The document discusses finding the right loan mix for credit unions. It recommends supplementing low-balance credit products with high-balance secured loans. Specifically, it suggests credit unions focus on secured loans like traditional second mortgages and mobile home loans, which can offer higher returns than low-balance signature loans and overdraft lines of credit that may lose money. The document also stresses the importance of calculating return on assets for different loan products to identify which are most profitable.
Car-title loans are expensive loans secured by the title to a borrower's vehicle. They often involve single balloon payments that are difficult for borrowers to repay in one month due to high fees. This typically forces borrowers into a cycle of repeatedly refinancing the loan, keeping them in long-term debt. Analysis of loan data found that borrowers paid back over three times the amount borrowed on average. The loans disproportionately impact low-income individuals, as the payment structures are not affordable based on typical incomes and expenses. The threats of high fees, repossession, and inability to get out of the debt cycle can have serious financial and personal consequences for vulnerable borrowers.
The document discusses how to navigate banking relationships during troubled economic times. It provides an overview of the shifts in the banking industry due to the financial crisis, including increased consolidation and losses from mortgage-backed securities and credit default swaps. It then offers advice on evaluating your bank's health, communicating proactively with your banker, understanding your loan terms and knowing when to seek other options.
Are Collateralized Loan Obligations the ticking time bomb that could trigger ...Kaan Sapanatan, CFA, CAIA
This document discusses collateralized loan obligations (CLOs) and whether they pose risks to the financial system. It provides background on the 2008 financial crisis and post-crisis regulations. CLOs have grown significantly since the crisis while providing higher returns than other fixed income assets. However, there are concerns about deteriorating underwriting standards, increasing corporate debt levels, and shifts in the CLO investor base to less regulated entities. If an economic downturn occurred, losses on CLOs could have negative impacts on the financial system and real economy. Overall the document examines both sides of the CLO debate and whether they could potentially trigger the next crisis.
The document provides an overview of several lectures on money, banking, and financial intermediaries. It discusses topics like financial intermediaries and the risks they face, innovations in financial instruments, and regulation of the banking system. Slides cover money market instruments, risks faced by financial institutions, and the roles of various financial intermediaries and regulatory agencies.
The document summarizes how risky subprime mortgages originated in Southern California, facilitated by mortgage brokers pushing these loans. These brokers were a key link in a chain that stretched from mortgage lenders to Wall Street banks that packaged the loans into securities, fueling huge profits. However, as home prices declined and defaults increased, this led to billions in losses for investors in mortgage-backed securities. The boom and subsequent bust were driven by a proliferation of loosely regulated mortgage brokers that originated risky loans, often without properly informing borrowers of terms.
Automotive lenders are increasingly offering subprime auto loans again as credit-challenged consumers' access to credit expands. Some analysts believe this trend will continue to boost auto sales as the recession's effects gradually fade. However, lenders must ensure loan quality is maintained, as aggressive subprime lending practices could lead to increased defaults if borrowers' ability to pay is overestimated. Adopting GPS tracking systems allows lenders to better monitor collateral, identify poorly performing loans, and take precautions to safeguard against future economic turbulence.
The banking industry appears to be undergoing a renaissance driven by changing consumer behavior and technical innovation. Software is eating the industry. In retrospect, we can see how the first wave of innovation came in areas such as online account access and payments. Changing consumer behavior (such as the shift to mobile) and the use of big data has enabled increasingly complex transactions (such as lending and asset management) to move online. Consumers have largely stopped going to retail branches, and reserve the occasional branch visit for major one-off transactions.
Our first investment in the financial services industry came many years ago with an investment in LendingClub. We put both equity and debt into the company, making a sizable purchase of loans via the platform itself. We saw the company’s potential to bring marketplace dynamics and software disruption to the lending industry. The end goal for borrowers and investors on the platform was simple: lower cost loans for borrowers, increased yields for investors, and high levels of customer satisfaction. As a result, LendingClub has grown into a sizable public company. With experience on the platform and a realization of the potentially transformative nature of this model, we’ve gone on to invest in companies across the online lending space: Kabbage (www.kabbage.com), LendUp (www.lendup.com), and SoFi (www.sofi.com).
The renaissance in financial services has drawn in substantial amounts of venture capital. In the past year alone, the number of fintech deals has grown 16% and the capital funded is up 46%.
While many entrepreneurs develop expertise in the specific segment they intend to disrupt, we’ve noticed that startups usually don’t have the time or resources to look outside their niche and understand how they fit into the larger context of banking and lending markets. To help put the industry in perspective, we developed an overview of the banking industry in the US. What’s remarkable is not only the insights this gives into the financial lives of Americans (be it millenials or seniors), but also the perspective this gives us on the large banks we’ve all come to use. Indeed, consolidation over the last several decades has led the four major banks (JP Morgan, Bank of America, Citigroup, and Wells Fargo) to hold around half of the market’s depository assets.
Today we’re happy to provide the first version of this industry overview. We’ve chosen brevity over depth, so as to provide a snapshot of the overall banking landscape. We’ll continue to iterate on this overview and welcome questions and comments. In subsequent posts, we plan to provide deeper dives into sectors that are of interest to both ourselves and others. We look forward to contributing to what feels like yet another opportunity to be at the front door of history-making companies.
Debt settlement companies promise to reduce consumer debt by negotiating with creditors for a fee. However, this comes with significant risks, as consumers must default on debts and see if the company can successfully negotiate reductions. The document discusses the debt settlement process, fees charged, and risks involved, such as damaged credit, collection actions, and lawsuits. It notes studies finding low program completion rates and that most consumers do not get a majority of debts settled. Despite recent reforms banning upfront fees, clients still face many risks from defaulting on debts in debt settlement programs.
Car-title loans are expensive loans secured by the title to a borrower's vehicle. They often involve single balloon payments that are difficult for borrowers to repay in one month due to high fees. This typically forces borrowers into a cycle of repeatedly refinancing the loan, keeping them in long-term debt. Analysis of loan data found that borrowers paid back over three times the amount borrowed on average. The loans disproportionately impact low-income individuals, as the payment structures are not affordable based on typical incomes and expenses. The threats of high fees, repossession, and inability to get out of the debt cycle can have serious financial and personal consequences for vulnerable borrowers.
The document discusses how to navigate banking relationships during troubled economic times. It provides an overview of the shifts in the banking industry due to the financial crisis, including increased consolidation and losses from mortgage-backed securities and credit default swaps. It then offers advice on evaluating your bank's health, communicating proactively with your banker, understanding your loan terms and knowing when to seek other options.
Are Collateralized Loan Obligations the ticking time bomb that could trigger ...Kaan Sapanatan, CFA, CAIA
This document discusses collateralized loan obligations (CLOs) and whether they pose risks to the financial system. It provides background on the 2008 financial crisis and post-crisis regulations. CLOs have grown significantly since the crisis while providing higher returns than other fixed income assets. However, there are concerns about deteriorating underwriting standards, increasing corporate debt levels, and shifts in the CLO investor base to less regulated entities. If an economic downturn occurred, losses on CLOs could have negative impacts on the financial system and real economy. Overall the document examines both sides of the CLO debate and whether they could potentially trigger the next crisis.
