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Riding the Refi Wave: How Credit Unions Can Capture the Moment · Leaders in Lending

0:00
Speaker 1: Only large credit unions can compete in the auto refi space.
0:04
Speaker 2: Capital at fiction. Yes, there will be a surge coming
0:07
Speaker 2: once rates come down. I think the question is when
0:09
Speaker 2: a rate's going to come down.
0:10
Speaker 3: A lot of people don't necessarily know about can you
0:13
Speaker 3: refinance or auto loan? Like it still seems like there's
0:15
Speaker 3: a little bit of education out there.
0:16
Speaker 1: You think the consumer even knows what their rate is?
0:19
Speaker 2: Most often probably not they know what the payment is.
0:25
Speaker 1: Welcome to leaders in lending. This episode was recorded in
0:28
Speaker 1: mid August, so some of the content today is subject
0:30
Speaker 1: to change. Today we're going to talk about this auto
0:34
Speaker 1: refinance surge that could be coming. Right. The FED really
0:37
Speaker 1: hasn't moved rates for quite some time now, but there's
0:41
Speaker 1: talks depending upon which paper comes out each week of
0:44
Speaker 1: when they will reduce the FED rate. So there's this
0:49
Speaker 1: refinance surge that could be coming. Is this asset category
0:53
Speaker 1: is near and dear to credit union? So I would
0:55
Speaker 1: love to get your post perspective on what is driving
0:58
Speaker 1: that outside of you know, the FED potentially reducing rates.
1:03
Speaker 1: Is it we're already in a refinance crunch or is
1:06
Speaker 1: it coming? How are we going to support it? So
1:08
Speaker 1: i'd love to get your perspective on when it's coming
1:11
Speaker 1: or is it already here?
1:11
Speaker 2: Sure? Did you intentionally say driving by the way because
1:14
Speaker 2: we're talking about a noun anyhow, So you're right, Drew.
1:18
Speaker 2: It's been about a year since we last saw a
1:21
Speaker 2: FED fund's decrease. In fact, we saw three decreases the
1:24
Speaker 2: last year of one hundred basis points total. And what
1:27
Speaker 2: did that do to the interest rate environment? I mean,
1:30
Speaker 2: the market didn't change at all. In fact, if you
1:32
Speaker 2: look at the tenure rate today is roughly the same
1:35
Speaker 2: as what it was two years ago. So that tells
1:38
Speaker 2: me that we haven't necessarily seen any sort of change
1:40
Speaker 2: in auto loan rates in the past two years. And
1:43
Speaker 2: yet the majority of originations and auto loans have been
1:47
Speaker 2: in some time between now and say, the last three
1:50
Speaker 2: four years. So yes, there will be a surge coming
1:54
Speaker 2: once rates come down. I think the question is when
1:56
Speaker 2: a rate's going to come down, Because those last three
1:58
Speaker 2: rate cuts really didn't have any impact on the interest
2:01
Speaker 2: rate environment. I don't know if the ones that are
2:03
Speaker 2: contemplated this fall, with everything else going on in the economy,
2:07
Speaker 2: are really going to have that intended effect on loan
2:10
Speaker 2: rates as well.
2:11
Speaker 3: Yeah, and I definitely think that you know, we all
2:13
Speaker 3: saw during obviously during COVID what happened to the auto markets,
2:16
Speaker 3: and you know that new cars were hard to find,
2:19
Speaker 3: use cars sold at increasingly high prices. And I think
2:24
Speaker 3: that what we've been seeing then in the last few
2:26
Speaker 3: years is more new cars are actually the ones that
2:28
Speaker 3: are being financed while they're now back available. There's less
2:31
Speaker 3: use cars available, and so people are generally then going
2:35
Speaker 3: through a dealership buying a new car, and so may
2:37
Speaker 3: have loans that are more attracted or refinance and a
2:39
Speaker 3: car that has taken less depreciation over time because it's nowhere.
