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T H E ON LY A LL-DIGITA L ALL-B USINESS R ESOUR CE FOR CR ED IT UNIONS THE MORTGAGE LENDING ISSUE The Time is Now... Understanding the Tools to Support End-to-End eMortgage Lending DAVID COLWELL MARCH 2017 VOLUME 12 ISSUE 3 Options for Mortgage Pipeline Hedging and Regulation EMILY HOLLIS Fill In The Blanks & Prosper SINGLE SUBSCRIPION RATE - 75 PER YEAR. SUBSCRIPTION RATES (BASED ON CU ASSETS) UNDER 100 MILLION 300 PER YEAR. 10 Team Subscriptions 101 - 999 MILLION 400 PER YEAR. 20 Team Subscriptions 1 BILLION PLUS 500 PER YEAR. 30 Team Subscriptions CU Name Date Teambuilder Subscription Form 2017 TEAM BUILDER SUBSCRIPTION FORM How many team members This many and more ECUB MONTHLY CEO VELOCITY CFO CURRENCY CU TRAININGS CUB WEBSITE TECHNICALLY SPEAKING COMPLIANCE UPDATE LENDING SOLUTIONS MARKETING MATTERS BRANCH BUSINESS Name Title E-mail ID MEMBER BUSINESS LENDING C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 6 C U B U S I N E S S . C O M ABOUT US THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS PUBLISHING TEAM Tim O Hara Editor & Publisher tim cubusiness.com Patti Manzone Designer UP FRONT Tim O Hara CU TRAINING Kenneth C. Bator MORTGAGE LENDING David Colwell BRANCH STRATEGIES Meredith Deen CFO CURRENCY Emily Hollis COOPERATIVE GOVERNANCE Clinton Koker MEMBERS DEVELOPMENT Jeff Kline CU SECURITY Bill Prichard COMPLIANCE Cindy Williams TECHNICALLY SPEAKING Cody Winton CASE STUDY Bill Hulstrand SUBSCRIPTIONS Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine Inc. A one-year Digital membership is 75 yr An online membership form is available at www.cubusiness.com register. TEAMBUILDER https creditunionbusiness.com the-teambuilder SALES AND ADVERTISING Tim O Hara Publisher tim cubusiness.com or 561-282-6015 1 CONTACT INFORMATION Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim cubusiness.com 4 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M Ashok Kumar Associate Publisher ashok cubusiness.com TH E O NLY A L L - D I G I TA L A L L - B U S I NE S S R E S O U R C E F O R C R E D I T U NI O NS THE MORTGAGE LENDING ISSUE The Time is Now... Understanding the Tools to Support End-to-End eMortgage Lending DAVID COLWELL MARCH 2017 VOLUME 12 ISSUE 3 Options for Mortgage Pipeline Hedging and Regulation EMILY HOLLIS TABLE OF CONTENTS MARCH 2017 VOLUME 12 ISSUE 3 TAB THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS 6 8 12 16 19 22 UP FRONT The Art of Selling Makes the World Go Round Tim O Hara CU TRAINING 25 28 31 35 40 MEMBERS DEVELOPMENT Times are Changing Jeff Kline Can you still stay close to your members The Batting Order of Brand Associations Kenneth C. Bator MORTGAGE LENDING PAYMENTS Hit by Fraud Bill Prichard Lessons Learned for Crisis Communications COMPLIANCE Understanding the Tools to Support End-to-End eMortgage Lending David Colwell BRANCH STRATEGIES Meredith Deen The Time is Now ... Warning for Lenders Cindy Williams Regulators Watching Closely for Redlining Omni-Department Effort for Omnichannel Success CFO CURRENCY TECHNICALLY SPEAKING 5 IT Solutions to Improve Back-end Banking Operations Cody Winton CASE STUDY Options for Mortgage Pipeline Hedging and Regulation Emily Hollis COOPERATIVE GOVERNANCE Clinton Koker Manatee Community FCU Bill Hulstrand Bradenton FL Assets 35 Million Is your CEO s Compensation Justifiable 5 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M UP FRO NT BY TIM O HARA I The Art of Selling Makes the World Go Round Announcing CUB s Newest Column from the bank down the street or from the dealer s captive finance company. Obviously the best place for credit unions sales efforts to take place is in the branch and we ve got a new column dedicated to helping CUs find the best ways of increasing their branch sales. Nick Brown owner of Nick Brown Consulting will soon debut a new column called InBranch Product Sales giving our growing number of branch supervisors branch managers and assistant branch managers great tips for significantly increasing Nick Brown Owner their in-branch sales. Nick Brown Consulting n my youth there were two things I vowed never to do 1) Be a salesman and 2) Be a car salesman. Many years ago as a newlywed living in Los Angeles where I had moved for a job opportunity that didn t pan out my young wife scoured the employment section of the local newspaper one morning in search of gainful employment for me. As she did so she pointed out If you sell cars they give you a car to drive We had moved to LA with the promise of gainful employment and a vehicle. As the job turned out to be a big disappointment the car disappeared too. So the next thing I know against my youthful vows I m interviewing for a sales opportunity with the new car manager at Bob Smith Volkswagen on La Cienaga Blvd. in Hollywood. And what do you know I drove home from that interview in a brand-new VW Rabbit convertible I learned during the year we were out west that I really liked selling. I liked it so much in fact I hoped I would be doing it for the rest of my life (so far-so good). I also learned that car salesmen tend to jump around a lot. In testament to that tendency I moved from Bob Smith VW on to Ruhman BMW in North Hollywood driving a 320i. I then finished my year-long adventure in car sales driving a cool Porsche from Allen Porsche in Burbank. Car selling had its perks When we designed Credit Union BUSINESS magazine 13 years ago our intention was to create something different from the weekly newsletters and monthly association publications that existed at the time. With some good advice from many CU managers we chose to cover different functions within the credit union. Selling is a key function for most of these active CU departments. New members need to be sold on joining the credit union. They also need to be sold on taking on a credit union loan to buy that new car instead of one 6 C R E D I T U N I O N B U S I N E S S This new column is our third regular monthly columns for the BRANCH joining Branch Business and Branching to give best practices support to your retail networks. If your credit union is a Team Builder member all of your branch management staff will see all three Branch columns. If you re not yet a Team Builder CU you should be and we re prepared to tell you all about it and ask you for your BUSINESS. (See Below) In the meantime after all these years I continue to be actively selling our Team Builder group subscription product to as many of