The document provides an overview of several lectures on money, banking, and financial intermediaries. It discusses topics like financial intermediaries and the risks they face, innovations in financial instruments, and regulation of the banking system. Slides cover money market instruments, risks faced by financial institutions, and the roles of various financial intermediaries and regulatory agencies.
The document summarizes how risky subprime mortgages originated in Southern California, facilitated by mortgage brokers pushing these loans. These brokers were a key link in a chain that stretched from mortgage lenders to Wall Street banks that packaged the loans into securities, fueling huge profits. However, as home prices declined and defaults increased, this led to billions in losses for investors in mortgage-backed securities. The boom and subsequent bust were driven by a proliferation of loosely regulated mortgage brokers that originated risky loans, often without properly informing borrowers of terms.
Automotive lenders are increasingly offering subprime auto loans again as credit-challenged consumers' access to credit expands. Some analysts believe this trend will continue to boost auto sales as the recession's effects gradually fade. However, lenders must ensure loan quality is maintained, as aggressive subprime lending practices could lead to increased defaults if borrowers' ability to pay is overestimated. Adopting GPS tracking systems allows lenders to better monitor collateral, identify poorly performing loans, and take precautions to safeguard against future economic turbulence.
The banking industry appears to be undergoing a renaissance driven by changing consumer behavior and technical innovation. Software is eating the industry. In retrospect, we can see how the first wave of innovation came in areas such as online account access and payments. Changing consumer behavior (such as the shift to mobile) and the use of big data has enabled increasingly complex transactions (such as lending and asset management) to move online. Consumers have largely stopped going to retail branches, and reserve the occasional branch visit for major one-off transactions.
Our first investment in the financial services industry came many years ago with an investment in LendingClub. We put both equity and debt into the company, making a sizable purchase of loans via the platform itself. We saw the company’s potential to bring marketplace dynamics and software disruption to the lending industry. The end goal for borrowers and investors on the platform was simple: lower cost loans for borrowers, increased yields for investors, and high levels of customer satisfaction. As a result, LendingClub has grown into a sizable public company. With experience on the platform and a realization of the potentially transformative nature of this model, we’ve gone on to invest in companies across the online lending space: Kabbage (www.kabbage.com), LendUp (www.lendup.com), and SoFi (www.sofi.com).
The renaissance in financial services has drawn in substantial amounts of venture capital. In the past year alone, the number of fintech deals has grown 16% and the capital funded is up 46%.
While many entrepreneurs develop expertise in the specific segment they intend to disrupt, we’ve noticed that startups usually don’t have the time or resources to look outside their niche and understand how they fit into the larger context of banking and lending markets. To help put the industry in perspective, we developed an overview of the banking industry in the US. What’s remarkable is not only the insights this gives into the financial lives of Americans (be it millenials or seniors), but also the perspective this gives us on the large banks we’ve all come to use. Indeed, consolidation over the last several decades has led the four major banks (JP Morgan, Bank of America, Citigroup, and Wells Fargo) to hold around half of the market’s depository assets.
Today we’re happy to provide the first version of this industry overview. We’ve chosen brevity over depth, so as to provide a snapshot of the overall banking landscape. We’ll continue to iterate on this overview and welcome questions and comments. In subsequent posts, we plan to provide deeper dives into sectors that are of interest to both ourselves and others. We look forward to contributing to what feels like yet another opportunity to be at the front door of history-making companies.
Debt settlement companies promise to reduce consumer debt by negotiating with creditors for a fee. However, this comes with significant risks, as consumers must default on debts and see if the company can successfully negotiate reductions. The document discusses the debt settlement process, fees charged, and risks involved, such as damaged credit, collection actions, and lawsuits. It notes studies finding low program completion rates and that most consumers do not get a majority of debts settled. Despite recent reforms banning upfront fees, clients still face many risks from defaulting on debts in debt settlement programs.
The less transparent, often misunderstood high yield municipal bond sector offers not only unusually high tax exempt income, but a mostly unrecognized source of long run diversification with the taxable high grade (re what the Fed says and does) bond market.
Credit Union Myths - It's a Money ThingTim McAlpine
It’s a Money Thing is a collection of effective and affordable financial education content designed to engage and teach young adults while setting your credit union apart. These presentations and other elements are all customizable with your credit union's logo. Check out Currency Marketing at currencymarketing.ca/money-thing for more information.
Zions Bancorporation is a financial holding company headquartered in Utah that operates 7 banking segments across 11 western states. It generates most of its revenue from commercial banking but also emphasizes wealth management and other services. The analyst believes Zions is well positioned for future earnings growth due to an improving economy and higher interest rates. Based on various valuation models, the target price is $55.72, implying a 27.68% upside from the current price. However, risks include potential manipulation of financial statements and dependence on expense savings and interest rate changes.
Major banks in Australia are tightening lending standards for residential property investors in response to directives from the banking regulator APRA. This is creating bottlenecks as borrowers seek alternative lenders, and there are concerns that many investors who purchased properties off-the-plan with small deposits may struggle to secure financing to pay out the remaining balances as build completion nears. The surge in house and apartment listings also suggests that some sellers are nervous about prices peaking and the potential impacts of rising interest rates.
Specialty lending has grown significantly due to new regulations tightening bank lending standards. This has led banks to pull back from high-risk lending, driving clients to digital alternative lenders. These lenders utilize technology like big data and automation to efficiently match borrowers and lenders. Though still small compared to traditional banks, the specialty lending market has grown exponentially and has considerable room for further expansion, representing an opportunity for investors.
Near-record numbers of borrowers are fixing their mortgage rates as lenders crack down on lending standards. As lenders increase funding costs and tighten criteria for assessing borrower dependability, many homeowners are securing fixed rates to ensure stable repayments. However, fixed rates have disadvantages like lack of flexibility. Borrowers must carefully consider factors like early repayment fees and higher post-fixed rates to find the best option.
This document summarizes information about Prosper Marketplace, Inc., a peer-to-peer lending platform. Some key points:
- Prosper was the first US peer-to-peer lending platform, launched in 2006, and has pioneered the development of this asset class.
- Peer-to-peer lending allows borrowers to access competitive loan rates and terms while reducing costs for lenders compared to traditional banks.
- Prosper has attracted highly creditworthy borrowers, with average credit scores of 701 and incomes of $85,761. This creates an investment opportunity for lenders to earn returns from consumer lending.
- Prosper uses a rigorous risk management process to underwrite and service loans,
This document contains the presentation slides from Bank of America's Chief Financial Officer Joe Price at a securities conference on September 17, 2007. The presentation discusses Bank of America's diversified business mix and earnings sources, its leadership positions across various business lines, and its goals to continue growing earnings through increasing revenues, improving operating leverage, and managing credit costs over the long term. It highlights the company's nationwide footprint and ability to reach customers through various channels.