2:42
Speaker 2: That's a good point, you know, around the new cars
2:44
Speaker 2: the evaluations are holding three four years ago. I remember
2:48
Speaker 2: in our Credit Union looking at these new auto loans
2:51
Speaker 2: coming through because they were overvalued used cars just because
2:54
Speaker 2: there was less supply available, and thinking, how are we
2:57
Speaker 2: going to collect on this in three or four years
2:59
Speaker 2: given more values were at the time. And I think
3:01
Speaker 2: that sort of happened, is that valuations dropped so much
3:04
Speaker 2: for used vehicles in the past three four years that
3:07
Speaker 2: doesn't necessarily have as much of an impact. Now, now
3:10
Speaker 2: what that means from an auto refive perspective for those
3:13
Speaker 2: loans that were originally two three years ago is you're
3:16
Speaker 2: going to have to really be very clear on valuations
3:20
Speaker 2: and if that makes any sort of change your policy
3:22
Speaker 2: around the loan to value that you be willing to accept,
3:26
Speaker 2: or if that impacts your pricing in some way, if
3:29
Speaker 2: you want to have some sort of a premium placed
3:32
Speaker 2: on that high loan to value auto.
3:34
Speaker 3: On It's a near and dear subject to my heart
3:36
Speaker 3: because about not quite four years ago, I had one
3:39
Speaker 3: of my children got her driver's license and we had
3:41
Speaker 3: to buy her a car in the midst of historically
3:45
Speaker 3: high used car prices. And now my youngest is about
3:48
Speaker 3: to turn sixteen, and things look much better in the
3:51
Speaker 3: middle one, maybe a little jealous of the youngest is
3:53
Speaker 3: going to get potentially a nicer car that's a lot
3:56
Speaker 3: less money, a brand new car maybe most likely a
3:59
Speaker 3: brand new versus a couple of years old.
4:01
Speaker 1: So on that, Linn, you touched on that. The in
4:04
Speaker 1: the auto space right now, there's more new vehicles that
4:07
Speaker 1: are being purchased at dealerships. It's no longer kind of
4:09
Speaker 1: this used versus new type of mentality. If you think
4:13
Speaker 1: about though, people that got into a car such as
4:16
Speaker 1: there they bought their daughter a vehicle or so. The
4:21
Speaker 1: rates that they were offered back then were decent in
4:24
Speaker 1: a sense, probably somewhere between the high sixes mid eights,
4:27
Speaker 1: depending upon credit quality, things of that nature. But the
4:30
Speaker 1: newer vehicles that they're now selling are much higher trim packages,
4:34
Speaker 1: higher payments at aprs right now that are still fairly high.
4:39
Speaker 1: What do you think moves the needle for people to
4:41
Speaker 1: go back to purchasing new vehicles or refinance there existing?
4:45
Speaker 1: And how many basis points does the FED reducing Does
4:48
Speaker 1: it make sense for them to go into a comfortable
4:49
Speaker 1: payment if they were to buy a used or versus.
4:52
Speaker 2: New, Yeah, I mean in a refin deal if there's
4:56
Speaker 2: no other sort of fees associated with it, and typically
4:58
Speaker 2: there aren't. If I can reduce my payment by twenty
5:01
Speaker 2: five dollars, why wouldn't I do that? You know, if
5:04
Speaker 2: I'm able to even stretch out the term a little bit.
5:07
Speaker 2: Your cars are lasting a lot longer now too, right,
5:10
Speaker 2: So what's the average age of vehicles on the road
5:13
Speaker 2: right now? It's over ten years just because quality I
5:17
Speaker 2: think is way better than it was a generation to go.
5:19
Speaker 2: So maybe I'm willing to extend that term out a
5:22
Speaker 2: little bit in order to get a little bit of
5:25
Speaker 2: a lower payment, even if my rate isn't necessarily all
5:28
Speaker 2: that different.
5:30
Speaker 3: Well, I certainly know. I know on one of our
5:32
Speaker 3: prior episodes, we had some of the folks from Experience
5:36
Speaker 3: on who specifically lead their auto market in the credit
5:42
Speaker 3: report and credit scoring area, and they're seeing a lot
5:45
Speaker 3: more of that, like those longer terms, that people are
5:47
Speaker 3: taking a longer term now, whether or not they hold
5:50
Speaker 3: that car for very long, they're willing to take a
5:53
Speaker 3: longer term in exchange for a lower payment, And I
5:56
Speaker 3: think that is a big focus at payment versus rate
5:59
Speaker 3: is ill for most people the biggest number that they
6:02
Speaker 3: look at, even though the rate long term can mean more,
6:06
Speaker 3: but it depends how long they're going to keep that car,
6:08
Speaker 3: or if they're going to trade it in in three years,
6:11
Speaker 3: or they plan to actually.
6:12
Speaker 1: Pay it off.
