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Credit unions will need to consider taking more apparent risk and making portfolio loans that won’t qualify for resale to assist members.
It’s pretty clear to CUES member James Hunter, CCM, chief diversity officer of $250 million New Orleans Fireman’s FCU, New Orleans, that 2023 will see a growing number of CU members who need help qualifying for loans.
“Life has happened,” he observes. “The higher rates and home values will be making it harder for members to qualify.” Many have missed a payment or two during the COVID disruptions and seen their credit scores dinged. “We’ll need to find other, nontraditional ways of looking at their ability to repay.”
That will mean taking more apparent risk and making portfolio loans that won’t qualify for resale. “We’ll need to rely on relationships and insight instead of impersonal technology and ratios,” Hunter says. To serve all members, “we’ll have to take a second look at the declined loans to see if there’s a safe way to make them. Denials are rising across the country. Maybe there’s a reason for a couple missed payments. Maybe there’s a long history of making payments on time.”
The gap between the haves and have-nots is growing. There needs to be an equity injector, Hunter says. Credit unions have filled that role, and the need will be even greater in 2023. Hunter believes that home ownership is one of the best ways to build wealth.
“Over 170 million individuals are struggling financially,” Hunter adds. “Many of them are caught in debt traps that keep them from believing home ownership is attainable. They may also be seeking an affordable, reliable vehicle to find or continue good employment.”
Conversely, they are making rent payments equivalent to or higher than a mortgage, Hunter points out. “We need to meet people where they are, educate them and turn rent payments into mortgage payments.”
New Orleans Fireman’s CU is a community development credit union. Its members have an average FICO score of 621. Still, the CU tries to find reasons not to reject loan applications, and that’s been working. Its average charge-offs are less than 1% of loans.cues icon
Richard H. Gamble writes from Grand Junction, Colorado.
