CUNA Mutual's Lender Protection Helps
Near-Prime Borrowers Secure Loans

Program Helped Credit Unions Close $100 Million in Loans in First 18 Months

MADISON, WI – Feb. 27, 2006 – Noting positive results following a controlled rollout, CUNA Mutual Group’s Lenders Protection program has now expanded to all states.Lenders Protection is an innovative default insurance program that enables credit unions to build their vehicle loan portfolios by lending to members with near-prime credit scores, while managing their risk of financial loss in case of borrowers’ default. The program is a joint venture between CUNA Mutual and Open Lending, Inc., of Austin, TX, and is underwritten by CUMIS, a member of CUNA Mutual Group.

Thirty-eight credit unions were actively using Lenders Protection as the pilot program ended and Steve Martin, CUNA Mutual director of Lenders Protection, said those credit unions have generated more than 5,000 loans totaling $100 million that might not have closed without the program.

“ We chose a deliberate rollout working with targeted credit unions in specific states so we could closely monitor the impact of the program,” said Martin. “The results were very encouraging, and the feedback from credit unions indicated using Lenders Protection had opened significantly more lending opportunities and their potential to serve the underserved.”

With CUNA Mutual pooling the risks associated with defaults, Lenders Protection offers many advantages to credit unions, including:

• More approved applications
• More booked approvals
• Increased lending profitability
• Attracting more new loan applications
• Competitive interest rates
• Generating more fee income through cross-sell efforts.

While many credit unions may be interested in Lenders Protection, Martin said they must already be doing risk-based lending and be willing to take on more risk. In offering credit unions some benchmarks, he said they should be:

• Willing to accept lower credit scores (580 is Lenders Protection’s minimum acceptable score)
• Willing to accept some risk for expanded loan opportunities
• Looking to increase their vehicle lending directly or indirectly
• Looking for higher yielding loan

Purdue Employees Federal Credit Union (PEFCU) participated in the pilot program and weighed the risks and results.

“ We tracked information from the Department of Motor Vehicles on where people were getting their vehicle loans and found that people with borderline credit scores were turning to the sub-prime lenders and being charged much higher rates,” said Bob Falk, executive vice president, PEFCU. “We were working with dealers and approving loans, but not closing them. We needed to take more risk to get these deals.”

Falk said he knew he would need to partner to help manage the risk. He did his homework and looked into other vendors but didn’t like their financial models.
Partnering with CUNA Mutual’s Lenders Protection made good business sense and helped members with lower credit scores, said Katrina Pickering, PEFCU consumer loan manager.

“ In less than a year, we booked more than $2 million in loans we would not have made without Lenders Protection,” said Pickering. “It has helped our bottom line, given us the confidence to look at riskier loans and is in line with the credit union spirit of people helping people.”

Falk and Pickering said staff education was necessary. Loan officers had to be accepting of lower loan scores and not take a traditional black-and-white underwriting stance. They needed to realize they had backing and could take some risks.

PEFCU does not do specific marketing to this group, but follows up with thank-you cards. Since most sales are through auto dealers, it is important to help new members realize their loan is through a credit union and educate them about their loan terms, interest rate, transfers and other products, Falk said.

Lenders Protection is a simple solution if a credit union wants to tap the near-prime market, Martin said. Unlike many of the other near- or non-prime vendors, the credit union retains the ultimate decision to book the loan and the responsibility for servicing and collections on all insured loans. Lenders Protection is simply an insurance solution that helps a credit union manage the risk, he said.

CUNA Mutual Group is the leading provider of financial services to credit unions and their members worldwide. More information on the company is available at www.cunamutual.com.