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Automated Excellence and Adaptive Automotive · Leaders in Lending

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You are listening to Leaders in Lending from Upstart, a podcast dedicated to helping
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consumer lenders grow their programs and improve their product offerings. Each week, here
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decision makers in the finance industry offer insights into the future of the lending industry,
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best practices around digital transformation, and more. Let's get into the show.
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Hello and welcome to Leaders in Lending. I'm your host, Drew Megory,
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and this episode features my conversation with Jared Dreyer, the vice president of
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Consumer Lending and Centralized Deposits at Westera Credit Union in Denver, Colorado. In
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this episode, Jared and I first discussed was Stara's approach to building its own
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in house automated decisioning engine, followed by an interesting conversation about the adaptive auto
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space. I hope you enjoy this week's topics, and without further ado,
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here's my conversation with Jared. Hello, Jared, welcome to the podcast,
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and thank you for making the time to join me today. Thank you so
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much for having me. It's a plaasure to be here. Thanks. So,
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as we typically do on the podcast, let's start our conversation by by
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rewinding a little bit. I don't know about you, Jared, but for
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me as a child, a career in the financial services space definitely was not
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something that was top of my mind. So can we start by giving the
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listeners a bit about your journey and how you got to West Era, And
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on top of that, what's the day to day like as the VP of
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Consumer Lending and Deposits. Sure happy to and like you were just saying,
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that wasn't my intent either. You know. I went to college to do
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biology as my undergrad and wanted to study sharks in their natural environments out in
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the ocean. So I went to school in San Diego and decided to come
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back to Denver, where my family was, and I got into mortgage lending
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and was quickly recruited by Wells Fargo and they wanted me to run some of
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their retail branches, and so I got into the retail side of the business
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and did that for a few years until they merged with Wacovia, at which
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point I jumped over to Belco just because I really liked the credit uni movement
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and wanted to be a part of it. I had some family members that
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were part of it historically, so I knew a lot about credit unions,
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and I wanted to be a part of that environment. So I came over
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to Belco, did retail there for a few years, and then actually led
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some of the retail team, and then because of my background in lending with
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doing mortgages and then also teaching a lot of the branch managers how to underwrite
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loans because we did have decentralized underwriting over at Belco at that point in time,
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I was able then to transition my career over into consumer lending at Belco
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and really loved the opportunity of building new products and services and helping better serve
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our members through the different lending opportunities that we had. And I found it
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a challenge to try to grow our portfolios while at the same time look for
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new areas of origination that maybe others wouldn't be in at that point in time
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either, and so we did a lot of cool, unique things at Belco.
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From there, Westair had an opportunity because they had actually shut off consumer
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lending back in twenty nineteen with a new executive team and the executive staff that
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came on board, so they asked, Hey, will you come over here
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and help us rebuild the consumer lending platform. We'd like to start kind of
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from scratch, and the good news was it wasn't completely from scratch, but
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they said, we'd like to start over and really make sure that we're mitigating
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risk but also helping our members with the types of financing that they need.
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And so I jumped at the opportunity to kind of build something from the ground
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up. And I really love the team over here and the leadership, so
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it was an easy move. And I've been very happy coming over to west
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Era and really love what I do because I've had that opportunity. So I've
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gotten into some new types of origination. I've stood up some new software as
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well as we've automated our decision engine to industry high standards, and we've had
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a lot of fun doing it, and we've been able to grow. Now.
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Of course, with COVID and with the recent recession and liquidity concerns,
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it's been a little bit of a challenge. So like you were asking,
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day to day, you know, we're watching all those numbers and trying to
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do our best to balance serving our members' needs as well as keeping the credit
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union financially sound. So we've had to lever and d lever some of the
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stuff that we're doing. But I really love that because it's very strategic,
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and it's very tactful, and it's a lot of fun to do. So
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I've got a great team that I'm working with over here, and I just
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love every day coming in and working with them and finding these opportunities to help
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our members succeed. Thank you for that. That is awesome. I would
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have liked to hear the path to becoming a shark expert as well, if
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you could have funneled into the part of your career, but I think that
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would have kept you overly busy compared to how busy you probably already are.