6:12
Speaker 2: Our Credit Unis even did ninety six month loans for
6:15
Speaker 2: new vehicles, and we could even charge a little bit
6:18
Speaker 2: of a premium for that ninety six month loan and
6:21
Speaker 2: make a little more yield off its So and what's
6:24
Speaker 2: stopping you from doing that? In the refine market, you
6:25
Speaker 2: can do the same sort of pricing approach and take
6:29
Speaker 2: a few more basis points to make that to improve
6:32
Speaker 2: the profitability.
6:33
Speaker 1: Of the product. The refied surge is coming. We're kind
6:35
Speaker 1: of aligned there. You think about the macro though right
6:38
Speaker 1: now inflation, who knows. Delinquencies are up across all different
6:44
Speaker 1: asset classes. But for people that are coming through in
6:47
Speaker 1: this refinance surge, and this being the bread and butter
6:49
Speaker 1: of credit unions of auto lending, do you think they're
6:52
Speaker 1: going to have tighter policies? Is going to be more
6:53
Speaker 1: of an open book with valuations and terms so on
6:56
Speaker 1: and so forth. What are your general thoughts on how
6:59
Speaker 1: tight things become or is it going to be kind
7:01
Speaker 1: of an open book.
7:01
Speaker 3: I'm really interested. I'm really interested in Barrie's answer on this.
7:04
Speaker 3: But you know, I know, particularly with tariffs as we were,
7:08
Speaker 3: you know, they've been on again, off again, on again,
7:10
Speaker 3: off again. As it relates to cars, as it relates
7:12
Speaker 3: to it to automotive parts, there was a surge of
7:16
Speaker 3: new car purchasing that happened towards the enda last year
7:19
Speaker 3: earlier this year, and where people were probably buying ahead
7:23
Speaker 3: of when they really wanted to buy a car because
7:25
Speaker 3: they were afraid that if I wait six months or
7:27
Speaker 3: three months even this car is going to cost me
7:29
Speaker 3: thousands of dollars more than if I buy it right now.
7:32
Speaker 3: And you saw dealerships out there pushing that too, saying, hey,
7:35
Speaker 3: buy what's on the lot right now, no tariffs on
7:37
Speaker 3: these vehicles. And so I do think you have a
7:41
Speaker 3: lot of people who probably paid more and took higher
7:43
Speaker 3: rates than they would have because they were worried about
7:46
Speaker 3: the macro changing. And so doesn't really kind of answer
7:49
Speaker 3: that specific question, but something I'm thinking about just in
7:51
Speaker 3: general about the macro environment.
7:53
Speaker 2: Yeah, we're going to see how resilient the American consumer
7:55
Speaker 2: is with this. The cost of tariff's going to be
7:58
Speaker 2: passed on to the buy or are the manufacturers and
8:03
Speaker 2: the dealerships eating a bit of that? And if so,
8:06
Speaker 2: then doesn't that mean it that we might see the
8:11
Speaker 2: return of zero percent for seventy two months at some
8:13
Speaker 2: of the captives and so on. So I'll say that
8:17
Speaker 2: the macro could fundamentally shift a lot of the demand
8:22
Speaker 2: for auto loans, maybe even away from banks and credit
8:24
Speaker 2: Unis that's possible. It's kind of a wait and see attitude.
8:28
Speaker 2: I think what you do need to have, though, is
8:30
Speaker 2: a very flexible policy and a very flexible pricing structure.
8:34
Speaker 2: You know, we used to set and forget it auto
8:36
Speaker 2: loans when rates didn't move all that much, and that
8:40
Speaker 2: was the wrong approach then. I think it's really the
8:42
Speaker 2: wrong approach now. I think you've got to be so
8:44
Speaker 2: on top of what's happening in the marketplace, what's happening
8:47
Speaker 2: with consumer behavior, and make sure that the loans you're
8:51
Speaker 2: bringing on are actually going to be profitable for your program,
8:54
Speaker 2: and maybe you make that choice to not try and
8:57
Speaker 2: be as competitive in the marketplace. I was talking to
8:59
Speaker 2: a ANY partner last week in Texas and they're just
9:03
Speaker 2: seeing where in a very highly competitive, large metropolitan market,
9:08
Speaker 2: they just couldn't see a way that they could remain
9:11
Speaker 2: competitive in that aut alone space. So they've actually backed
9:14
Speaker 2: out a little bit and they're doing a lot more
9:16
Speaker 2: sort of internally with their own membership because they're a
9:18
Speaker 2: fairly large credit union, but they're not chasing a lot
9:21
Speaker 2: of that indirect business today. That doesn't mean that's going
9:24
Speaker 2: to be that way a month from now or even
9:27
Speaker 2: two weeks from now, but they've made that conscious decision
9:30
Speaker 2: we're not going to chase rate right now, with valuations
9:34
Speaker 2: perhaps being a little higher than what they would be
9:36
Speaker 2: the residual value if it ever did come to repo.
