BY NICK BROWN
It’s March which means it’s time—possibly—for another interest rate increase. With a strong, growing global economy and inflation concerns, new Fed Chair Jerome Powell will likely sustain the same increasing interest rate policy over the next year. This is great for the economy but bad for all those loan officers out there who are trying to recapture loans.
Or is it?
Fed rate hikes began a couple years ago and there is still plenty of room for them to go up. Because of this, the most consistent questions I am answering right now in strategy sessions are 1. Is loan recapture dead? and 2. How do we recapture loans when our new loan rate is higher; sometimes much higher than the competition? Let’s answer these questions.
First question: Is loan recapture dead?
In 2008, I was a seasoned loan recapture expert in our credit union’s outbound call center. The economy was tanking, and interest rates were trying to keep up. The downward pressure of the prime interest rate finally made its impact and on auto and RV loans, and mortgages. Suddenly, every loan on the credit report was prime for recapture and the refinance boom started.
In March of that year, I recaptured over a million dollars in auto loans alone. I could barely keep up, as every call I made ended in a loan application and members hoping to close that day. I finally had to stop calling so I could catch up on a little processing.
Today we are competing on slim margins, if any margin at all. It’s a difficult sell to recapture an auto loan financed with a competitor at 2.74% when your new base rate has increased to 3.74% or higher, but don’t throw your arms in the air and walk away from recapture just yet.
In an increasing rate market, yes, the fixed rate options are probably going to be few and far between. In any market there is opportunity to be had when you know where to look for it and you are positioned to capture it. In this increasing rate market, the opportunity lies in the variable rate loans.
Your member with a credit card or HELOC carrying a balance watched as their interest rate increase by a full 1% last year. With rates projected to continue to increase, by the end of 2018 those rates will be somewhere around 2% higher than they were previously. That’s a 10% increase in their rate. Do your credit union members know this? And is it time to help them restructure their debt to avoid these increases?