- The document discusses research conducted on UK mid-market corporates and non-bank lenders to understand their perspectives and experiences with non-bank lending.
- The research found that mid-market corporates are aware of various non-bank lending options and have positive perceptions of non-bank lenders. 61% of corporates had used a non-bank lender before, most commonly credit funds, private equity funds, and junior debt funds.
- The research also examined non-bank lenders and found gaps in understanding between lenders and corporates regarding deal terms, conditions, and ownership expectations that can cause deals to fall through. Non-bank lenders indicated direct lending to corporates as their preferred
This document discusses factors that may lead to overestimating demand for microloans. It notes that not all poor individuals want or can qualify for microloans. Many simply do not want or need loans due to preferring alternative financing or not having a viable investment. Additionally, some potential borrowers are deemed uncreditworthy due to insufficient or unreliable income to repay loans. Even among those who want and qualify for loans, demand estimates assume constant borrowing when in reality borrowers are only active part of the time. The evidence suggests current demand may be overestimated by a considerable margin.
This document provides an overview of the life insurance industry and discusses why individual life and health insurers have focused on wealthier customers, leaving many with inadequate coverage. It argues that the slow underwriting and issue process is a key barrier preventing insurers from effectively serving middle-income customers through alternate distribution channels like banks. Faster instant issue underwriting could address this by reducing costs, application fallout rates, and sales representative workload, potentially reviving the industry.
Ch 18 consumer loans, credit cards, and real estate lendingTazar Aung
This document discusses consumer lending, including types of consumer loans like residential mortgages, installment loans, noninstallment loans, and credit cards. It covers evaluating consumer loan applications, credit scoring, laws and regulations around consumer lending, and pricing considerations for consumer loans. Real estate lending is also discussed, along with factors in evaluating real estate loans and types of mortgages.
The Low to moderate income residential homebuyer has been overlooked by many lenders. This is an opportunity that could change the face of many communities and increase profitability of many banks.
This investor presentation summarizes an opportunity to invest in a technology company positioned for growth in the marketplace lending sector. The company has an innovative warehouse model that enables immediate funding of loans. It has an experienced team and is operating in an untapped growth market with few competitors. Marketplace lending has grown rapidly in recent years and provides higher margins and lower costs compared to traditional banks. The company's model is designed for faster growth and earlier profits than competitors. It has achieved rapid early growth and is seeking a capital raising of $10-15 million to further fund loan origination and operations.
Igor Zax interviewed on Credit Insurance for Secured LenderIgor Zax (Zaks)
Igor Zax, Managing Director of Tenzor Ltd., was interviewed about credit insurance, among other industry leaders in Secured lender, a publication of Commercial Finance Association.
The article,
Trade Credit Insurance Proves to be a Useful Financial Tool
was written by, Eileen Wubbe, Senior Editor and also includes interviews with senior officers of credit insurers (Atradius, COFACE, EULERHermes), insurance brokers (Marsh, Arthur J. Gallagher) and Financiers (GE, EX-Works Capital).
Igor Zax also moderated credit insurance panel at Factoring and Trade Finance World, a major conference by Commercial Finance Association, that will be held in Miami 2-4 March 2015.
This document discusses sub-prime lending, including its definition, history, types of sub-prime mortgages, growth in the US market, and criticisms. It provides an overview of key regulations from the 1980s that enabled higher interest rates and fees. While proponents argue it expanded homeownership, critics say lenders encouraged risky loans and misled borrowers to chase profits. The mortgage industry, Wall Street firms, rating agencies, and realtors all faced criticism for their roles in the sub-prime crisis and for not properly managing risks. Ethical issues involved products like interest-only loans and stated income applications.
Financing Small Business Success: The Rise of Online LendingIntuit Inc.
As part of its ongoing efforts to solve persistent pain points for small business, Intuit released a new research report, “Financing Small Business Success” which shows how online lenders are reshaping the small business financing market.
The research was conducted by Ebiquity and based on 500 interviews held July 20-27. Research was completed online among owners and managers of U.S. small businesses that have attempted, either successfully or unsuccessfully, to secure funding for their company through business financing channels.
The forecast was prepared by Emergent Research, based on existing assessments of the small business credit market outlined in the Harvard Business School paper, “The State of Small Business Lending: Credit Access During the Recovery and How Technology May Change the Game.” The forecast assumes moderate U.S. economic growth averaging 2-3 percent over the forecast timeframe.
MMI Cautions to Think Twice Before Tapping Your Home's Equityfabulouspsychop39
MMI cautions consumers to carefully consider the risks of tapping into home equity through consolidation loans. While consolidation loans simplify payments by combining multiple debts into one payment, homeowners must qualify for the loan, may face higher interest rates with poor credit, and risk foreclosure if they cannot repay the new secured debt. MMI recommends that if taking a home equity loan, consumers must close all existing accounts to avoid accumulating new credit card debt that defeats the purpose of debt consolidation.
This document summarizes the growth of online lending platforms and their impact on traditional banks. It discusses how online lenders have more efficiently served small businesses and consumers through streamlined online application processes. It also describes how some online lenders have partnered with large banks, such as OnDeck partnering with JP Morgan. This allows banks to utilize the online lenders' platforms and underwriting technologies to offer loans at lower costs than traditional in-person lending processes while keeping the loans on the banks' balance sheets. The partnership helps online lenders expand their reach while improving their resilience through the stability of banks' funding sources.
The less transparent, often misunderstood high yield municipal bond sector offers not only unusually high tax exempt income, but a mostly unrecognized source of long run diversification with the taxable high grade (re what the Fed says and does) bond market.
Credit Union Myths - It's a Money ThingTim McAlpine
It’s a Money Thing is a collection of effective and affordable financial education content designed to engage and teach young adults while setting your credit union apart. These presentations and other elements are all customizable with your credit union's logo. Check out Currency Marketing at currencymarketing.ca/money-thing for more information.
Zions Bancorporation is a financial holding company headquartered in Utah that operates 7 banking segments across 11 western states. It generates most of its revenue from commercial banking but also emphasizes wealth management and other services. The analyst believes Zions is well positioned for future earnings growth due to an improving economy and higher interest rates. Based on various valuation models, the target price is $55.72, implying a 27.68% upside from the current price. However, risks include potential manipulation of financial statements and dependence on expense savings and interest rate changes.
Major banks in Australia are tightening lending standards for residential property investors in response to directives from the banking regulator APRA. This is creating bottlenecks as borrowers seek alternative lenders, and there are concerns that many investors who purchased properties off-the-plan with small deposits may struggle to secure financing to pay out the remaining balances as build completion nears. The surge in house and apartment listings also suggests that some sellers are nervous about prices peaking and the potential impacts of rising interest rates.