the USA s 5 000 credit unions as possible. In a few days I will be doing it the old-fashioned way on the phone. As I do so I will be joined by my associate publisher Ashok Kumar calling live from New Delhi India and by CUB veteran sales director Greg Halpern who will be joining me from CUB s worldwide offices in Palm Beach Florida. I look forward to speaking with you soon Thanks for reading. Tim 2 0 1 7 C U B U S I N E S S . C O M M A R C H Experience the Power of Plus. Let Advisors Plus guide your path to optimization and growth. The Power of Problem Solving The Power of Potential The Power of Profit With 200 years of industry experience our consultants have been there fixed that. We combine experience with analytics to identify high-impact growth opportunities. We create high-ROI results you can take straight to the bottom line. The Power of Partnership Our team works with your team on products and marketing to delight your members. Bring your credit union to the Plus side Call 727.299.2535 or visit us at AdvisorsPlus.com. CU TRA I NING BY KENNETH C. BATOR B The Batting Order of Brand Associations A traditional lineup for an advertisement might look something like this 1. We re a credit union. 2. We have been around for 144 years. 3. We have an array of products and services that you re gonna love. 4. We have a special rate on balance transfers on our gold credit card for the next 45 days. 5. We serve first responders in a five-county area. I won t even bother to go through six through nine of the batting order since this credit union already has three outs and is out of the inning. Look at the box score 1. We re a credit union. Strike out That s likely not important to the majority of profitable prospective members. One out. 2. We have been around for 144 years Walk Longevity is usually a plus for consumers but not a huge differentiator as many institutions have aseball season is coming. It s right around the corner. The sound of the ball off the bat the smell of fresh grass the taste of watereddown over-priced beer and the roar of the crowd from the home team s cleanup hitter crushing one over the left-field fence will all be here in mere days. Now that s an experience I remember how much I looked forward to April 1st as a kid. Growing up in Chicago I even remember listening to the White Sox season opener while they were playing on the road in California on an old transistor radio walking home from grade school in the last snow storm of the year. Speaking of baseball I often think of the importance of brand associations as a batting order. In other words when we are developing our well-branded marketing messages how do we want to lead off Many times we start off with what we as executives or managers think is important which many times in our industry is the ubiquitous credit union difference. I spoke about that in last month s article. Again while it s an important brand association in the hearts and minds of our members it s not necessarily the differentiator. So to keep with my theme of sports let s use an analogy of a batting lineup for a baseball team. A good coach will set his lineup to score right off the bat pun intended in the first inning. So let s think of brand associations as batters. Let s also use the institution that brought up the credit union difference in my last article as an example. To keep them anonymous let s refer to them as Gotham City First Responder FCU. Hey I was a Batman fan growing up too. Don t judge. 8 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M CU TRAINING been around for a long time. Man on first with one out. 3. We have an array of products that you re gonna love. Plenty of institutions have an array of products and none of them are that different. Plus how do you know what I like much less love. Prospect completely tunes out. Double play ball to third for two outs. That s three outs and the end of the inning. After one inning this credit union has no runs no hits and one big error especially since in this game you probably won t get another eight innings to score. Let s go to the next game with a different lineup I mean commercial 1. As a first responder you have a tough job. 2. We have been serving first responders in this city for over 100 years and know you have unique financial needs. 3. Our service is catered specifically to police officers fire fighters and their families. 4. Because we are run by first responders for first responders. 5. Go to our website call or better yet come in to one of our branches and we ll discuss what you need over a cup of coffee. 6. We ll work as hard as you do on the job to provide you what you and your family need. 7. Ask about our special rate on balance transfers ending on Friday. 8. We re a credit union so we re owned by all of our members. 9. NCUA insured. This is a much more formidable lineup of brand associations. The box score might look like this for a first responder watching this commercial 1. As a first responder you have a tough job. You caught my attention. Single man on first. 2. We have been serving first responders in this city for over 100 years and know you have unique financial needs. That s longevity with a purpose...a purpose that s important to me. Single men on first and third. 9 C R E D I T U N I O N B U S I N E S S 3. Our service is catered specifically to police officers fire fighters and their families. OK you still have my interest but of course you re going to say that. Walk. Bases loaded with nobody out. 4. Because we are run by first responders for first responders. Now I m really interested because as a first responder I trust other first responders. Double clears the bases. Three runs score and still no outs Now that s the way to start a ball game Even if you strike out with the coffee line you still have runs on the board. And guess what You scored without even mentioning the credit union difference Before you start booing me out of the stadium the credit union difference does need to be in the lineup. But that player isn t your leadoff hitter He isn t that guy that s going to get on base in the first inning. He s more like that player that s going to play 162 games and be that gritty teammate that s going to show up every day. In other words once we have that member s attention or better yet business then the credit union difference can be that value-add that differentiator or that little extra that actually does make a difference 2 0 1 7 C U B