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But thank you for that. One thing I wanted to touch on though,
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that you started to talk about there is around the decisioning engine, and something
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I found interesting when we spoke prior is, especially since I work in the
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space of automation within lending, is that Westara has automated their own decision engine.
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Right so Jared on this topic, can we at least start by talking
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a bit about the reasoning as to why wes Stara decided to build this engine,
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and then we can expand from there, sure, definitely. So when
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I came on board, Westerair was currently only automating about eight percent of the
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decisions that were coming in through our LOS and we use rcs through origins and
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it's a great system. It's built with Boolean logic, and you know,
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I'll talk about that more as we talk about how we design this engine.
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But when I came on board, I knew that we were making inconsistent decisions.
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So you know, you may have one member that's trying to get an
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AUTO in their specific situation and another member that may look alike, and one
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may be approved, one may be denied based on some outside factors or just
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a difference in underwriter. If they got one underwriter who is a little bit
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more lenient versus someone who's a little bit more conservative, there's a difference there.
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And I knew by automating our decision engine we would have more consistent and
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fair decisions. But in addition to that, we really wanted to get back
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into the indirect auto space here in the Denver metro area because that had been
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turned off in twenty nineteen. And in getting into the indirect auto space,
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you need to be very consistent with your decisions. The dealers want to see
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the same decisions time and time again. So if they have that look alike
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customer that comes into their dealership, they want to have that loan get approved
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time and time again as long as it meets our criteria, and they don't
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want to be going back and forth with the underwriters all day, rehashing deals,
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trying to get something to work. So I knew automation was going to
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be key to growing those dealer relationships and growing that volume of loan originations through
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the indirect network. And like I said, since it had been turned off,
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we were at zero, and we quickly over the next couple of years
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were able to grow it to the ballpark of about twenty five to thirty million
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a month in new originations, and they've performed very, very well. So
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it's been awesome to see the growth and to see the great opportunity out there.
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That's great, and automation, of course is something that is top of
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mind, and in credit unions as an industry as a whole, have always
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been the ones that have been kind of in the background and didn't automate or
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they're not up to the most recent piece of technology. So when you guys
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were thinking about this automation piece. How did you leverage? Did you say,
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Hey, let's get a room filled with engineers to build this. Did
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you out like what was that kind of transition of Hey, we want to
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do this, but how are we going to ASCU? Sure? So,
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the team had already met with one of our credit bureau reporting agencies and they
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had done a deep dive for us and they had some recommendations on what we
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could do. But coming over from Belco, I had the privilege of working
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with Cuddle back then so Are and it was actually CUDC before Cuddle purchased them
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and then transferred over to Origins. But with CUDC we had Tom Helmers who's
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now at Grow Credit Union down in Tampa, and he and I worked together
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on a decision engine for Belco where we used a custom score and so taking
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the learnings I had from that, what I told the team at Westara was,
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Hey, without needing to pay for this or going through a third party
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provider out there, we can actually build it ourselves. And I told the
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team it's going to take a lot of work, it's going to take a
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lot of time, and so everybody needs to be very patient, but we're
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going to be able to build it ourselves. And I've shared this with other
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people in the industry, you know, through the CUNA Lending conference, or
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I did a white paper actually for QUNA on it. What I've told people
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is is exactly what I just said. It takes a lot of time and
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it takes a lot of work, but it is totally worth it. So
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to build it out, we did a five year regression analysis of data from
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twenty thirteen to twenty eighteen. And the reason we picked those years is because
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in twenty twenty one, those loans at all seasoned at least a minimum of
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three years, and most charge offs happened between twelve and day eighteen months.
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So we knew that the data we had was clean and that we knew what
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was performing and what wasn't. And we were able to take all this data
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for five years and break it into FYCO classes, into loan to value classes,
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debt to income, unsecured to income, and payment to income groupings.