9:40
Speaker 3: Well, maybe that's a good opportunity for them on REFI though,
9:43
Speaker 3: right that, if they're not going to chase rates on
9:46
Speaker 3: indirect they could potentially, though, make that deal on refi.
9:50
Speaker 3: You've got some payment history on the same car, you
9:52
Speaker 3: could offer a better rate there. And I do think
9:54
Speaker 3: it's just a product that a lot of people don't
9:56
Speaker 3: necessarily know about too, is that can you refinance your
9:59
Speaker 3: auto loans? Seems like there's a little bit of education
10:01
Speaker 3: out there.
10:02
Speaker 1: I think some people do know that, right. I have
10:05
Speaker 1: a really good example. A friend of mine purchased a
10:07
Speaker 1: vehicle back in January the tariff unknown right, walked out
10:10
Speaker 1: of their super prime borrower with probably a nine percent
10:13
Speaker 1: type of APR. Knew he could refinance that, of course,
10:15
Speaker 1: but he just wanted to get that trim package of
10:17
Speaker 1: that color off the lot that day. Then was able
10:20
Speaker 1: to refinance, you know, fifteen thirty days later at much
10:23
Speaker 1: more favorable types of terms. Do you think there's a
10:25
Speaker 1: lot of consumers out there that are knowledgeable that they
10:29
Speaker 1: can go do that because credit unions, of course offer
10:31
Speaker 1: somewhere between two three hundred basis points lower than what
10:34
Speaker 1: they're offering in the dealership.
10:35
Speaker 2: There's danger with that approach, though, right, I mean, how
10:38
Speaker 2: many people do you know got into houses thinking oh,
10:41
Speaker 2: yeah this is the howth that wanted? Yeah, yeah, Rechel
10:43
Speaker 2: turn this is six and a half.
10:44
Speaker 3: Value will stay the same.
10:45
Speaker 2: But right, and where are we now? You know, thirties
10:48
Speaker 2: are still above so we haven't seen a thirty above
10:50
Speaker 2: or below six percent in quite some time, right, And
10:54
Speaker 2: or maybe things change for their financial profile. Now you're
10:57
Speaker 2: not as super prime as as you were before. So
10:59
Speaker 2: I think that is a bit of a risky proposition
11:03
Speaker 2: to answer your question, Drew, though, yes, I think there
11:05
Speaker 2: are there's a segment of borders that that inherently understand that.
11:10
Speaker 2: And in your friend's case, he's like, no, this is
11:12
Speaker 2: one I want. I'm not gonna wait. I'm going to
11:14
Speaker 2: get it now while I can, because who knows that
11:16
Speaker 2: that particular model with that trim package is going to
11:18
Speaker 2: be available when I'm ready to pull the trigger six
11:21
Speaker 2: twelve months from now.
11:22
Speaker 1: On that going back to a point that you made,
11:24
Speaker 1: Barry that credit unions are kind of pulling out of
11:27
Speaker 1: the interrex space not chasing rate. However, credit unions are
11:31
Speaker 1: now matching market share of that of banks. Why do
11:35
Speaker 1: you think that is if they're not chasing rate knowing
11:38
Speaker 1: that credit unions have more competitive rate offerings because they're
11:41
Speaker 1: more member based rather than shareholder base.
11:44
Speaker 2: Yeah, I'll say, look, some have made the choice to
11:46
Speaker 2: maybe not chase rates, whereas for others it's the bread
11:49
Speaker 2: and butter, and it's sort of a maybe a fundamental
11:52
Speaker 2: or the primary product that helps them front a profitability.
11:56
Speaker 2: But look, you and I know from our credit union
11:58
Speaker 2: experience that you may not necess really make a whole
12:00
Speaker 2: lot of profit off of the loan itself. It's those
12:03
Speaker 2: add on products, it's gap, it's it's the mechanical breakdownsurch
12:08
Speaker 2: things like that that in an indirect relationship for the
12:12
Speaker 2: for the credit union, that's where I think the real
12:15
Speaker 2: value comes from. And then of course, now you've got
12:17
Speaker 2: that brand new member that you can maybe sell that
12:19
Speaker 2: second third product to.
