Due Diligence is Key to Lending Success



In early 2015, we were approached by a longtime client of ours about helping them audit their loans. Loan auditing  was not a service that we were currently offering at the time, but it matched up well with our core competencies, so we decided to take it on. Turns out, many of our clients did not have an accountability program in place, so in May  2015 we officially started offering what we now call our Smart Loan Audit service. We’ve worked with many credit unions on loan audits over the past year+, and we wanted to share some of our key findings with the readers  of CU Business this month.

What We Track
First off, when it comes to auto lending, it’s important to be able to track the origin of the loan (i.e. by dealer, by loan  officer, etc) so you can identify where your problem areas are. With that in mind, here are some of the key things we track:
• Turnaround times
– Turnaround from application date to decision
– Turnaround from decision to funding
• Time between trade
• Secured debt ratio
• Unsecured debt ratio
• Negative equity
• Mortgage to income ratios
• Amount of add-ons
Certain dealers are notorious for charging too much on products placing the credit union in an at-risk situation while  they make all the money.

What Can We Learn?
• Do we have a maximum amount for back-end products?
• Do more of our at-risk loans come from certain dealers?
• Do we have loan officers that are too risk adverse?
• Do we have loan officers that take too much risk by not developing the application?
– Gaps in employment with no explanation
– Employment, both current and previous have limited time
How you measure your loan officers’ performance is very important to your employees and management. If you are  not taking a look at the full picture, you may be rewarding the wrong individuals, while rebuking those that are  providing your credit union with the best return. Check out the following example:

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