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And what we did is we did heat maps, So where were we normally
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approving the loans, where were we normally declining them, and then what was
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the ultimate disposition? Did they perform or did they not? And by doing
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an overlay of all these heat maps, and like I said, it was
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a lot of work because we did this product by product. So we started
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with autos because that's where we wanted to go to first, into unsecured after
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that, and then we even did home equity, and home equity had its
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own challenges on top of it, but we layered these heat maps on top
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of each other and were able to draw rule sets by saying, Okay,
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so we like this Fiico band, but we want to start cutting off our
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DTI at this point, are cutting off our LTVs at this point, And
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we wrote those rule sets into our cos and our automation went through the rough.
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So when we first turned it on, our autos were at seventy percent
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automation for both approvals and declines combined, and our unsecured products were over sixty
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percent. Our helocks, like I said, we had some challenges, and
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that's just because when you're dealing with the credit Euros, you don't always know
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which mortgage is tied to which property, especially if there's multiple out there.
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But we were able to automate twenty five percent of those as well, so
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We've got some really cool automation built into our system now. So to expand
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off that kind of a two prong approach here is one a lot around the
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decision, right is there anything in regard to automation piece full end to end,
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So applicant goes through either branch experience online experience, the decision happens in
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there as told Hey, yes you qualify or know or is it just simply
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the decision engine. And then second to that is you started talking a bit
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about we started with auto went to the personal loan space. Helock. Are
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you doing this today for just those three asset classes or is it expanded across
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all? Yeah, great question. So to answer your first part, the
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member does get communicated to their decision based on how they apply. So if
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they do it through our online channel, they are of course going to get
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that response online. We actually stood up a relationship with a loan Star so
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we do point of sale lending through rcs as well. In those cases,
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not only do they do the application through the lone Star system, they get
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a text response, as does the contractor that they're working with, and they
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can go full end to end from application all the way through closing digitally,
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So that's a really cool feature that we've been able to deploy to them where
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we can do closings through DocuSign and send all those out. So for the
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second part of the question as to what asset classes we're doing today, Yeah,
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we started with auto, our personal unsecured group, and our home equity.
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Since then we grew, like I was saying earlier, we stood up
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Loan Star point of sale lending, so we have now contractor loans for solar
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home improvement, and we also did a west Era energy efficient loan. We
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have added those three also to this space now and we really look at them
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like an unsecured loan for the most part, even though we can do a
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UCC one filing and we've automated those pieces as well. The really cool thing
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though is solar. Since we work with the state and the Colorado Renew Project
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here for our state of Colorado, we have set guidelines on what they want
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those loans to look like, and you know who they want us to be
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able to help. So we have fully automated our renew program to one hundred
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percent, so all the decisions are made by the system. We don't even
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have an underwriter look at it unless there's something that pops up like a fraud
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alert or a mismatch like on a social Security number. And if we get
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one of those types of alerts, then of course, yeah, the underwriter's
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going to take a peek at it and validate all the information they can.
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But if everything comes through clear and pass all the fraud checks, those loans
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are decisioned and ready to move forward right away. That's awesome. And you
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often hear, especially on the home equity align or even the mortgage product,
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the amount of time that that takes and then the real time that you're able
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to say yes or no to your members I'm sure is much appreciated. Yes,
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so cus to you your team. I know that was probably a long
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time coming of building this and being able to supply to your members. So
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again, kudos to you. Yeah, thank you. I want to make
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a pivot here and talk about something that I know that you're very passionate about,
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and of that passion, I will preface that most lenders are not willing
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to touch this or they probably don't know too much about it, and this
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is being the space of what's called adaptive auto. Can you first start by
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explaining one what adaptive auto is for those who may not know, and then
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why you're passionate about this space. Sure, So, adaptive auto are handicap
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accessible vehicles. So for our members that are in wheelchairs or have different paralysis
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that keeps them from being able to use gas pedals, brake pedals, and
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whatnot, they're able to build these vehicles so that they can drive them.
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And adaptive auto is definitely an underserved community nationally, so not only in Denver,
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but anywhere that you guys live or any of your listeners live. They're
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definitely underserved there. And the reason they're underserved is a lot of lenders don't
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know how to underwrite those deals and they don't know what to look at.
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So let's rewind back in time. So this is back when I started with
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Belco. One of the branches that I ran, I would drive to work
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every single day, and at the off ramp the exit to get to that
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branch was an adaptive Auto dealership. So it was less than a mile from
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our location, and I saw them every day coming in and I kept thinking,
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I wonder who's doing their auto loans and who's taking care of them?