12:20
Speaker 3: As well, or you can start them out with a
12:23
Speaker 3: personal loan and then refiy their auto into a better deal.
12:27
Speaker 1: Now to get to that which is first and second, Yeah, sure, definitely, definitely,
12:34
Speaker 1: all right, so thinking about this surge of auto refinance demand, right,
12:38
Speaker 1: we've heard this for the past two or three years,
12:41
Speaker 1: this this l word of liquidity and it being an
12:44
Speaker 1: issue for credit unions and even in banks. In some aspect,
12:47
Speaker 1: things are starting to come back in line, but we
12:50
Speaker 1: still hear quite often that there's liquidity pressures and concerns.
12:54
Speaker 1: If we have this surge of demand, how do you
12:56
Speaker 1: think credit unions are going to be able to take
12:57
Speaker 1: their capital and put it to work, or they're gonna
12:59
Speaker 1: have different avenue of being able to going back to
13:01
Speaker 1: no pun intend to drive additional auto loan growth.
13:04
Speaker 2: Liquid is still a concern out There's certainly not like
13:07
Speaker 2: it was two years ago after some a couple of
13:10
Speaker 2: spectacular bank failures that occurred. Like when you're seeing in
13:15
Speaker 2: that Lending Professionals chair, there's a little bit of a
13:19
Speaker 2: hope of a prayer that perhaps if you if you
13:22
Speaker 2: come to an inflection point in your balance sheet, that
13:24
Speaker 2: you're able to either bring new deposits in at a
13:28
Speaker 2: lower rate, or perhaps fed funds rates are a little lower,
13:31
Speaker 2: so your boring costs are a little bit less. My
13:35
Speaker 2: credit unions we tended to maybe take more of an
13:37
Speaker 2: approach of let's try and get as much as we
13:39
Speaker 2: can now at what rates that we feel are going
13:42
Speaker 2: to be meaningful and desirable for the credit union, and
13:46
Speaker 2: sort of worry about how to sort of fund it
13:48
Speaker 2: after knowing that you can sort of turn that spigot off,
13:52
Speaker 2: especially on the indirect On the direct side, it's a
13:54
Speaker 2: little more difficult. You want to have you want to
13:56
Speaker 2: have dollars available for those direct members who are coming
13:59
Speaker 2: to you. They want to deal with with your institution
14:02
Speaker 2: for an auto loan, so you better make sure we've
14:05
Speaker 2: got some dry powder to be able to fund those.
14:08
Speaker 3: Yeah, And I definitely think the efficiency of underwriting products
14:13
Speaker 3: like auto refy is helping, right, Like the cost of
14:16
Speaker 3: customer acquisition isn't as high with digital channels that you know,
14:20
Speaker 3: kind of cost per funded loan to convert a REFI application,
14:24
Speaker 3: particularly if you're partnering with a vendor that can offer
14:27
Speaker 3: a digital experience and you know, remove as much kind
14:30
Speaker 3: of manual intervention with both the refi, the retitling. The
14:35
Speaker 3: increase of electronic lean and titling in states and how
14:39
Speaker 3: that's continuing to grow, whether it's electronic leans or whether
14:43
Speaker 3: it's EEno rise and remote online notary sorts of services
14:48
Speaker 3: that the cost to originate each whetherether it's an indirect
14:51
Speaker 3: loan or a direct loan or or an auto refinance.
14:54
Speaker 3: I think the cost to originate each loan is depending
14:58
Speaker 3: on how you're doing it, concern be declining and on that.
15:01
Speaker 1: When you think this, when you think of when this
15:03
Speaker 1: surge does come from an operational perspective, you have to
15:06
Speaker 1: probably put more FTE towards all the operational pieces of
15:10
Speaker 1: lean transfer, payoff things of that nature. Right to credit unions.
15:14
Speaker 1: Are they going to automate that in some fashion through
15:16
Speaker 1: third party vendors? Are they going to have to hire
15:18
Speaker 1: more staff to be able to support this? What's the
15:21
Speaker 1: overall cost going to look like from that perspective with
15:23
Speaker 1: third party vendor versus you know, in in office staff
15:26
Speaker 1: in house.