Specialty lending has grown significantly due to new regulations tightening bank lending standards. This has led banks to pull back from high-risk lending, driving clients to digital alternative lenders. These lenders utilize technology like big data and automation to efficiently match borrowers and lenders. Though still small compared to traditional banks, the specialty lending market has grown exponentially and has considerable room for further expansion, representing an opportunity for investors.
Near-record numbers of borrowers are fixing their mortgage rates as lenders crack down on lending standards. As lenders increase funding costs and tighten criteria for assessing borrower dependability, many homeowners are securing fixed rates to ensure stable repayments. However, fixed rates have disadvantages like lack of flexibility. Borrowers must carefully consider factors like early repayment fees and higher post-fixed rates to find the best option.
This document summarizes information about Prosper Marketplace, Inc., a peer-to-peer lending platform. Some key points:
- Prosper was the first US peer-to-peer lending platform, launched in 2006, and has pioneered the development of this asset class.
- Peer-to-peer lending allows borrowers to access competitive loan rates and terms while reducing costs for lenders compared to traditional banks.
- Prosper has attracted highly creditworthy borrowers, with average credit scores of 701 and incomes of $85,761. This creates an investment opportunity for lenders to earn returns from consumer lending.
- Prosper uses a rigorous risk management process to underwrite and service loans,
This document contains the presentation slides from Bank of America's Chief Financial Officer Joe Price at a securities conference on September 17, 2007. The presentation discusses Bank of America's diversified business mix and earnings sources, its leadership positions across various business lines, and its goals to continue growing earnings through increasing revenues, improving operating leverage, and managing credit costs over the long term. It highlights the company's nationwide footprint and ability to reach customers through various channels.
- The document discusses research conducted on UK mid-market corporates and non-bank lenders to understand their perspectives and experiences with non-bank lending.
- The research found that mid-market corporates are aware of various non-bank lending options and have positive perceptions of non-bank lenders. 61% of corporates had used a non-bank lender before, most commonly credit funds, private equity funds, and junior debt funds.
- The research also examined non-bank lenders and found gaps in understanding between lenders and corporates regarding deal terms, conditions, and ownership expectations that can cause deals to fall through. Non-bank lenders indicated direct lending to corporates as their preferred
This document discusses factors that may lead to overestimating demand for microloans. It notes that not all poor individuals want or can qualify for microloans. Many simply do not want or need loans due to preferring alternative financing or not having a viable investment. Additionally, some potential borrowers are deemed uncreditworthy due to insufficient or unreliable income to repay loans. Even among those who want and qualify for loans, demand estimates assume constant borrowing when in reality borrowers are only active part of the time. The evidence suggests current demand may be overestimated by a considerable margin.
This document provides an overview of the life insurance industry and discusses why individual life and health insurers have focused on wealthier customers, leaving many with inadequate coverage. It argues that the slow underwriting and issue process is a key barrier preventing insurers from effectively serving middle-income customers through alternate distribution channels like banks. Faster instant issue underwriting could address this by reducing costs, application fallout rates, and sales representative workload, potentially reviving the industry.
Ch 18 consumer loans, credit cards, and real estate lendingTazar Aung
This document discusses consumer lending, including types of consumer loans like residential mortgages, installment loans, noninstallment loans, and credit cards. It covers evaluating consumer loan applications, credit scoring, laws and regulations around consumer lending, and pricing considerations for consumer loans. Real estate lending is also discussed, along with factors in evaluating real estate loans and types of mortgages.
The Low to moderate income residential homebuyer has been overlooked by many lenders. This is an opportunity that could change the face of many communities and increase profitability of many banks.
This investor presentation summarizes an opportunity to invest in a technology company positioned for growth in the marketplace lending sector. The company has an innovative warehouse model that enables immediate funding of loans. It has an experienced team and is operating in an untapped growth market with few competitors. Marketplace lending has grown rapidly in recent years and provides higher margins and lower costs compared to traditional banks. The company's model is designed for faster growth and earlier profits than competitors. It has achieved rapid early growth and is seeking a capital raising of $10-15 million to further fund loan origination and operations.
Igor Zax interviewed on Credit Insurance for Secured LenderIgor Zax (Zaks)
Igor Zax, Managing Director of Tenzor Ltd., was interviewed about credit insurance, among other industry leaders in Secured lender, a publication of Commercial Finance Association.
The article,
Trade Credit Insurance Proves to be a Useful Financial Tool
was written by, Eileen Wubbe, Senior Editor and also includes interviews with senior officers of credit insurers (Atradius, COFACE, EULERHermes), insurance brokers (Marsh, Arthur J. Gallagher) and Financiers (GE, EX-Works Capital).
Igor Zax also moderated credit insurance panel at Factoring and Trade Finance World, a major conference by Commercial Finance Association, that will be held in Miami 2-4 March 2015.
This document discusses sub-prime lending, including its definition, history, types of sub-prime mortgages, growth in the US market, and criticisms. It provides an overview of key regulations from the 1980s that enabled higher interest rates and fees. While proponents argue it expanded homeownership, critics say lenders encouraged risky loans and misled borrowers to chase profits. The mortgage industry, Wall Street firms, rating agencies, and realtors all faced criticism for their roles in the sub-prime crisis and for not properly managing risks. Ethical issues involved products like interest-only loans and stated income applications.
Financing Small Business Success: The Rise of Online LendingIntuit Inc.
As part of its ongoing efforts to solve persistent pain points for small business, Intuit released a new research report, “Financing Small Business Success” which shows how online lenders are reshaping the small business financing market.
The research was conducted by Ebiquity and based on 500 interviews held July 20-27. Research was completed online among owners and managers of U.S. small businesses that have attempted, either successfully or unsuccessfully, to secure funding for their company through business financing channels.
The forecast was prepared by Emergent Research, based on existing assessments of the small business credit market outlined in the Harvard Business School paper, “The State of Small Business Lending: Credit Access During the Recovery and How Technology May Change the Game.” The forecast assumes moderate U.S. economic growth averaging 2-3 percent over the forecast timeframe.
MMI Cautions to Think Twice Before Tapping Your Home's Equityfabulouspsychop39
MMI cautions consumers to carefully consider the risks of tapping into home equity through consolidation loans. While consolidation loans simplify payments by combining multiple debts into one payment, homeowners must qualify for the loan, may face higher interest rates with poor credit, and risk foreclosure if they cannot repay the new secured debt. MMI recommends that if taking a home equity loan, consumers must close all existing accounts to avoid accumulating new credit card debt that defeats the purpose of debt consolidation.
This document summarizes the growth of online lending platforms and their impact on traditional banks. It discusses how online lenders have more efficiently served small businesses and consumers through streamlined online application processes. It also describes how some online lenders have partnered with large banks, such as OnDeck partnering with JP Morgan. This allows banks to utilize the online lenders' platforms and underwriting technologies to offer loans at lower costs than traditional in-person lending processes while keeping the loans on the banks' balance sheets. The partnership helps online lenders expand their reach while improving their resilience through the stability of banks' funding sources.