U S I N E S S . C O M M A R C H CU TRAINING in the minds of your prospects. That difference may be in that member s life or that difference that motivates him or her to tell their closest friends or family to visit your credit union not because you re a credit union but because you made a real difference. Now that s an experience Don t let this valuable offer pass you by. Ken Bator is the author of The Formula for Business Success B C S and the founder of Bator Training & Consulting Inc. (BTC) Ken helps credit unions create environments where employees actually want to come to work and members want to keep coming back. BTC accomplishes this through a combination of Branding Culture building and Strategic planning. This is the unique B C S Formula created by Bator and featured in his latest book. Contact Ken directly at 714-681-2821 or kbator btcinc.net. Ask about BTC s new service the B C S Audit And learn more about BTC s presentation topics at www.btcinc.net. C R E D I T Jump on the CU BUSINESS Express to help your credit 10 unionBGROWSfor your members 2 employees and U S I N E S S . C O M U N I O N U S I N E S M A R C H 0 1 7 C U B community. Sign Up Your Entire Crew for Team Builder THEY SAY... GOOD THING. We make it great. Cummins Allison self-service coin counters can transform the way your branch manages coin. Customers enjoy a quiet convenient and easy-to-use coin-redemption experience while you see tangible bottom-line benefits. With multiple machine choices and hands-free coin-management programs your staff can spend more time interacting with customers. Increase branch traffic enhance customer loyalty and improve teller line efficiencies. It s a small change that can make a big difference. Simple yet effective branch automation technologies from Cummins Allison build branch traffic and allow your staff to focus on what matters most more meaningful engagement with customers. CHANGE is a MAKE A CHANGE AT cumminsallison.com traffic MO RTG A G E L ENDING BY DAVID COLWELL The Time is Now ... Understanding the Tools to Support Endto-End eMortgage Lending Why is it fun to refurbish old cars For many it is the joy of taking an old frame and engine and finding ways squeeze out as many miles as possible while trying to restore some of the old car s luster and shine. A nd a refurbished car may work well in many ways. With proper care it will be a reliable and possibly stylish way to get the driver from point A to point B. But no matter how much work is done on an old car there are certain things that just can t be gracefully bolted onto an old frame. Even if you add modern conveniences such as Bluetooth-capable radios and a GPS safety innovations such as lane guidance backup cameras side air bags etc will never fit seamlessly into the car. To truly benefit from the advancements made in auto technology you would have to invest in a newer car. The same dilemma is true for credit unions looking to enter the world of eMortgages. Credit unions are often using decades old Loan Origination Software (LOS) that are not designed to integrate with modern eMortgage and digital lending tools. While vendors can build work-arounds without a modern LOS designed to maximize the potential of eMortgages the integration may be useless. such as Mortgage Banking which outlined a theoretical path of a borrower searching applying and closing on an e-mortgage through the Internet in its December 1999 issue. Given the primitive nature of the technology available the article provided groundbreaking yet practical solutions that could be easily created to bring eMortgages to life. Of these solutions items such as laptop support for originations online access to mortgage pools development of automated approval and underwriting engines and simplified processing requirements were still the domain of theory and fantasy. Since then most of these barriers to a fully digital mortgage have become a reality. Laptops are readily available as well as smartphones and tables which were unthinkable in 1999. On top of this the advent of automated underwriting engines and robust databases eMortgages Evolve From Pipe Dream to Reality The concept of eMortgages is nothing new. Credit unions and vendors alike have discussed ways in which to leverage the internet as an opportunity to better engage members for at least 15 years. These conversations even found their way into publications 12 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M MORTGAGE LENDING has transformed the loan processing system for every credit union lender. Even the legal framework for eMortgages has been around for more than 15 years. In 2000 less than a year after the Mortgage Banking article s publication Congress passed the Electronic Signatures in Global and National Commerce Act (ESign) and Uniform Electronic Transaction Act (UETA) which established a legal framework with specific regulations supporting the validity of electronic signatures. Beginning in 2001 the Mortgage Industry Standards Maintenance Organization (MISMO) began working to define key e-mortgage technical standards and processes that could legally support electronic transfer and signature in mortgage documents. Once the technical standards were established credit unions and technology vendors began developing systems that could support all the pieces needed for an e-mortgage. Today technology exists to conduct compliance origination disclosure closing delivery signing recording and servicing electronically. However with these digitally ready components the reality is still lenders are still unable to process completely electronic mortgages. Regulations aside a large part of this problem is the lack of interchange between these components and the LOS. Just as an outdated car just cannot fully absorb new tech innovations that change the very structure of the vehicle credit unions cannot just bolt eMortgage pieces onto an old LOS that is capable of exchanging secure data working in a paperless environment and serving as the central control panel for the mortgage. loan up to 2 weeks sooner is possible. Expediting the closing time can ultimately save a lender 1 000- 2 000 in their net costs to originate a loan. Just like cost lenders also want to reduce the time it takes to process a loan. In today s environment lenders have to lock for 45 days which means the borrower pays a higher interest rate than they really should. By using a POS ready to support eMortgage lending along