15:27
Speaker 3: Yeah, And I think it's one of those things that
15:29
Speaker 3: you know, we've talked about a lot with a variety
15:30
Speaker 3: of other products, like you can certainly choose to partner
15:33
Speaker 3: to do that. I mean, you don't have to build
15:35
Speaker 3: it all yourself, but if you are building it and
15:38
Speaker 3: running it in house, you can theoretically do it with
15:39
Speaker 3: less people than you would have had to do ten
15:41
Speaker 3: years ago, you may not have the need to, you know,
15:45
Speaker 3: vault paper copies in office, but there's any number of
15:48
Speaker 3: vendors that they could partner with at this point, even
15:51
Speaker 3: if you're doing the originations yourself to do that electronically
15:54
Speaker 3: and transfer, titling, maintenance, middleware solutions, ELT vendors specially that
16:01
Speaker 3: know the rules in various states, especially if you have
16:03
Speaker 3: a national footprint and you know that you know, Michigan
16:07
Speaker 3: just switched to take E notary and now you know
16:11
Speaker 3: they used to require a paper signature. Those sorts of
16:14
Speaker 3: very specific even county specific rules sometimes get very nuanced,
16:19
Speaker 3: and so I think, like you really have to make
16:21
Speaker 3: that decision. Do you want to build and staff for
16:24
Speaker 3: all of those things and then try to monitor all
16:27
Speaker 3: of them or is that a better option to partner
16:29
Speaker 3: with a vendor who who does that as their kind
16:33
Speaker 3: of core competency.
16:34
Speaker 2: Yeah, ten years ago that was people systems tasks, then
16:39
Speaker 2: auditing of that right the whole risk management compliance elements
16:42
Speaker 2: of it, and now those resources can be allocate for
16:46
Speaker 2: other operational aspects of the the lenning relationship. It's not
16:51
Speaker 2: to chase down titles, it's not to deal with DMV
16:56
Speaker 2: it's no longer necessary in some of these states.
16:58
Speaker 1: And that speed gives the member of good experience of
17:01
Speaker 1: refinancing my loan. Do I make my payment with this
17:04
Speaker 1: banker credit union that I already had my loan with.
17:06
Speaker 1: Now I know that things are happening much quicker, and
17:09
Speaker 1: you're just more comfortable going back to the whole point
17:12
Speaker 1: of this surge coming and having the capital. What are
17:14
Speaker 1: your thoughts. I know we talked a little bit about
17:17
Speaker 1: kind of margins being very thin with captive rates. Do
17:20
Speaker 1: you think most credit unions or many credit unions are
17:24
Speaker 1: going to try to off what's on balance sheet right now,
17:27
Speaker 1: not yielding much from a sale perspective, participation perspective, and
17:31
Speaker 1: then front loading with these higher aprs than what they were,
17:35
Speaker 1: you know, two or three years ago. Love to get
17:36
Speaker 1: your perspective on is that kind of a combo of
17:39
Speaker 1: a capital mix or.
17:40
Speaker 2: I mean, that's a great strategy if your liquidity challenge
17:44
Speaker 2: it's a it's an excellent strategy, especially in that case.
17:49
Speaker 2: You know, a lot of consumer lending professionals I think
17:52
Speaker 2: sort of look at the like, I've got that loan,
17:54
Speaker 2: I don't necessarily want to give it up.
17:56
Speaker 1: Not.
17:56
Speaker 2: Many are sort of churning their folios in a way
18:01
Speaker 2: from both a risk management and a pretty management perspective
18:05
Speaker 2: to sort of make sure that what's on the balance
18:07
Speaker 2: sheet is really sort of hitting what the income statement
18:11
Speaker 2: requires right now. I think that's that's kind of an
18:14
Speaker 2: elevated approach that all credit us should be considering because
18:19
Speaker 2: there's certainly a market for it. While some creditings professionals
18:24
Speaker 2: that I've spoken to are having no problem with growth
18:27
Speaker 2: this year, twenty five has been abundant for auto loans.
18:31
Speaker 2: In fact, in some cases they're like, no, no, we're good,
18:33
Speaker 2: We're way ahead of planning.
18:35
Speaker 1: Wow, m Q one teriff unknown Right.
18:38
Speaker 2: Well, maybe, and so maybe that was part of it
18:40
Speaker 2: why there was a bit more demand. And you know,
18:44
Speaker 2: creditings traditionally, as you get into third and fourth quarter,
18:46
Speaker 2: it's like, gee, we should pack our balance sheet a
18:48
Speaker 2: little bit more. So, let's get out and buy some
18:51
Speaker 2: of the secondary market. And the secondary market always gets
18:53
Speaker 2: a lot more active sort of in the second half
18:55
Speaker 2: of the year. But yeah, I think that strategy, Drew
18:59
Speaker 2: is a really really sound one.