RECOURSE VS NON RECOURSE FOR COMMERCIAL REAL ESTATE FINANCINGLynn Aziz
This document summarizes the key differences between recourse and nonrecourse commercial real estate loans. Recourse loans offer more flexibility in pricing and structure but involve personal liability, while nonrecourse loans eliminate personal liability but impose constraints like escrow accounts. The document examines factors like loan characteristics, flexibility, ongoing management, and liability for investors to consider when determining the best loan type for their needs and investment objectives.
This document summarizes a new lending program called ClearChoice that allows credit unions to provide loans to members based on their deposit history rather than credit scores. It describes how ClearChoice works, the benefits to both credit unions and members, and how it could help credit unions attract new members and grow their business by meeting everyday shopping needs through an interest-free loan program. ClearChoice expects this will increase direct loan growth and spending at credit unions.
National Payday Loan Relief Sept. 01, 2015
Press Release
The document summarizes efforts to provide relief to consumers trapped in cycles of debt from payday loans. It outlines how predatory lenders target certain demographics and trap borrowers with triple-digit interest rates and fees. Recent studies have shown increased discriminatory lending patterns. Advocacy groups like the CFPB and National Payday Loan Relief are working to assist consumers in debt settlement and bring awareness to abusive industry practices. National Payday Loan Relief has helped thousands of clients reduce various unsecured debts over its two years of operation.
This document discusses the importance of controlling operating expenses to ensure profitability on loans. It provides the following key points:
1) While interest margins have widened as rates have fallen, operating costs as a percentage of assets have risen for mortgage, consumer, and credit card loans.
2) Calculating accurate loan origination and maintenance costs is important for properly pricing loans. Formulas are provided to determine these per-loan costs based on department costs and time spent on origination vs maintenance.
3) Controlling costs, such as by requiring electronic payments, can significantly increase returns on auto loans compared to simply raising rates or fees. Reducing costs preserves competitive positioning versus competitors who rely on price increases.
Credit unions have struggled over the past decade as their target demographics have changed dramatically. Younger consumers expect to do their banking digitally and demand services like mobile access that many smaller credit unions cannot provide. Additionally, over-regulation has increased compliance costs for credit unions. To adapt, credit unions must modernize their digital offerings, focus on data analytics to better target potential members, and get more creative with their marketing, focusing on member benefits rather than just promoting loans. The pandemic accelerated credit union challenges, causing average shrinkage of 7%, so retention efforts are also critical alongside new member acquisition.
Everything you need to know about the top economic stories from September 2014, including the Bank of England base rate voting split, lower unemployment rate and the No vote for Scottish independence.
Wish Finance has developed a business model to provide loans to small and medium enterprises (SMEs) using alternative data sources. It sources funds from hedge funds and financial institutions to provide loans to SMEs based on an analysis of real-time point-of-sale transaction data, cash flow, past loan performance, and vendor payment history. Repayments are made seamlessly through deductions of 2-5% of customer payments made via point-of-sale terminals. The loans also come with insurance protection against borrower bankruptcy. Wish Finance partners with point-of-sale data providers and insurers in each market to efficiently scale its lending operations across countries.
This document provides an overview of payday lending regulations and practices. It discusses how regulations vary significantly between states and countries. It also examines the different ways interest rates on payday loans are calculated, loan processes, borrower demographics, arguments around the sustainability of high interest payday loans, and recent regulatory actions.
Introduction and HistoryAlly Bank, a subsidiary of Ally Fina.docxnormanibarber20063
Introduction and History
Ally Bank, a subsidiary of Ally Financial Inc., offers cus-
tomers a different type of bank and a different type of
banking experience. Unlike traditional banks with hun-
dreds of branches and thousands of ATMs, Ally Bank has
only two offices and no ATMs. What the company lacks
in physical presence, it makes up for with a 24/7 call cen-
ter and instant online banking. What it saves by not pay-
ing to rent a large number of locations, it returns to the
customer in the form of competitive interest rates on cer-
tificates of deposit (CDs), as well as savings, money mar-
ket, and checking accounts. And instead of maintaining
its own ATMs, it piggybacks on existing ATM networks
and compensates its customers for any fees incurred.
Although Ally Bank is a new name, it is not a new com-
pany. Ally Bank and its parent company—Ally Financial
Inc.—originally stemmed from General Motors Acceptance
Corporation (GMAC), which was formed in 1919. GMAC
was the main provider of automotive financing to General
Motors dealerships. As the demand for cars grew, so did
GMAC. Its success in auto financing provided it with the
capital to expand into other product areas, such as insur-
ance, direct banking, mortgage, and commercial finance.
In 2006, General Motors spun GMAC off as a sepa-
rate entity. Although it was still the primary source of
funding for General Motor vehicle purchases, the bank
had grown its portfolio and exposure in a number of
markets. Because of its diversification into the subprime
mortgage market, the 2008 financial meltdown caused
a liquidity crisis at GMAC and set the stage for the cre-
ation of Ally Bank.
The banking division of GMAC was formed in
the final days of 2008 as part of a year-end deal with
the Federal Reserve. On December 24, 2008, GMAC
officially became a bank holding company. Five days
later on December 29, 2008, the US Treasury announced
it would invest $5 billion of its Troubled Asset Relief
Program (TARP) funds in GMAC and receive pre-
ferred shares in return.1 In May 2009, GMAC officially
changed its name to Ally Bank.2 The rationale for the
name change stemmed from the impending bankruptcy
of General Motors and a desire to distance the bank from
the automobile manufacturing company and its relation-
ship with that firm.
Ally Bank is classified as a direct bank,3 which means it
has no bricks-and-mortar locations. This form of banking
has cost-saving benefits for the bank as well as investment
opportunities for customers. The bank is able to save on
overhead costs and transfer those savings to its customers in
the form of higher interest rates if it chooses to do so. With
increasing consumer comfort in web-based technology and
the Internet, online banking may be the heir apparent of
the industry. By offering only online services, Ally Bank has
enjoyed these costs savings since its inception.
Ally Bank returns its savings to customers in three
ways. First,.
This document provides information about Americans' high levels of credit card and other debt. It notes that in 2007, the average credit card debt per American was $9,840, and over 60% of credit card holders carry a monthly balance. It then discusses options for dealing with debt, including doing nothing, bankruptcy, debt consolidation loans, credit counseling, and debt settlement. It argues that debt settlement can eliminate 30-50% of unsecured debt and allow people to become debt free in 3-7 years, making it the fastest and least expensive option for most people facing financial hardship and unable to pay all their monthly debt obligations.
9 Mortgage MarketsCHAPTER OBJECTIVESThe specific objectives of.docxblondellchancy
9 Mortgage Markets
CHAPTER OBJECTIVES
The specific objectives of this chapter are to:
· ▪ provide a background on mortgages,
· ▪ describe the common types of residential mortgages,
· ▪ explain the valuation and risk of mortgages,
· ▪ explain mortgage-backend securities, and
· ▪ explain how mortgage problems led to the 2008- 2009 credit crisis.