with an LOS able to facilitate the interchange of information lenders have the potential to reduce 3-14 days from the process making a 30 day loan lock a reality once again. eMortgage lenders should aim to make the roles of the loan officer and processer easier not put more on them. If a credit union wants to maximize the effective of its eMortgage program they must ensure the LOS is flexible enough to handle the new processes that will be driven through the POS and other vital technology tools. Making Life EasierTM Hi Realizing greater efficiencies in cost and time In a tech-driven world profitable mortgage lenders are the ones who can most effectively reduce cost of closing each individual loan. According to a 2014 study by MBA the net cost to originate a loan costs a lender on average about 6 500 per loan. By increasing origination workflow efficiencies using a well-equipped POS and LOS the ability to close a 13 C R E D I T U N I O N B U S I N E S S Say Hello to the future of payments. Transform the payment experience. Start at www.tmg.global. 2017 The Members Group LLC. TMG logo is a registered trademark of The Members Group LLC. TM Making Life Easier is a trademark of The Members Group LLC. M A R C H 2 0 1 7 C U B U S I N E S S . C O M MORTGAGE LENDING The POS role in improving operational workflow efficiency of the POS into the operational workflow. For many credit unions building an eMortgage practice occurs in phases. The first phase is often selecting an eMortgage-ready point-of-sale (POS) portal to provide members and prospective borrowers an online application and portal to begin the lending process. Given the POS is the consumer-facing component of the lending process this tool should be attractive to the demographic in which the lender is trying to reach. As a sales and marketing tool the technology built into the POS influences user adoption which determines the efficiency of the component as a whole. Capital Communication Federal Credit Union understood the value that the POS brings into the lending process as well as the importance of a smooth interchange between the POS and LOS. The best first step is to align with a LOS that has the ability to integrate with a modern point of sale said Christopher Foundas Process Improvement Administrator of Capital Communications Federal Credit Union. In our experience some POS systems are little more than a contact form for gathering name and phone number while others offer more advanced functionality such as verifying addresses validating phone numbers are genuine and even providing gentle nudges to the user to enter data they may have accidentally missed. The LOS is a critical connection point that determines whether credit unions can transfer the Not only should the LOS be equipped and flexible to handle this type of integration but lenders must also understand how to utilize their LOS to maximize the efficiency of the eMortgage process. Just as it is important to have a POS that captures the digital experience and provides ease of use for customers credit unions should also look at their LOS to ensure it has the integrations to support these type of lending practices. Items such as the right document engine automated compliance module settlement services web portal and other key pieces of the loan process will vary greatly between credit unions and remains dependent on the volume loan products business model and geography of the organization. Due to the nature of the POS visibility to the member creating a seamless environment between the POS and LOS is one of the most vital steps to building out an eMortgage strategy. Credit unions have rightly determined that younger members would be more likely to apply via online tools given that the process replicates the digital-centric processes they are already familiar with for other financial services. Unfortunately when members do begin to utilize the eMortage POS they find their experience lacks the robustness they expected. This happens when the POS and LOS cannot communicate with reciprocal data. Credit unions find themselves having to do more work than in a traditional loan to support the underwriters because the lack of communication between the POS and LOS. To truly benefit from an eMortgage strategy lenders should recognize that while the components exist they don t work together well without an LOS designed to facilitate the different tools that support a digital mortgage POS document services compliance settlement and closing. The lack of interchange 14 Building a Comprehensive System From the LOS Out C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M MORTGAGE LENDING TAB between these tools and the LOS causes credit unions to manually process information which contributes to additional time and reduction of available resources to cover other parts of the business. To successfully create a seamless transition between the eMortgage tools and LOS credit unions should evaluate the flexibility of their LOS. The chosen LOS should be able to support the interchange of information between all key systems. It is critical that the POS is able communicate with the LOS at the same time as the borrower is going through the application and underwriting process. This push and pull of information reduces the workload of the loan officer and processor. With the automatic underwriting and processing abilities borrower s information and files are able to be uploaded and in the correct place within the LOS in order to expedite the decisioning time. The best first step is to align with a LOS that has the ability to integrate with a modern point of sale said Foundas. In our experience some POS systems are little more than a contact form for gathering name and phone number while others offer more advanced functionality such as verifying addresses validating phone numbers are genuine and even providing gentle nudges to the user to enter data they may have accidentally missed. This applies to not just the POS but every other system. Document systems should be able to pull data from the LOS to generate disclosures and closing docs. The systems should be able to electronically send the files track their receipt and receive eSigned forms which are then automatically loaded back into the LOS. The same principle applies to settlement services with the LOS connecting to title insurance and appraisal tools automatically updating forms and underwriting engines with the data as it