19:01
Speaker 1: Well, if today's episode got you thinking differently about auto
19:04
Speaker 1: REFI connect with myself, Lynn or Berry on LinkedIn. We're
19:07
Speaker 1: always up for continuing the conversation and hearing how credit
19:10
Speaker 1: unions like yours are putting ideas into action. All right,
19:13
Speaker 1: it's time for factor fiction, where we're breaking down real
19:15
Speaker 1: opinions about auto refinancing and deciding if we're on board
19:19
Speaker 1: or not.
19:19
Speaker 2: So.
19:19
Speaker 1: First question, there's probably some differences of opinions here. Only
19:23
Speaker 1: large credit unions can compete in the auto refi space
19:27
Speaker 1: capital f fiction.
19:29
Speaker 2: It's a little harder and new and used auto. Let's
19:32
Speaker 2: be honest in the indirect space, at least, you know,
19:35
Speaker 2: in my foreign geographic mark in southern California, there were
19:38
Speaker 2: just some large institutions, both banking credit unions that would
19:42
Speaker 2: tend to sort of buy buy rates in the indirect side,
19:45
Speaker 2: on the auto refi side. No, this is this is
19:47
Speaker 2: game for everyone if you have the right partner, if
19:51
Speaker 2: you have the right processes and systems in place to
19:54
Speaker 2: sort of not only find those refi opportunities but price
19:58
Speaker 2: them accordingly. I think this could be profitable. Whether you're
20:01
Speaker 2: a fifty million dollar crediting or a fifty billion dollar crediting,
20:04
Speaker 2: you could do it.
20:05
Speaker 1: Yeah.
20:05
Speaker 3: I think the second part of that is what I
20:07
Speaker 3: I'd probably lean into like if you can either find
20:10
Speaker 3: the right partner or build the scalability, like even for
20:13
Speaker 3: Refi if you you know, I think interact direct much.
20:17
Speaker 3: You've got to have the relationships with the dealers and
20:20
Speaker 3: and you know, different for a smaller organization, but even
20:24
Speaker 3: for a smaller organization that maybe that bread and butter
20:27
Speaker 3: auto Refi product where they're offering it to their members
20:29
Speaker 3: or marketing it to their whether it's their selecting player
20:32
Speaker 3: groups or their community. Being able to then actually build
20:36
Speaker 3: the operational efficiency, and whether you do that yourself or
20:38
Speaker 3: your partnering, I think that's going to be key for
20:40
Speaker 3: them to be successful, to make the margins work all right.
20:43
Speaker 1: Second one, we've talked a little bit about this with
20:46
Speaker 1: potential of chasing rates, not chasing rates. Rate shopping has
20:51
Speaker 1: made auto Refy a race to the bottom.
20:53
Speaker 2: I think I'd.
20:54
Speaker 3: Actually challenge that and say fiction, because I'm not confident
20:59
Speaker 3: that people consumer behavior really like, really they shop around
21:03
Speaker 3: that much? Are you offering them a lower You only
21:06
Speaker 3: need to beat the rate that they have today. You
21:08
Speaker 3: don't need to beat every rate in the market. And
21:11
Speaker 3: if you have that relationship, particularly if you have a
21:14
Speaker 3: relationship with the member and you're doing this campaign out
21:18
Speaker 3: to kind of cross sell deep in relationship through your
21:21
Speaker 3: existing members. Are your rates better than what they already have?
21:25
Speaker 3: And can use data to answer that question? Right like
21:28
Speaker 3: you presumably may have their DDA data you can do
21:31
Speaker 3: you know, soft credit polls. Can you get an idea
21:33
Speaker 3: of what the average rate is on your consumer base
21:35
Speaker 3: and then market below That doesn't have to be the
21:38
Speaker 3: actual bear market minimum, but it has to be below
21:41
Speaker 3: where they are today.