9-1 BACKGROUND ON MORTGAGES
A mortgage is a form of debt created to finance investment in real estate. The debt is secured by the property, so if the property owner does not meet the payment obligations, the creditor can seize the property. Financial institutions such as savings institutions and mortgage companies serve as intermediaries by originating mortgages. They consider mortgage applications and assess the creditworthiness of the applicants.
The mortgage represents the difference between the down payment and the value to be paid for the property. The mortgage contract specifies the mortgage rate, the maturity, and the collateral that is backing the loan. The originator charges an origination fee when providing a mortgage. In addition, if it uses its own funds to finance the property, it will earn profit from the difference between the mortgage rate that it charges and the rate that it paid to obtain the funds. Most mortgages have a maturity of 30 years, but 15-year maturities are also available.
9-1a How Mortgage Markets Facilitate the Flow of Funds
WEB
www.mbaa.org
News regarding the mortgage markets.
The means by which mortgage markets facilitate the flow of funds are illustrated in Exhibit 9.1. Financial intermediaries originate mortgages and finance purchases of homes. The financial intermediaries that originate mortgages obtain their funding from household deposits. They also obtain funds by selling some of the mortgages that they originate directly to institutional investors in the secondary market. These funds are then used to finance more purchases of homes, condominiums, and commercial property. Overall, mortgage markets allow households and corporations to increase their purchases of homes, condominiums, and commercial property and thereby finance economic growth.
Institutional Use of Mortgage Markets Mortgage companies, savings institutions, and commercial banks originate mortgages. Mortgage companies tend to sell their mortgages in the secondary market, although they may continue to process payments for the mortgages that they originated. Thus their income is generated from origination and processing fees, and not from financing the mortgages over a long-term period. Savings institutions and commercial banks commonly originate residential mortgages. Commercial banks also originate mortgages for corporations that purchase commercial property. Savings institutions and commercial banks typically use funds received from household deposits to provide mortgage financing. However, they also sell some of their mortgages in the secondary market.
Exhibit 9.1 How Mortgage Markets Facilitate t ...
As many regional banks consolidated or went
out of business during the recession, credit
unions stepped in to take advantage of the void
left by these lenders, particularly in auto lending.
In the last five years alone, credit unions have
maximized their indirect lending efforts
significantly, making them a growing force in
auto lending that is taking away market share
from banks. While credit unions' $1 trillion in total
assets seem paltry compared to the $16 trillion
amassed by banks in the U.S., these smaller,
community-based financial institutions have
begun to outpace their banking rivals when it
comes to auto lending.
Get In The Drivers Seat Of Lending To Automobile Dealershipserikday
This article discusses key issues for lenders to consider when lending to automobile dealerships. It outlines the types of financing requests dealerships typically make, including floorplan financing, mortgages, and working capital loans. It also discusses important factors for lenders to evaluate such as the dealership ownership structure, franchise mix, processing days, advance rates and collateral requirements. The article emphasizes the importance of understanding the dealership's operations, financials, ownership, and managing credit risks when lending to automobile dealerships.
This document discusses common myths about credit scores and summarizes research from Equifax on credit score trends. It addresses three myths: 1) That there is only one credit score, when in reality there are many potential scores from different credit bureaus and models. 2) That credit scores are permanent, when in fact they fluctuate based on financial behaviors and can change significantly over time periods as short as 3 months. 3) That high income or wealth guarantees a good credit score, when research shows income and credit scores are not strongly correlated and high earners can still have low scores while low earners can have high scores.
AAIS produced advisory notices from 2012 to 2016 that provided a combination of regulatory news and AAIS announcements. These notices resulted in a growing collection of product regulatory information for each jurisdiction based on the day-to-day research of AAIS's Government Affairs, Legal, and Compliance team.
The document discusses lessons that financial institutions can learn from foreclosing on and owning hotel properties. It describes how one institution, Security First Federal, prevented losses on a foreclosed hotel by keeping it running with an employee monitoring cash flow until a new owner was found. The document advises that hotels should be treated like businesses and their value depends on maintaining operations. It provides tips for institutions that must take over hotels, such as working with existing operators if they are honest and knowledgeable. The document also discusses regulatory challenges and options for selling troubled hotel properties, such as allowing new buyers to invest in renovations.
The document discusses how regulatory and technological changes are increasing pressures on financial institutions to improve security. The new regulations eliminate specific security requirements and place greater responsibility on institutions to develop their own security programs tailored to their needs. This represents a shift away from prescriptive rules towards giving institutions more flexibility but also more responsibility. Security roles are becoming more complex and important given new technologies, growing liability risks, and stricter regulatory scrutiny of security compliance.
The document discusses three main proposals for restructuring financial institution regulation that are being debated in the House Banking Committee. It also discusses other related issues like community reinvestment obligations and estimates of future costs to resolve failed banks. The three main regulatory restructuring proposals are: 1) A Bush administration plan to create a single regulator under Treasury; 2) A proposal by Rep. Gonzalez to create an independent regulator; 3) A task force plan to merge two existing regulators and reduce the Fed's role. Debate reflects turf battles among regulators as much as philosophies. The status quo may remain as more proposals complicate reaching a consensus.
This document discusses systems that financial institutions are using to boost employee productivity. It provides examples of software programs that track employee performance in areas like sales, scheduling, and back-office work. The programs vary in price from $1,000 to $10,000 and can measure metrics like cross-selling ratios, sales volumes, and time spent on different tasks. Implementing even simple automated tracking systems has been shown to immediately improve productivity for companies like Family Bank.
The House Banking Committee passed a bill on banking reform that included some key Treasury proposals but excluded others. The bill would allow interstate branching, commercial ownership of banks, and affiliations between banks and securities/insurance firms. However, it rejected proposals to restrict deposit insurance coverage and overhaul financial regulation. Meanwhile, the Senate Banking Committee chairman issued a draft bill that took a different approach, prohibiting commercial bank ownership and merging bank supervisors instead of restructuring regulators. Further debate in additional House committees and the full Senate means more changes are likely before final legislation is approved.
1) Credit unions need to carefully measure the return on investment (ROI) of promotional campaigns, as they have little margin for error due to the costs involved. A promotional campaign that costs $5,000 but only generates $750,000 in new loans results in a loss unless it returns at least 67 basis points.
2) Credit unions on average spend a higher percentage of their assets on marketing than banks and savings institutions, around 10 basis points compared to 7 and 6 respectively. This is because credit unions rely more heavily on direct mail marketing.
3) To determine the ROI of a promotional campaign, the marketing director of a credit union uses a formula that calculates net interest income, total income, net income,
1. FINDING THE
RIGHT LOAN MIX
26 CREDIT UNION MANAGEMENT
In a tough new
environment, be
careful to supple-
ment low-balance
credit products
with high-balance
secured loans.
