Same fee for paid or returned checks. Fee refund and opt-out feature is offered (1,830 opt-outs).
  40. 40. Courtesy Pay Program Design (cont’d) Not advertised or promoted. Notices refer members to the BalanceSM Financial Counseling Program. Financial literacy seminars.
  41. 41. Courtesy Pay A Few Statistics 2006 2007 NSF Fee Income $4,448,344 $5,309,251 Refunds $378,351 $343,713 Charged Off Shares $766,658 $823,101 Net Revenue $3,303,336 $4,142,438
  42. 42. Courtesy Pay Risk Management Daily suspect reports reviewed by staff. Differentiate between fraud and ineffective management. Negative share balance is monitored daily. Watch and adjust for seasonal trends. Various availability codes that are updated monthly.
  43. 43. Pre-established Limits Class code 1 $2,000 Class code 2 $1,000 Class code 3 $500 Class code 4 $500 Class code 5 $300
  44. 44. Pre-established Limits (cont’d) • Class code 6 $-0- • Class code 7 Manual Lower • Class code 8 $200 NS • Class code 9 $100 NS • Class code 10 $100 REG
  45. 45. New Start Checking ® 15 million Americans are “unbanked.” * (no credit card, no ATM card, no bank account) In the United States, about 13 percent of all families do not have a checking account. ** The majority of the unbanked previously owned a checking account 8 Million ChexSystemsSM exiles *Scarborough Research **Synergistics Research Corporation
  46. 46. New Start Checking ® (cont’d) Payday lenders continue their march into the IMM segment. Un- and under-banked spend $10.9 billion on more than $324 million alternative financial transactions, including check cashing and payday loans, every year. ** NFCU can help the IMM segment reduce the costs of their financial transactions. **Synergistics Research Corporation
  47. 47. New Start Checking (cont’d) ® Qualifile inquiry (customizable ChexSystemsSM). 3 or less closures for account abuse. Less than $1,000 owed to a financial institution. No fraud activity.
  48. 48. New Start Checking (cont’d) ® Class code 9; $100 first 90 days. Class code 8; $200 after 90 days. Can graduate to regular checking after 12-months of satisfactory performance.
  49. 49. New Start Checking ® A Few Statistics 4,000 New Start Checking® accounts $19.50 monthly maintenance fee = $78,000 Monthly NSF fee revenue (net after charge-offs) = $45,000
  50. 50. Important Considerations 1. Serving IMMs is radically different. 2. Product development and pricing is important. 3. IMM transaction activity must be monitored closely. 4. The entire organization must be vigilant. 5. Creativity and flexibility are vital characteristics.
  51. 51. Establish Risk Management Operation Participates in product development. Monitors account activity. Evaluates and predicts impact of changes. Closely monitors performance trends. Keeps loss exposure within acceptable limits. Regulatory compliance.
  52. 52. Enterprise Risk Management Centralized focus. Product development. Cross-functional IMM team.
  53. 53. Challenges: Philosophical Issues Understanding IMM Behavior Staff Mindset Regulatory Mindset Risk Management Achieving Scale Market Recognition
  54. 54. Opportunities: Meet Member Needs Market Potential Reduce Dependence on Interest Margin Financial Education Credit Union Philosophy
  55. 55. Questions
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