Jessica and I spend a lot of time getting “in the short grass” onsite with clients. Part of our consulting work involves following an application from origination all the way through the process to terminal storage. I describe this as “getting the rat through the snake”. Fundamentally, consumer lending is production work.
One area that is typically neglected at a credit union is lien perfection in auto lending. Neglected? Those are strong words Don!. I say neglected because it’s the boring part of lending, all the fun stuff has happened and now it’s time to get the homework graded.
Based on my years of experience seeing titles perfected across a lot of different geographies, I would say that many (not all) credit unions fall into 2 camps with their title perfection. I will tell you that as a consultant on the rare occasion that I find a well run title area, it is a thing of beauty 🙂
Camp 1 – “Borderline harassment” – I was recently at a client observing the flow of applications and I fell out of my seat when the lender was calling a dealer and demanding that this dealership that they have done business with for 25 years supply not only a purchase order with the ELT listed on the document, but proof that the lien had been filed. The credit union demanded that the dealership show a receipt from the DMV that the lien had been placed before the check was released.
I have also witnessed on countless occasions where the title area of the credit union makes it so cumbersome for members to get loans and fill out every possible piece of paperwork they could ever possibly need “just in case” something goes wrong.
Camp 2 – “Kick the can down the road” – In an effort to provide funding as quickly as possible, the credit union is lax on documentation from lenders and essentially says, “We know you are going to screw this up, just send us what you have and we will dig through it.”
Recently, I was working with a large credit union that had over $24M in unperfected liens (liens>90 days) out in limbo land and no clear path on how to solve the problem.
Intentional or not, both of these “camps” are risk management strategies. You could argue that Camp 2 is more risky than the other, but you would have to account for all the staff time wasted and aggravation protecting against a .50 charge-off ratio…..
Do any of these challenges sound familiar in your title area?
- Staffing – That department has probably rolled over in the past 24 months because of the pandemic. Training on the process was handed down over time and it hasn’t been looked at in 25 years.
- Tracking – Your staff is using a combination of Excel spreadsheets with multi-colored codes that nobody understands and multiple people are using simultaneously. You are taking information out of your core and retyping it into said spreadsheet and hoping someone did it while the other person was out of the office.
- Software – You bought one of 2 softwares to help you when your state(s) moved to ELT and the person that set this up isn’t around anymore and you use it sparingly. IT set something up for you way back, but you can’t get any new stuff from them now, because they are busy doing something else. God forbid you have a question about using the software and NOBODY at the software company can help you or you can’t find a phone number or an account rep to get you on the right track or any online resources.
Here’s the good news. You can fix all of this. Volumes are beginning to slow a little as we edge out of summer. Credit is degrading and repos will be picking up in the coming 12 months. When titles go bad, they go bad big! Instead of being reactive when we need to really start caring about lien perfection (repo), let’s shine up this area of the credit union while we have the time.
Here are some questions you should have answers to as a lending leader:
- Number of titles >90 days unperfected by count and amount
- Percentage of dollars at risk compared to your entire auto loan portfolio
- Remediation plan for titles that are uncured
You may need some help fixing this area. Generally speaking those that work daily in the title area are satisfied with doing the same set of procedures handed to them. Typically, unless they have seen it done differently or better somewhere else, they will continue to repeat the same procedures over and over again. Might be time to get an outsiders perspective on your title process. This is a risk management process.
Keep up the great work, now is the time to address potential landmines in this area before the predicted losses start rolling in. You might even want us to take a look at your existing process if you are satisfied just to help you sleep better at night 🙂
Don Arkell
Owner
CU Lending Advice
don@culendingadvice.com