By Ken Williams and
joseph Harrington
H
ow does a credit union
know if it's offering the right
mix of loan products?
At a time when many
credit unions are only 65-percent
loaned out, it's tempting to say that any
loan is a good loan. And it would fol-
low that any loan mix that paid better
than six-month Treasury bills (currently
at less than four percent) would be a
good loan mix.
All that might be true if the economy
remains as sluggish as it was during most
of 1992. But there are signs that things
are improving, and credit unions should
be cautious about saddling themselves
with bad loan mixes created in ad hoc
fashion to get through tough times.
JANUARY 1993
2. ~ -~
!!!i~_, A R K E T I N :;
_ ro~ ::Xs
This danger is particularly acute in
light of two challenges currently facing
credit union managers:
•Loan volume has been falling in all
areas except for revolving credit. Con-
sumers are clearly trying to shed debt
after rolling it up in record amounts in
the 1980s.
•At a time when there is intense com-
petitive pressure to cut loan rates, many
credit unions may see their deposit costs
increase as a result of Truth in Savings.
This is because regulations implement-
ing the law will limit use of the low-bal-
ance method of calculating interest.
"ALL THINGS
TO ALL PEOPLE"
The market positioning of credit unions
also contributes to the danger that they
will assemble loans in haphazard fash-
ion. A 1991 Moebs $ervices' survey of
banks, savings and loans (S&Ls) and
credit unions indicates that more than
76 percent of credit unions with more
than $25 million in assets offer at least
nine consumer loan products. They are:
new and used car loans, signature loans,
loans for recreational vehicles (RVs),
boat loans, home-equity lines of credit,
credit cards, adjustable-rate mortgages
(ARMs) and fixed-rate mortgages
(FRMs). See Figure I.
In contrast, the only loan products
offered by 76 percent or more of com-
mercial banks are new and used car
loans, boat and RV loans, credit cards
and signature loans. And the only loans
offered by 76 percent or more of savings
institutions are ARMs and FRMs.
What does all this mean? It means
that, despite the recent transformation
in financial services, the three deposito-
ries still show a bias toward their tradi-
tional positioning in the credit market.
Banks target product niches, S&Ls stick
with real estate, and credit unions, driv-
en by a member-service philosophy, try
to be "all things to all people."
This approach can be successful: It's
interesting to note that the survey
grouping that most closely resembled
the credit union profile is the one called
"market leaders." Market leaders are
large institutions that participants in
Moebs $ervices seminars identify as
JANUARY 1993
trend-setters for product design and
pricing in their respective markets. Like
credit unions, more than 76 percent of
market leaders offer a wide variety of
loan products, so they must see some-
thing in this approach.
Still, large institutions certainly have
had their troubles of late, and credit
unions are in no position to develop
the servicing systems that
break even on them-even after ac-
counting for automatic payroll deduc-
tions. Of course, charging rates greater
than credit card rates would defeat the
purpose of these loans: Borrowers often
use them to pay off credit card balances.
Yet every one of the credit union re-
spondents to our 1991 survey indicated
that they offer signature loans. More-
over, 58.8 percent of the re-
money-center banks use.
Hence, as credit unions seek
to boost loan volumes, some
careful choosing is in order.
Banks target spondents indicated that
they require no minimum
balance for such loans.product niches,
S&Ls stick with
In contrast, more than 75
percent of banks and savings
institutions required mini-
mum balances. Credit
LOSING
PROPOSITIONS
real estate, and
When it comes to making
product choices, Moebs $er-
vices' surveys indicate that
many financial institutions
simply don't offer many po-
tentially profitable loans.
Given the slack demand for
loans, can you afford to
overlook any opportunities?
credit unions, driv· unions that did require min-
imum balances on average
required only $500, half the
service philosophy, $1,000 required by banks
and savings institutions and
en by a member·
try to be "all things only a fourth of the $2,000
to all people."
required by market leaders.
Unless you charge usurious
Conversely, we have
found that many institutions, especially
credit unions, offer products that pro-
duce little or no return-products that
even lose money.
To determine which loans contribute
to the bottom line, we calculated the re-
turn on assets (ROA) for each loan prod-
uct using the following factors:
•the average amount financed for
various loan products, provided by the
Federal Reserve and various trade asso-
ciations; and
•data from the Fed's Functional Cost
Analysis and Moebs $ervices' research
on the costs of originating and collect-
ing the various loans. (Both sources
break down data for banks, S&Ls and
credit unions.)
The average amount financed was di-
vided by its net earnings (after costs) to
determine its ROA.
Aclassic example of loans that have a
negative effect on ROA-loans that lose
money-are the low-balance signature
loans made by so many credit unions.
Because of the costs for originating and
collecting these unsecured personal
loans, lenders would have to charge
rates greater than credit card rates to
rates, the interest on a $500
loan is hardly enough to
cover the origination cost.
Credit unions stand out from their de-
pository competitors in their propensity
to offer another money-losing product:
the overdraft line of credit. The 1991
survey showed that, while only 49 per-
cent of banks and 23 percent of savings
institutions offer consumers a line of
credit to cover overdrafts, fully 75 per-
cent of credit unions do. The overdraft
creqit line is another form of the short-
term, low-balance loan that hardly cov-
ers the cost of making it-if at all.
Clearly, credit unions still are driven
by a member-service philosophy that
impels them to offer loans that for-prof-
it institutions would avoid. But credit
unions should keep in mind that every
loan to a member that does not at least
break even becomes a subsidy paid by
your thrifty members to the more prof-
ligate ones. "Profit" should not be a
dirty word, once you consider to whom
the profit will accrue: your share ac-
countholders, in the form of dividends.
Signature loans therefore may not be
your institution's ideal product. Several
alternatives allow members to enjoy
nearly the same service at a lower ex-
CREDIT UNION MANAGEME T 27
3. pense to the credit union. These include:
lines of credit that carry fees to cover
costs and are accessed by drafts, over-
drafts on credit card balances and over-
draft protection with annual fees.
SAFE AND SECURE
OK, we know what can make for a bad
loan mix. What constitutes a good one?
We recommend that credit unions do
more high-balance, secured lending to
offset the low returns made on low-bal-
ance, unsecured products. We're also
suggesting that credit unions face cer-
tain new realities:
•High-balance, secured auto lending,
which has long been the "bread and
butter" of credit unions, may never
again be as lucrative as it was years ago.
Cars are lasting longer than they used
to, and people are hanging on to them
longer than ever before. After growing
steadily from 1910 to 1970, the number
of cars per household has remained sta-
ble for two decades.
•There may be some increase in auto
sales activity in the near future as cars
purchased in the mid-'80s' buying spree
exhaust their useful lives, but this won't
be enough to bring back the glory days.
•Home equity lending is rapidly dis-
placing many traditional consumer
loans, now that the tax deduction for
personal interest payments has been
completely eliminated. Your best bor-
rowers-members who have substantial
equity in their homes-want the tax de-
duction that's still available for most
home equity loans.