is updated and confirmed by all parties. These automatic processes enable the credit union to take a borrower from initial contact to the doorstep of the under writer ready for initial underwriting within 30 minutes (complete with a full 1003 application 15 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S credit report asset documents and e-signed initial disclosures). Like the car from earlier no matter how much work is done there are certain things that just can t be gracefully bolted onto an old frame. When information is not being exchanged properly between the POS and LOS or with any other integration to the LOS the process fails. However when credit unions take the necessary steps the eMortgage lending process can prove to be very beneficial. Like the car with proper care the eMortgage process can be a reliable and innovative way to get the customers from loan application to closing. David Colwell manages Strategic Business Development for LendingQB. He has more than 25 years of experience in financial services and technology and sectors and possesses expertise in strategic planning business development and enterprise optimization. MMA ARRCCHH 22001177 C U B U S I N E S S . C O M BRA NC H BUSI NES S BY MEREDITH DEEN T Omni-Department Effort for Omnichannel Success To sell more serve well. The promise of omnichannel delivery of course is offering convenient access to a full range of financial services no matter how account holders choose to interact with your institution and doing so in a way that reflects your brand. That s why omnichannel has supplanted multichannel as the primary descriptor of financial services delivery The goal is not just to offer mobile Internet phone and branch access but to ensure that all of those channels demonstrate your brand identity and commitment to member service in action. As a first step toward operationalizing an omnichannel strategy managers and staff from across the organization need to be working together. Omnichannel delivery requires an omni-department team approach. IT can be working with retail banking on new tools to improve frontline service delivery. Branch and call center managers should be working with HR to develop training so that member service professionals are better prepared to promote and demonstrate remote delivery channels. And marketing s role on the team is hat could be the mantra credit unions trying to build relationships with members in an increasingly crowded financial services marketplace. It certainly seems to be a message that is resonating with managers as they take a step back from the furious pace of launching mobile services to keep up with the competition over the last few years. A recent survey of North American financial services providers turned up findings that support this observation For the first time since 2010 increasing sales results has been displaced as their top priority. Instead executives ranked improving customer relationships as their most important strategic aim according to the biennial survey from the IT research and consulting firm Celent. [link http celent.com reports survey-retail-banking-channel-systems-northamerica-omnichannel-emerges] The survey findings focus on the role of omnichannel delivery in enacting strategic objectives to retain and expand the customer base. Respondents agreed that offering a seamless customer experience across channels from mobile and Internet banking to branch service is imperative as evident in a 4.1 on a 5.0 importance scale. However only 1 in 10 of those institutions surveyed said they are effectively executing an omnichannel strategy. A Celent executive noted that while mobile banking remains a top technology priority every institution s number two technology priority omnichannel delivery has not yet been met with the activity it merits. 16 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M BRANCH BUSINESS TAB to ensure that the brand message comes through loud and clear on all channel frequencies. Through our interactions with hundreds of banks and credit unions and their branches we have pinpointed some commonalities that successful financial services providers use in meshing with the omnichannel approach Support multiple channels in the branch lobby. Enabling members to perform virtual banking at a kiosk or on mobile devices while waiting to speak with a representative enhances member service and positions your institution as technologically progressive. A persistent obstacle in achieving true omnichannel delivery is ensuring that all members know that their primary financial institution offers a full range of service options and guiding them to understand the benefits and basics of using the channels of their choice. A quick demonstration by branch staff on the use of mobile or online banking and on the security measures built into those channels can be a revelation for members who ve steered clear of remote delivery because they thought it might be complicated to use. Conversely inviting existing or prospective members who ve checked out your online mortgage center to a Don t let this valuable offer pass you by. C R E D I T 17 Jump on the CU BUSINESS Express to help your credit U N unionB GROW for your members 01177 U N II O N O N B U S II N E S S U S N E S S MMA ARRCCHH 220 employees C U B U S I N E S S . C O M and community. Sign Up Your Entire Crew for Team Builder BRANCH BUSINESS TAB home-buying seminar underscores that they can rely on seasoned professionals to guide them through what can seem to be a daunting process. Deliver true full service as a key differentiator. Omnichannel need not be limited to offering members multiple options for depositing a check. Encourage your team to brainstorm inventive enhanced services to assist members in meeting all their financial goals such as a specialty branch model that provides convenient access to investment advisors or small business specialists. And look for ways to improve delivery across channels with special offers on targeted products and services suggested and reinforced via branch call center online and mobile interactions for example. Another possibility is cyber-security seminars and consultations highlighting an area where consumers trust their financial services provider to be engaged. Integrate technology and person-to-person channels to redefine high-quality service. One definition of omni- is in all ways and places. Applying that concept to financial services most of your members don t want just mobile or online or branch access-- they want all of those choices. When those channels work together to improve the member experience your organization will have achieved true omnichannel delivery. A case in point is an appointment app that allows busy members to manage their time efficiently by scheduling appointments with trusted advisors at your branches. This partnership of technology and personal service replaces the traditional sign in and wait assistance models with more advanced and responsive techniques. 