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So I drove over and I asked, and they said, unfortunately, no
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one. They said, we can't get anyone to do loans for us.
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It's really up to the purchaser, the customer to find their own financing for
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this type of deal. And they said most of them are doing home equity
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or trying to get money put together from friends and family to buy a vehicle
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so that they can be just even their daily basic needs. A lot of
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times, you know, they may have a child who's disabled and they need
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to get them to the school, or may be an adult who's trying to
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take care of their family and they may live on their own, but they
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just don't have reliable transportation to even get to the grocery store and back.
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So at that point in time, I realized, Hey, this is what
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a credit unions for. We need to be able to help the members of
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our community and help them thrive. And so what I did is I started
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talking to our lending team at Belco about it, and I said, what
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makes the difference between an adaptive auto, so a vehicle that has a lift
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built in or some wheelchair assistance, versus a truck that has a lift on
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it, you know, to lift it up higher so they can put the
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bigger wheels on, or maybe the bigger exhaust. And I said, when
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we look at those vehicles that have those aftermarket customizations, we'll go into the
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KBB or we will go into NAD eight and we'll adjust the value for those
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upgrades that they've done. And unfortunately, you know, you don't have the
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adaptive equipment listed. But I asked, what's the difference between this, and
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they said, really, there's nothing. So I came back and said,
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okay, so if we have an invoice and the invoice says that you know,
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they put fifteen thousand dollars into this vehicle to put the lift in and
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the joysticks or whatever they needed to do so they could operate it, I
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said, why wouldn't we add that to the value of the vehicle and they
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said, we certainly can. And so we started looking at individual deals just
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as a one off, and through working with that local dealer that was just
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a mile away from my branch, they started sending their customers over to us
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at Belco into my location. And because we had decentralized underwriting and I had
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authority, I was able to work on some of those deals and don't get
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me wrong. It wasn't a lot. It was maybe one or two deals
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a month at the most, but we would be able to find financing for
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them and help those members into those vehicles. So fast forward now that I'm
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over at west Era and we regrew our indirect group and started working on that.
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We started looking at a wider scale of how do we help these dealers
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across the whole state of Colorado. And in Colorado, none of them are
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on an indirect platform just because they don't do enough deals to justify it,
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and they'll say no one understands how to underwrite them. So we partnered and
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used our lone Star partnership and said, hey, we've got a retail point
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of sale platform we can give you that you can use in your dealership.
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You can submit an auto loan directly to us, and we'll treat you like
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any other dealer. So we'll pay you a dealer flat on these and we'll
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give you the same kind of income that you'd get if you worked for an
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AutoNation or a bigger franchise store out there, and these deals will come straight
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to us. You'll get an immediate decision and we can fund them through ACHT
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you and the member can close by DocuSign and they said that they loved it,
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So we got that turned on and we're now helping three different franchise dealers
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out there that have multiple locations that do adaptive auto and they absolutely love it.
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So it's it's been really awesome to do. We definitely want to grow
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that program, but we're definitely doing the crawl walk run and we're kind of
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in the walk stages now we can close remotely, so that's awesome. One
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thing I wanted to touch on too is you said that not many people know
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how to underwrite this. Yes, can you talk a little bit about the
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differentiation besides LTV using KBB or NADA and such, of how to underwrite this
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type of asset class in correlation to all other type of consumer lending. Yeah,
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So talking to these dealers that do adapt to auto, they said,
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every single finance company that they've worked with has always used just the basic KBB
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or NADA value and they come in over the LTVs that are allowed at that
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financial institution. So whether it's a credit union or bank, a lot of
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them start capping out anywhere from you know, one hundred and twenty percent LTV
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one forty one fifty and they just can't do the deal. And they said,
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you know, hey, we're financing a sixty thousand dollars Honda Odyssey minivan
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that's five years old and you know, kbb on it is thirty thousand dollars
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and we just we can't get the deal done anywhere. And it's because they
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aren't adding in those additional add ons, you know, the pieces that were
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manufactured and built for that van that increase its value. And because they don't
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add those in and they don't have the box to click, you know,
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when they're going through their automated los to say yeah it's got the spoiler or
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yeah it's got the running boards or whatever. They don't have the adaptive equipment
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there, so they just don't ever add it in or think about it,
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and then it doesn't meet their LTV criteria, so it gets kicked out.
