Credit unions should keep an eye on telecommuting, auto lending and regulatory changes, among others.
This momentous year has launched, accelerated and derailed—at least temporarily—a variety of trends that may have a sometimes-conflicting impact on the future of credit union lending. Here’s a sampling:
Work-from-home revolution: By mid-2020, 42% of Americans were working remotely, according to an article by Stanford economist Nicholas Bloom. The extent to which that trend persists has implications for auto loan demand if fewer people are commuting, as well as for commercial real estate loans and for home improvement loans as people remodel their work/living spaces.
Collapse of ride sharing: Major setbacks for Uber and Lyft could spell opportunities for auto lending and leasing. “There was a whole generation of potential car buyers who were willing to go all-in on ride-sharing, but now with health concerns about COVID, we’re seeing more of that group looking to do leasing,” suggests Mark Chandler, VP/business development for Credit Union Leasing of America, San Diego. “That option offers the lowest payment to get into a car, and they can get the latest and greatest technology.”
On the road again: High demand for recreational vehicles, campers and boats—the RV Industry Association reported that shipments from July through August were up 25%—offer a big lending opportunity as vacationing members head for the open road rather than the airport.
Demand for speed and convenience: Tight housing inventory—Realtors.com reported a year-over-year 39% decline in listings in September—and a decrease in average days on the market are factors worth watching, says Omar Jordan, CEO of LenderClose, Des Moines, Iowa. And those trends underscore the need for credit unions to keep pace with their mortgage competitors by streamlining service delivery through such advances as remote online notarization.
Even before the pandemic, asking members to drive to a branch or title company to sign loan documents felt like an imposition, says CUES member Stefanie Rupert, CIE, president/CEO, $1 billion/90,000-member Collins Community Credit Union, Cedar Rapids, Iowa. Members have been appreciative of the option for remote closing, and Rupert expects this service to grow in popularity among members “who either don’t want to come into the branch or whose schedules can’t accommodate normal business hours.”
Government relief efforts: Federal and state efforts to assist consumers through the pandemic have a direct impact on how credit unions manage their portfolios. The Federal Housing Finance Agency announced in August that Fannie Mae and Freddie Mac would extend their moratorium on single-family foreclosures and real estate-owned evictions until at least Dec. 31.
In another example, the state of Maryland placed a moratorium, with no end date, on financial institutions repossessing vehicles because of delinquent loans, which means auto loan charge-offs will be higher for Maryland banks and credit unions because lenders won’t be able to recoup vehicle value until court orders to repossess the secured property are issued, notes Bernard G. McLaughlin, president/CEO of $840 million/60,000-member Point Breeze Credit Union, Hunt Valley, Maryland.
CECL delay: One challenge credit unions won’t need to deal with immediately is the new current expected credit loss standard, which has been delayed until 2023, says Allen DeLeon, CPA, founding partner of the accounting firm DeLeon and Stang, Gaithersburg, Maryland. The rules for projecting credit losses would have required credit unions to “front-load their loan losses for a one-time impact on their earnings and capital, so this delay gives them some time to get back on their feet, if necessary, before they need to comply.”
The CECL standard was drafted in response to the extraordinary factors underlying the 2008-09 Great Recession, which don’t apply to the current, COVID-19-related downturn, DeLeon suggests. National Credit Union Administration Board Chair Rodney Hood is among industry advocates calling for credit unions to be exempt from these standards. cues icon
Karen Bankston is a long-time contributor to Credit Union Management and writes about lending, operations, technology and membership growth. She is the proprietor of Precision Prose, Eugene, Oregon.