18 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S The appointment scheduling app offers one example of omnichannel operationalized powered by systems that incorporate an automated scheduling process text and email confirmations and reminders universal calendars and the ability to accept appointment requests via multiple channels. Your members don t see all these systems working together behind the scenes. They just see service when they want it where they want it which is the foundation of improving service--and enhancing sales. Meredith Deen is Director Products & Services for FMSI A Kronos Company which provides financial institutions with business intelligence and performance management systems for efficient branch staff scheduling and lobby management. She can be reached at meredith.deen kronos.com. MMA ARRCCHH 22001177 C U B U S I N E S S . C O M CFO C U RRENCY BY EMILY HOLLIS Options for Mortgage Pipeline Hedging and Regulation The two most common forward agreements credit unions use for selling mortgage pipeline loans to a government-sponsored enterprise (GSE) such as Fannie Mae or Freddie Mac are best efforts commitments and mandatory forward commitments. Both are valid processes but there are key differences. A credit union enters into a best efforts commitment when it agrees to the GSE s mortgage terms on a best efforts basis. If the consumer closes the loan the credit union is required to deliver it to the secondary markets at the agreed upon terms. If the loan doesn t close the credit union is not required to deliver and therefore experiences no financial loss. Best efforts sales have a place when there is uncertainty about whether a loan will close however they are not financially efficient because they result in sizeable mark-up costs to the credit union. The mark up compensates the GSE for taking the risk that the loan may have already been sold to the secondary market and has not been delivered into one of its mortgage pools (a to-be-announced TBA security). Mandatory commitments obligate the credit union to deliver the loan at the agreed-upon terms including a date of delivery. Risk occurs when the loan does not close or when the loan closes at different terms than originally agreed. If the credit union is unable to deliver part or all of its mandatory commitment the GSEs will calculate a pair off fee which is a fee calculated as a function of both the undelivered portion of the commitment and the corresponding market movement. This can be fairly costly. An alternative to best efforts or mandatory forward commitments for pipeline hedging is using 19 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M Mortgage Pipeline Hedging Alternatives secondary market instruments such as TBA mortgagebacked securities (MBS). TBA MBS and Short Selling TBA MBS Like the loans of other residential mortgage lenders credit unions home loans can be sold and securitized which helps fund their ongoing mortgage programs. To facilitate this process and ensure liquidity is availability for mortgage lending the To-BeAnnounced market was created . TBA refers to a forward mortgage-backed securities (MBS) trade and pass-through securities issued by Freddie Mac Fannie Mae and Ginnie Mae trade in this market. TURN ON YOUR CFO and CEO 4 CFO withTEAMBUILDER. CURRENCY www.cubusiness.com teambuilder buy CFO CURRENCY The mortgage-backed security investor who buys a TBA is entering into an agreement to buy a security that is backed by a pool of loans in someone s pipeline at the time of purchase. When a credit union makes a mandatory commitment those loans eventually will be going into a TBA pool. Theoretically since the credit union owns the loans it forward sells its loans into the structure in which the GSEs will place their loans at a later time. This is done by shorting a TBA MBS. How does NCUA treat short selling TBA MBS trades for federal credit unions Generally shorting securities is impermissible for federal credit unions under 12 CFR 703.15. NCUA has authorized credit unions to engage in short selling TBA MBS as an interest rate risk-management tool under its investment rules as a form of a derivative transaction. However TBA MBS and engaging in short selling TBA MBS trades are not subject to the prior approval and other requirements in Subpart B of the Agency s derivatives rule it approved in 2014 That conclusion is based on this language from the final derivatives rule s Supplementary Information In addition the Board notes that the requirements of new subpart B do not apply to derivatives transactions that are permitted under 703.14 (k) which include European call options interest rate lock commitments certain embedded options and certain options associated with the sale of loans on the secondary market. During the second quarter of 2016 ALM First requested an interpretive opinion that California statechartered credit unions may engage in short selling TBA agency mortgage-backed securities solely as a mechanism to manage their costs and risks associated with interest-rate locks provided to their residential real estate borrowers. This process was necessary because California investment authority is dependent upon its Financial Code section 14202. On September 1 2016 ALM First received a letter from the Senior Counsel of the California Department of Business Oversight stating that credit unions may be authorized by the Commissioner to engage in the short sale of to-be-announced mortgaged-backed securities because the California Credit Union Law does not bar to-be-announced mortgaged-backed securities. However the opinion states that the Commissioner can authorize a credit union to engage in such activity requiring credit unions to submit an application. ALM First has helped a few client credit unions to obtain this permission. Why is this a low-cost interest rate hedge for credit unions Do state-chartered credit unions have authority to engage in short selling TBA MBS trades Whether this activity is authorized for state-chartered credit unions depends on the regulations of the state in which it resides and its relevant parity rules to the NCUA. Most states parity regulations are not intended to be definitive or static but instead have more of an evolving nature. In any event each state will be different. 