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So what we do is we get an invoice on every single deal that we
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do with them, and we will add dollar for dollar the equipment, so
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maybe not the labor, but we'll add the equipment dollar for dollar into the
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value of the vehicle. And the best part is when we started doing this
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years ago, both west Aara and Belko asked the same question, is whatever
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happens if we do, unfortunately have to repull one of these vehicles. You
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know, we can't sell it at auction. What does that look like?
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And every single Adaptive dealer has they've come to us begging, hey, if
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you ever get one of these vehicles, please bring it back to us because
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we can resell it and we can't find them at auction. So we've got
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a source that we can take them to to offload the vehicle if we need
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to. Now, at the end of the day, we haven't needed to.
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I think that this asset class is actually very very safe and very low
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risk because these families need these vehicles to survive. I've not had one ever
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even go delinquent. And I say that knock on wit at the same time
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that I say that, But I've been doing this for years and I've never
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had one delinquency because they need these vehicles. So I don't think we would
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ever get into the position where the Credit Union would have to repossess one.
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But if we did, we do have an outlet by taking it back to
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the dealer if we needed to, And that makes total sense. In that
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same regard, though, let's think about like in the auto industry as a
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whole. They might not be going delinquent, but they may get in an
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accident or have other type of itsues such as job lost, debts, so
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on and so forth. Can you talk a little bit about, like is
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there ancillary products that also come a part of a debt of mode as well.
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Yeah, so just like any of our other autos, we can sell
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any of our gap products, We can sell our debt protection products onto these
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loans as well. When we do those adjustments, like I said, adding
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that equipment is just the same as having those additions onto a truck or you
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know, the running boards, things like that. So it's all part of
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the vehicle. It's all documented, We have it all in the file and
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because of that, we get an accurate LTV and the coverage applies to that
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vehicle just like it would any other. So we definitely recommend those products.
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We do get all of our products through CUNA, and we love our relationship
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with CUNA, which is now and I keep saying CUNA, but it's true
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stage they just swapped over their name recently, but we love our relationship with
20:15
them. And they take great care of our members with those That's great.
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That is an interesting asset class. In another kudos to you your team of
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exploring that asset class that many many people of course need, but you don't
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really think about it too much when you're sitting in your chair. So,
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Jared, I think this is a good spot to transition, as we always
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do. I like to close the podcast out with let's call them three off
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the wall questions. Sure, So, the first being what is the latest
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either application or piece of technology that you cannot live without? Sure? So
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I'm going to start from a personal level. I am really big into Internet
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of Things and automation even at home, and so I use obviously home Kit
20:56
through Apple products, but I really love Home Assistant. And the reason is
21:02
the Internet of Things is so new, and it's so goofy, and you
21:06
have so many different products out there. They don't all talk to each other
21:08
and they don't all work very well together. And then things like Apple home
21:11
Kit have built in the safety measures that if you're doing automations when you leave
21:17
the house or come home, it's always asking you to confirm it and do
21:19
you really want to open your garage? And it kind of it takes away
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the purpose of having the home automation right to even change things like your thermostat.
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Are you sure you want to change it? Yes, I'm sure I'm
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coming home. Using Home Assistant, I've been able to go in and build
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a whole bunch of virtual switches, and by using these switches, you kind
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of bypass what home kit protections are out there, and so you can just
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do a switch that hey, Jared just came home. It flips the switch,
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and then I run automations based on those switches. So back to the
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boolean logic, which is what we used to build our decision engine, which
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is really if this, then that type of logic. I've been able to
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do the same thing and automate almost everything in my house, and so I
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absolutely love it when it works, and it works eighty five percent of the
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time, But that other five percent of the time I'll troubleshooting and rebuilding it
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and making it work. So it's something that I just I can't live without
22:07
anymore. Now when it breaks, Like do you have full access or do
22:10
wife and kids also have full access? But they can't mess with it?