21:42
Speaker 2: Yeah, agreed. I also agree it's fiction. On the deposit side,
21:46
Speaker 2: I can go and find rates very easily through some
21:51
Speaker 2: simple Google searches. It's a little more opaque. On the
21:54
Speaker 2: autoifi side. I almost have to go institution my institution
21:57
Speaker 2: because of risk based pricing and because of the value
22:00
Speaker 2: the vehicle and the LTV and you know, there's a
22:02
Speaker 2: lot of different factors as opposed to here's a CD,
22:05
Speaker 2: here's here's the term I'm looking for. So I think
22:08
Speaker 2: that that that consumer that border is a less rate sensitive.
22:13
Speaker 2: It's more about are we are we providing that offer
22:16
Speaker 2: to them in the right method that they're looking for
22:19
Speaker 2: at the right time of what they're looking for, and
22:21
Speaker 2: is there enough value either in a lower rate, maybe
22:26
Speaker 2: a lower payment, or maybe a lower term. Maybe I
22:30
Speaker 2: want to pay this off a little faster.
22:32
Speaker 1: It's just about to ask, do you think the consumer
22:33
Speaker 1: even knows what their rate is? Most often probably not.
22:36
Speaker 3: They know what the payment is, yeah, yeah, they know
22:38
Speaker 3: their payment, but even yeah, even term like they like
22:41
Speaker 3: I said, yeah, thirty eight, thirty six, forty eight.
22:44
Speaker 2: Yeah, who cares at that point?
22:45
Speaker 1: Right?
22:46
Speaker 3: Yeah?
22:46
Speaker 1: Yeah, So on that rates, rate offers beat trust in
22:51
Speaker 1: attracting refi customers.
22:53
Speaker 2: Rate offers beat trust in attracting refi customers.
22:58
Speaker 3: I would say, fat, I think while you don't need
23:02
Speaker 3: to race to the bottom on rate because to berries
23:04
Speaker 3: when it's more opaque and harder to get to a
23:08
Speaker 3: kind of general refine market rate number. If a consumer
23:13
Speaker 3: believes that they can get a better loan, whether it's
23:15
Speaker 3: a lower rate, some sort of better terms, lower payment,
23:18
Speaker 3: even if that extends maybe the term of the loan,
23:21
Speaker 3: if they don't know your organization, well, they still may
23:24
Speaker 3: accept that offer if you've presented it in a way
23:27
Speaker 3: that's compelling and then made even that relationship with you.
23:31
Speaker 3: I don't think they need to start with that relationship
23:34
Speaker 3: to then select the auto refive product.
23:37
Speaker 2: Yeah, not a lot of credit unions are contacting their
23:40
Speaker 2: members and saying, hey, we can lower your auto rate
23:43
Speaker 2: auto loan rate for a loan that's already on their books.
23:46
Speaker 2: That tends to not happen unless there's some compelling reason
23:52
Speaker 2: to do it internally, whether it's from a relationship building
23:55
Speaker 2: perspective that hey, Drew, you're paying eight percent, Now I
23:58
Speaker 2: can get you down to seven, even though in some
24:01
Speaker 2: respects I'm sort of I'm canpibalizing a little bit of
24:03
Speaker 2: my own income stream. But maybe there's a reason for that.
24:06
Speaker 2: Maybe it's to deepen that relationship, or maybe there's a
24:09
Speaker 2: spiff for Drew, like hey, if you take this product
24:12
Speaker 2: or you know, like a second productor or some other
24:15
Speaker 2: ways or of building that relationship. There's got to be
24:17
Speaker 2: value in it for the credit union to do that.
24:21
Speaker 2: But the refine market, let's face it, it's basically I'm
24:24
Speaker 2: taking your loan and then Lynn's going to take my loan,
24:28
Speaker 2: you know, the next time rates. That's kind of the
24:30
Speaker 2: way the market works predominantly.
24:33
Speaker 1: My last one here is auto refi is a valume play,
24:36
Speaker 1: not a retention play.
24:37
Speaker 2: I would say that's a fact. I think that someone
24:41
Speaker 2: who's looking to refy their loan. It certainly isn't loyal
24:47
Speaker 2: to the whoever originated that loan in the first place.
24:52
Speaker 2: So on the buy side, as I'm trying to get
24:55
Speaker 2: more auto loans into my credit union, yeah, that's just
24:59
Speaker 2: the more volume I can get that's gonna be profitable.
25:02
Speaker 2: Then it really is more of a volume play.
25:05
Speaker 3: Yeah, I'll second Bary. Nothing to add on that one.
25:09
Speaker 1: Awesome. Well, thank you for tuning in to this episode
25:11
Speaker 1: of Leaders in Lending. We will see you next time.