20 C R E D I T U N I O N B U S I N E S S When the credit union commits on a mandatory basis to sell loans 30 days forward to Fannie Mae for example Fannie Mae must hedge the loan. The GSE will charge the credit union a hedge fee that is embedded into the forward price. By internally hedging with shorting a TBA MBS the credit union has much more flexibility. The date is not set but once the loan is delivered the TBA MBS is purchased back. If rates rise the purchase price is lower than the sell price and the credit union realizes a gain. The credit union can retain the loans on its balance sheet for up to 120 days from the appraisal date prior to selling. The incremental income of holding these mortgages prior to selling can be profitable. Other benefits are that the TBA MBS positions can be increased or decreased daily to ensure appropriate hedge ratios which are much easier and efficient than 2 0 1 7 C U B U S I N E S S . C O M M A R C H TAB committing to the GSEs. This presents much more flexibility in rebalancing. The bottom line Internally hedging a mortgage pipeline by shorting TBA mortgage-backed securities can be financially beneficial and can provide the credit union with greater efficiency and flexibility. This activity is permissible by the NCUA. For state-chartered credit unions regulatory authority is determined on a state-by-state basis. California state-chartered credit unions must apply to the Department of Business Oversight for authority. Emily Hollis CFA is President CEO of ALM First Financial Advisors LLC With 20 billion of investments under management ALM First is an SEC-registered investment advisor acting as an unbiased third party offering commission-free fee-based services to over 200 financial institutions across the country. Services include Asset Liability Management Investment Advisory Merger Valuations Hedging with Derivatives Loan Profitability Analysis ALM Validations Investment Portfolio Analysis MSR Valuations Training and Education and more... 800-752-4628 www.almfirst.com 21 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S F E M R U A R Y 22 0 1 7 B A R C H 0 1 7 C U B U S I N E S S . C O M COO P ERATI VE GOVERNA NC E BY CLINTON KOKER Is your CEO s Compensation Justifiable I Not long ago the Omaha Herald published a series of articles on the executive compensation practices of the CEO of Goodwill Industries a non-profit organization in Omaha NE. The articles did not present a favorable picture and Goodwill Industries had a major public relations problem to resolve. f the media asked you about CEO compensation practices at your Credit Union how would you respond and what kind of public relations issues would be created for the Credit Union Most likely you would respond that the CEO s experience the credit union s performance under the CEO and the size of the Credit Union are the factors that determine the CEO s compensation. But is that really the case In an attempt to answer that question we did a little study on CEO earnings (salary and incentive) as it compares to 1) asset size and 2) three year average Credit Union performance. The study reviewed 2014 W-2 earnings (salary and incentive as reported to the IRS on Form 990) for over 550 100 million plus credit union CEOs throughout the United States. One would expect that cash compensation would be heavily influenced by the size of the credit union. As the chart below shows there is a casual relationship between CEO earnings and assets but not to the degree you might have thought. Babe Ruth when asked if it was appropriate that he be paid more than President Hoover responded What the hell has Hoover got to do with it Anyway I had a better year than he did. As Mr. Ruth so succinctly put it pay should be based on performance but is it We read in salary surveys and credit union publications that credit union executives are rewarded for performance factors like ROA loan growth net chargeoffs member satisfaction etc. To test the relationship we ran an analysis of long-term (three years) results for each credit union in our study using a model that measures financial results growth results and asset quality. Each credit union was evaluated against the model and ranked based on the results from 1 to 550 with 1 being the best. Our assumption was that there would be some relationship between compensation and performance. To isolate the effects of size we ran the regressions against asset categories. As the chart shows the relationship between CEO earnings and long-term results is positive but very weak. With notable 22 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M TURN ON YOUR COMPLIANCE OFFICER withTEAMBUILDER. 4 COMPLIANCE UPDATE www.cubusiness.com teambuilder buy COOPERATIVE GOVERNANCE TAB exceptions low performing credit union CEO s earned about the same as high performing credit union CEO s. We found the same relationship in all the asset categories. So if performance does not seem to have a strong relationship to pay what factors besides assets and experience (a factor we could not test with the available data) drive executive compensation in credit unions Probably the strongest factor is not generally identified. It is the backgrounds of individual Board members. Over the years we have worked with scores of credit union Boards and executives in establishing pay-forperformance plans. At virtually every credit union we found the executive compensation practices were a reflection of the primary sponsor group s compensation practice. This was true even in credit unions that were community charter or had several SEG groups. The legacy of the orgional sponsor group s pay practices were still engrained in the credit union s pay practices. In addition to bringing the sponsor group s pay practices to the credit union Board members also tend to personalize the CEO s pay. As a Board member myself I can attest to thinking on more than one occasion that our CEO could not make as much as she was making with our Credit Union. She grew up in the Credit Union. She did not have a degree. Where else