GRAPEVINE, Texas–Loan participations have enjoyed a lengthy period of increasing popularity, and the numbers could be massive in just another few years.

George Hofheimer, chief knowledge officer for Madison, Wis.-based Filene Research Institute, speaking as part of a panel during the CU Direct DRIVE conference being held near Dallas this week, noted from 2003 through 2017 loan participations have seen “steady growth.” In recent years, there have been $2 billion more loans participated each year. If this trend continues, he said, by 2020 there will be $19 billion in loan participations sold.

A panel on loan participations during the 2018 CU Direct DRIVE conference near Dallas. At the podium is Joseph Heck, VP of business transformation for CUNA Mutual Group, followed by George Hofheimer of the Filene Research Institute, Brant Spangler, VP of lending for Unitus CU, and Brian Hamilton, VP of innovation for CU Direct.
A panel on loan participations during the 2018 CU Direct DRIVE conference near Dallas. At the podium is Joseph Heck, VP of business transformation for CUNA Mutual Group, followed by George Hofheimer of the Filene Research Institute, Brant Spangler, VP of lending for Unitus CU, and Brian Hamilton, VP of innovation for CU Direct.


Filene has spent several months researching loan participations, Hofheimer continued. This included interviews with credit unions that have bought and sold loans, analysis of CU call report data, and random surveys of credit unions that are and are not participants in the practice. Among the findings: 450 credit unions have sold loans, while 1,000 CUs have bought loans. The breakdown by category is 31 percent commercial or business loans, 28 percent consumer loans, 22 percent real estate loans 17 percent mixed and 2 percent student loans.

Of those randomly surveyed, 92 percent are aware of loan participations, while 45 percent currently are involved. For those that do, the top two reasons cited are to increase or decrease loan volume (33 percent), or manage the balance sheet or liquidity ratio (30 percent).

Some 44 percent of credit unions have never bought or sold a loan. The most-cited reason for would-be buyers is concern for the quality of the loan. As for potential buyers: they say the minimum participation amounts are too high, or they are looking for higher yields than what is available.

The length of time to broker a deal also causes some chafing. The average loan participation involving two parties that have never done such a transaction previously can take 8 weeks to 12 weeks. If there is a previous relationship, that time can be cut in half.

“Being ‘okay’ is just not enough,” assessed Hofheimer. “Filene’s research found there are no ‘big’ challenges in loan participations, but there are enough pain points in an imperfect process. Sellers say they want more, smaller buyers available, while buyers say the minimum buy is too high. Both sellers and buyers say the process is not standardized, and is too manual.”

One possible answer is to create a loan participation marketplace that is credit union-friendly and focused, Hofheimer continued. “We need to simplify the due diligence, standardize the steps and ease the burden of reporting.”

CUNA Mutual Group has been running a beta test with a group of 20 credit unions to create just such a marketplace, Hofheimer told Credit Union Journal.

Joseph Heck, vice president of business transformation for CUNA Mutual Group, called creating a loan participation network “an industry challenge.”.

“Everybody wants standardization, but they want it to be standardized their way,” Heck said wryly. “Our goal is to get credit unions together to help create a friction-free process. We foresee an online marketplace with standardized agreements, automatic pool analysis and streamlined reporting. At CUNA Mutual Group we are not experts in this, but we are committed to solving the problem.”

Brian Hamilton, CU Direct’s vice president of innovation, pointed out credit unions’ propensity for collaboration could help get a marketplace up and running.

“CU Direct wants to make this happen,” he said.

Filene’s Hofheimer said artificial intelligence and other analytics technologies could help the process.

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