All this suggests that there is a need to
find a new base of high-balance, secured
loans, and that real estate can naturally
fill the void left by autos. Many credit
unions have gotten this message.
A 1991 survey of home equity offer-
ings showed that nearly twice as many
of the larger credit unions offered equi-
ty lines of credit (nearly 97 percent)
than did banks or savings institutions
(54 and 52 percent, respectively). Credit
unions even surpassed banks in the area
of traditional, closed-end second mort-
gages. Nearly 47 percent of credit
unions reported that they offer tradi-
tional seconds, compared to 43.6 per-
cent of banks.
28 CREDIT UNION MANAGEMENT
Indeed, one of the most significant
changes in the home equity market in
recent years is the emergence of credit
unions as major players.
OVERLOOKED
OPPORTUNITIES
Because so many credit unions already
offer equity lines of credit, how are they
supposed to find new sources of high-
balance, secured loans?
What loans
are credit unions
offering?
Loan Percent
product offering
New car 100
Used car 100
Recreational vehicle 100
Unsecured installment 100
Boat 97.2
Home equity line of credit 96.9
Credit card 86.1
Adjustable-rate mortgages 77.8
Fixed-rate mortgages 77.8
Overdraft line 75
Mobile home 69.4
Closed-end second mortgage 46.9
Single payment 38.9
Personal line of credit 13.9
Source: Moebs $ervices· 1991 surveys on
product offerings and home equity lending.
Moebs $ervices has identified two un-
derutilized areas of lending that show
higher ROA than many products com-
monly offered by financial institutions.
The first is traditional second mort-
gage lending. Many conservative bor-
rowers reluctant to put their house at
risk for an equity line feel much more
comfortable taking out a closed-end sec-
ond mortgage for debt consolidation,
home improvement or other purposes.
Consumers have long gone to savings
institutions for these loans. With the
decline of S&Ls, credit unions should
move quickly to fill the void.
Another area for earnings potential is
mobile home lending. Despite the bad
experiences some lenders have had with
mobile home loans, they can bolster a
portfolio if executed properly. They
showed a high ROA in Moebs $ervices'
calculations of earnings after costs.
Mobile home loans are considered
risky because the lender is going long
on an asset that depreciates. But that is
nothing new to credit unions. They are
very active in lending on boats and
RVs, which carry prices that are compa-
rable to those of mobile homes, and
which also depreciate over time.
Mobile home loans have one advan-
tage over boat and RV loans: Mobile
home collateral is more important to
your borrowers than boats or RVs, and
mobile home borrowers are more will-
ing than boat and RV borrowers to
repay their loans when times get tough.
You will no doubt protest that it is
much easier to sell a boat or an RV than
a mobile home. That may be true, but
several trends are at work that will
make it easier to sell mobile homes, and
will expand the market for mobile
home loans in general.
For one thing, affordable housing has
become a critical issue. Young people es-
pecially feel locked out of the housing
market, and are seeking affordable alter-
natives. They are a prime source of de-
mand for mobile homes.
Another factor is the need to bring
workers closer to jobs. Many light man-
ufacturing jobs are being created in
open spaces on urban peripheries-just
the type of areas suitable for mobile
home parks. Mobile homes also can
help meet the housing needs of the
growing army of temporary workers in
America. It may well be cheaper for
many contractors to buy or rent a mo-
bile home near a job site than it would
be to travel to the site.
The suitability of mobile home lend-
ing will vary by region, but national
trends clearly are making it more viable
in all areas. The trick to doing it right is
to keep the term of your loans shorter
than the standard 15 years, and charge
rates comparable to those on boats and
RVs. You'll incur some losses, but we
find the rewards that go with a well-
managed program to be worth the risks.
A conscious effort to cultivate high-
LOAN MIX ... cont. on p. 33
JANUARY 1993
4. customer requirements).
By learning the needs of members,
you become their voice. Instead of
merely r~acting to their complaints, you
are pro-active in building their input
into decision-making.
In becoming a coach-counselor, you
are developing your staff. Then they be-
come the member-champions.
The authors use this portion of the
book to present one of their most im-
portant points: "Customer relations mir-
ror employee relations. The way you
treat your employees is the way they
will treat your customers." They at-
tribute this to a study of 112 top service
organizations by New York-based Citi-
corp. The study concluded that "if man-
agement solves employee problems, em-
ployees will solve customer problems."
Therefore, you must empower em-
ployees to solve and prevent dilemmas,
say the authors, offering numerous
worksheets and exercises to assist with
this process.
ext, feedback must be communicat-
ed-both to and from employees. This
ties all of the steps together.
The last step in the customer satisfac-
tion process is providing for a continu-
ous improvement network. The organi-
zation must become and continue to be
customer-driven, and everyone must be
committed to working together to im-
prove the quality service process.
In revealing the 12-step process for
quality service, Cannie and Caplin have
offered credit union managers and
front-line supervisors a tool for develop-
ing a member-driven environment.
While many organizations talk about
providing quality service, few actually
"practice what they preach." By follow-
ing the 12 steps, you can do a lot more
than "take care" of your members; you
can keep them for life. •
Keeping Cu stomers for Life is
available from AMACOM Books, a di-
vision of the American Management
Association, 135 W. 50th St., New
York, NY 10020.
Julie Cuneo is VP/opera tions-and former
AVP/marketing-for $83 million Navy KWest Fed-
eral Credit Union in Key West, Fla.
JANUARY 1993
LOAN MIX ... cont. from p. 2s
balance, long-term secured loans may
expose credit unions to more interest
rate risk than they are accustomed to.
Using variable rates when expanding
into such areas as traditional second
mortgages and mobile home loans will
help alleviate some of this risk.
TIME TO CHANGE?
In creating a loan-product mix to see
you safely into the next century, you
should look to the lessons of the past.
You may find you have to consciously
develop new areas of lending to hedge
against the risks inherent in traditional
products. You also may learn that the
best way to serve your members isn't
necessarily to make the type of loans
they ask for.
The following are four guidelines you
may want to keep in mind when creat-
ing your product mix:
1. Identify the "earners" and "losers"
among your loan products by calculat-
ing their effect on ROA.
2. Determine what percentage of your
annual originations and total portfolio
is secured. Seek the highest percentage
allowed by law for both.
3. Establish pricing incentives to steer
low-balance unsecured installment
loans into credit card balances or lines
of credit that carry fees.
4. Use variable rates when expanding
into such long-term products as tradi-
tional second mortgages and mobile
home loans. •
Ken Williams is president of Moebs $ervices, a
Lake Bluff, Ill., research firm that produces publica-
tions and training programs on pricing, lending, ex-
pense control and compliance for financial institu-
tions. He is the author of several Moebs $ervices
books, including How To Price Loans and Success-
ful Consumer Lending, and the principal writer of
The Home Equity Survival Guide, by Longman
Financial Services Publishing.
joseph Harrington, a former newspaper and mag-
azine editor, is editor for Moebs $ervices.
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