22:12
Right? Yep, exactly right, it's only me I'm the only one who
22:15
can go and fix it. And so, and I keep telling my wife,
22:18
if there's something you would like to have happen, you know, or
22:21
that you'd like to do, let me know. I can figure out a
22:22
way to build it. And we have found really creative ways to kind of
22:26
chain the logic to make certain things happen when you come home, when you
22:30
leave here in Denver, when it snows, you know, we've got some
22:33
heat mats outside, stuff like that. And so building this logic into home
22:37
assistant has been awesome. That's great. I like that. I definitely like
22:41
that. I'm gonna have to look into it. Fast forwarding question number two.
22:44
Hopefully it's not shark oriented or it maybe if you could switch jobs for
22:49
anyone for a day, who would it be and why, Without a doubt,
22:53
it would be a Disney imagineer working on park rides and the next theme
22:57
park iterations. You can see me. I've got some Disney stuff. We
23:02
are big Disney fans. We absolutely love going to the Parts. That is
23:06
our go to vacation. And I really love the imagineer mentality of you know,
23:11
yes and and just kind of building off of things and just imagining what
23:15
is possible and how do we solve for it? And you know, they
23:18
come up with some really cool technology. They've come up with some really cool
23:22
tricks of you know, how they do distractions and things like that with their
23:26
rides that they have today, and it just completely astounds me, and I
23:30
want to learn more. And so if I could do anything for a day,
23:33
that would one hundred percent be it, And I'd want to learn all
23:36
this tips and tricks and all the secrets that they have going on behind the
23:38
scenes. Running trend of more tech focus and behind the scenes. I like
23:44
it. And then I'll close with with the last one. It doesn't need
23:47
to be in the confine of consumer lending, But what is one bold prediction
23:51
for the future? Sure, So looking forward, you know, if you
23:55
would have asked me this about four or five years ago, I would have
23:57
been talking about autonoymous car so on the cars that were self driving that were
24:03
out there, you know, just doing their own thing, like what Tesla's
24:04
been doing. And you know, there was a lot of rumors about Google
24:07
or maybe even like a Facebook company dropping a huge fleet into these major cities
24:12
where they're autonomous and they don't have anyone driving them, but you could ride
24:15
share them and do all that. I think COVID really derailed all that and
24:19
took all the air out of that opportunity there. So you know, I
24:22
know, Apple's still working on a car. I'm watching that one pretty closely.
24:26
Google's working on a car, but I don't think we're going to see
24:29
it on that type of scale. What I think though, happened at that
24:32
same time that COVID happened, was we saw a real surge in the bitcoin
24:37
and the not just the cryptocurrency, but the blockchain technology and blockchain really started
24:44
coming to the forefront. And so my bold prediction for the future is I
24:48
really think credit unions and potentially even banks, and it may even start with
24:52
banks and then move to credit unions will start to adopt blockchain technology and even
24:56
abandon potentially abandoned their core systems. Because blockchain is verified by you know,
25:02
computers worldwide. Every transaction is multi factor authenticated, but it's verified unanimously across
25:08
the world. I think it's more secure than what we've seen today with core
25:14
systems and obviously hackers getting into those, and I think we'll start to see
25:17
a move towards that. Now, will it be a full one hundred percent
25:21
you know people are going all in into that. Probably not, But I
25:23
think it'll start easing its way into things like titles, so anything from like
25:29
a auto title to a deed on a house, and they'll be verifying all
25:33
those pieces of paper instead of filing actual papers with the county. And then
25:37
I think from there it'll start moving in even into core systems and into online
25:41
systems to verify transactions. That's an interesting perspective, and I think it is
25:45
going to be a crawl, walk, jog run approach. Yeah, but
25:52
that's all going to be determined, of course. I would think more around
25:55
how it's regulated, So it'll be interesting to see how that space expands.
26:00
Well, Jared, again, thank you for taking the time to join me
26:02
today. I really appreciated our conversation. Yeah, thank you so much for
26:06
having me. This has been great. Upstart partners with banks and credit unions
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