Making Loan Analytics FIT at Your Credit Union
So what does FIT mean in this context? Is it FIT for consumption by members of management and the board of directors? Does FIT pertain to the “size and complexity of the organization” as financial regulators like to state? The answer is yes and yes, and the acronym for purposes of this article stands for Flexibility, Integrity, and Transparency.
You may work in a relatively small organization. If this is the case you need analytics that are agile. You need to know that when you [or possibly your staff] create a report that the time invested is not lost once you are asked to add more information, trim some details, or reformat the report and inevitably end up starting over from scratch. If you work in a relatively large organization you also need flexibility.
How long did you wait for a report from your IT Department’s data analysts only to have the request from senior management change, the want for the report to have fallen by the wayside while other requests took precedent, or in the best case scenario, the analysis is exactly what you asked for – and now you want more? Are you able to tweak the report on the spot or do you get back in the breadline to submit another report request? This is where Visible Equity can help your credit union launch an analytics program that is flexible, with reports that are high-level enough for board reporting and also detailed enough for your lending management, data analysts and auditors/examiners.
At Vantage West Credit Union, Visible Equity has provided us a “drafting board” for loan reporting. Our Risk Management and Lending Departments work together to identify risks and opportunities in the loan portfolios through standard reports, analytical inquiry and ad-hoc reporting. This has taken the burden of designing new reports, and the iterations it takes to get a final report that is acceptable to different departments, and turned all of that into empowerment. This has also lifted the weight off of our IT Department, and calmed the tensions that multiple drafts can cause, so that IT can focus on other requests.
Loans have tons of data points that need to be managed and reported on. Credit cards portfolios have certain needs; auto loans made directly to a member at a branch, another; loans that are purchased through an indirect lending channel, such as an auto dealer financing relationship, yet another; and lastly there are mortgage related products. Did I forget to mention business lending? At $1.4B in assets Vantage West Credit Union has all of these products available to its membership. For any organization that has multiple IT applications, has undergone system conversions, or has merged-in smaller credit unions knows, the data can get spotty at times. With all of these factors in our past and more mergers planned in the future, the ability to use the Visible Equity platform for data integrity reporting has allowed Vantage West to pinpoint our data needs. Whether isolating data gaps in legacy loans or adding a new step to control data quality in the funding process, analytics have allowed us to get a clear picture of the data integrity we have inherited and the data integrity we are creating each day. This analysis provides comfort in our results and a stronger reporting environment from a COSO and ERM framework perspective.
The last initial in the FIT acronym is Transparency. At Vantage West Credit Union we have started to use performance and profitability reports to get transparency into what is driving our auto portfolio results (no pun intended, but it works). With an outstanding balance of approximately $852M or 70% of total loans, auto lending is one of our core competencies. Given our high LTV advance policy we are constantly reviewing performance to see how well our loans are doing. We are also looking for opportunities in our portfolio, and one of those opportunities is taking more risk through buying deeper paper. But before diving into the “deep end of the pool” we need to make sure we have clarity in the waters. These reports show that while our portfolio has higher charge offs in lower credit score loans, their contribution to the bottom line is almost double. Recent news coverage (see Concerns About the Rise In Subprime Auto Loans) is another reason to advance with caution and use analytics to identify a loan structure that will appease growth strategies as well as regulatory scrutiny.
In summary, the Visible Equity Loan Portfolio Analytics platform alone has allowed Vantage West Credit Union to create a centralized resource for ad-hoc inquiry of our loans. We can easily turn out multiple views of any given loan portfolio and if that is not enough we simply go to the advanced filter to get into some “deep cuts” of our loans. The tool is user friendly and relies on an upfront commitment from your IT Department to help you map data from your systems and support monthly extracts.
We are just beginning to see the benefits of using analytics at our credit union, and are considering other modules such as Fair Lending and Application Analytics in the near future. For your organization, take a moment to look at your portfolio reporting. Is it Flexible? Does the reporting have Integrity? And do you have the Transparency you need to make decisions? If so, that is fantastic. If not, schedule a demo and see what Visible Equity can do for you.