WASHINGTON — Though auto loan delinquency rates across the country continue to rise steeply, credit unions can avoid that pain by sticking to strong risk management practices.
That was the message from several lending and economic experts. A recent Experian Automotive report for the second quarter showed that loans 60 days past due are up nearly 22% year over year while 30-day delinquencies shot up more than 14% — just over 3% of all auto loans are at least 30 days late. NAFCU chief economist Tun Wai believes the number for credit unions is half of the national figure at the very worst and doesn't see auto delinquencies as a major problem for the cooperative industry.
"Delinquencies are rising, there are no ifs ands or buts about that. But some of the mitigation in the credit union numbers is due to the fact that we are much more conservative institutions," he said. "Until job creation occurs when the economy picks up you will probably see a continuation in delinquencies going up... I think what will happen in the future is that you will see more people have a greater ability to repay and you'll see lending pick up. I don't anticipate that the delinquency rate among credit unions to be of that much of a concern at this point in time."
With unemployment more than double what it was before the recession began, it's no surprise that auto delinquencies are up as well, noted Ent FCU VP-lending Bill Vogeney.
"Our delinquencies are holding up pretty well but that doesn't mean it has been easy," he said, adding that the Colorado Springs-based institution's delinquency rate is essentially flat compared to last year. "We're having more people than ever call us for help, but that's good. We can't help someone unless they talk to us and try to make some arrangement to fix the problem."
In Washington state, Boeing Employees CU has been able to buck the trend by cutting its 60-day delinquency rate fairly significantly from 1.16% in Dec. 2008 to 0.96% today. Portfolio manager Aaron Bresko credited the improving trend to long-term underwriting changes that began in late 2007.
"We're seeing a lot of those changes come through and improving our performance," he explained. "Our volume has changed but not that much-even though we made changes other folks cut (lending) off completely."
Both Bresko and Vogeney stressed the importance of a solid relationship with dealers and a tightly monitored indirect lending program in putting together a good risk management strategy. BECU and Ent have backed off from trying to pursue new members through indirect channels and focused more on existing members to cut risk out of the portfolio. "Dealers are trying to sell cars and they don't have many they are able to sell. They are trying to find someone to find someone who will buy that loan, so if you have a hole in your program where you'll buy something others won't, they'll tap into that," said Bresko. "We have our criteria that we feel strongly about and we'll take as much business as we can get on our terms."
For CUs that are seeing a rise in delinquencies, Vogeney urged caution against following the banks and making major changes, opting instead for "gradual, commonsense adjustments along the way instead of having to slam on the brakes and make a huge adjustment overnight," providing consistency for dealers and keeping relationships intact.