could she go Then it hit me she could go to any number of other credit unions that needed her skills and if we were not paying her competitively within our market it would be simple for those other credit unions to recruit her away. Add to this the fact that in many cases the CEO is making more than most of the 23 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S Board members and you get compensation practices that are a mix of each Board member s opinion on compensation. To avoid these traps we recommend the following with regard to executive compensation important develop an executive 1. Most compensation philosophy and practice. While there are many advantages to having one the primary benefit is it provides the Board and executives with a structure for making compensation decisions. It is a critical first step in making justifiable and competitive compensation decisions. A few questions or examples to consider when developing a compensation policy might be q What is our general compensation philosophy regarding the market place. I. Pay at Market II. Pay below Market III. Pay above Market q Where should the CEO s pay be within the pay structure What factors bear on the placement q Should we adopt a pay-for-performance compensation philosophy What will that look like q When should the pay structure be adjusted With market movement With asset movement With inflation q What is the mix between base pay and incentive pay MMA ARRCCHH 22001177 C U B U S I N E S S . C O M COOPERATIVE GOVERNANCE TAB 2. Establish a pay-for-performance program that consists of an annual performance plan and review. The plan should include measurable objectives as well as subjective reviews from the Board. This will be discussed in greater depth in future articles. 3. Set up a merit increase and incentive bonus scale in the performance plan. This will take the subjectivity out of the merit increase and or incentive bonus. ALWAYS pay what is earned not more and not less. Greater detail will be provided in a forthcoming article. If all credit unions would utilize a pay-for-performance plan the relationship between pay and performance would improve and it would be very easy to justify your executive compensation program. The specificity of this will be discussed in a future article. While you cannot keep the press (or Administrators) away you can help yourself with a good solid executive compensation program. It is also good practice for keeping and motivating your CEO. Clinton Koker was most recently the CEO of Koker Goodwin & Associates a consulting firm specializing in performance-based compensation programs for credit unions and built around Compease the software developed for suggesting ranges and grades of salary for every job-title in the organization. Contact crkoker gmail.com 24 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA ARRCCHH 22001177 C U B U S I N E S S . C O M MEMBERS DEVELO P MENT BY JEFF KLINE Times are Changing Can you still stay close to your members Before the dawn of the digital age a financial institution s operating hours and the location of its branches and ATMs were driving forces for customer value and loyalty. But credit unions have always had a key competitive edge They knew their members and their members knew them a factor often cited as contributing to credit unions lower delinquency ratios. unions need to offer digital banking services to remain competitive but digital s do-it-yourself nature can make it challenging to stay close to members. B ut now is the advantage of close member relationships going away Not if you make best use of digital tools like your Customer Relationship Management (CRM) platform data mining and a good email marketing system. But first recognize why these tools are needed. Digital s powerful hold In 2012 79% of North American financial institutions offered mobile banking channels last year that figure climbed to 93%. Today consumers can do their banking right from their pocket or purse anytime they please ... and that s exactly what they want. In its new report The Digital Tipping Point CEB notes that 81% of North American consumers prefer banking by smartphone tablet or other digital channels. Of that group almost a quarter say they want to only use digital channels while the rest favor a live representative available when necessary. Just 19% of consumers still prefer face-to-face or other personal channels. These and other fintech innovations make banking faster and easier for consumers and save staff time for their financial institutions. But they also mean fewer human touches and for credit unions that removes a major differentiator. It s a Catch-22 Credit 25 C R E D I T U N I O N B U S I N E S S Loss of loyalty Earlier this year Javelin found that consumers who mostly rely on mobile banking tend to be more profitable but they re also less loyal particularly when it comes to fees. And 27% say they are extremely or somewhat likely to switch PFIs in the next 12 months. Further CEB s 2015 Customer Experience Survey found that 43% of digital customers often use three or more financial providers compared with 36% among non-digital users. When asked how likely TURN ON YOUR BRANCH SUPERVISORS & MANAGERS withTEAMBUILDER. 4 BRANCH BUSINESS C U B U S I N E S S . C O M www.cubusiness.com teambuilder buy 2 0 1 7 M A R C H TAB MEMBERS DEVELOPMENT they were to buy their next product from the same institution only 0.7% of digital customers said there was a strong likelihood. Yet it isn t a question of satisfaction customers preferring digital banking reported virtually the same levels of satisfaction as those that favored traditional channels 88% fell into the very satisfied or satisfied category compared with 86% of nondigital customers. So why do digital customers use more than one financial service provider Because they can easily manage multiple accounts with various institutions on their smartphones or tablets. Gone are the days when people consolidated all activity at one PFI to simplify tracking. Further your members are constantly online--banking shopping or browsing from their own networks when they come across information about something they need they can make an immediate purchase decision. They can take out a loan or buy a CD by tapping an icon on their screen ... without their credit union knowing they had a need. With the simplicity of managing multiple accounts and fewer personal contacts members have fewer reasons to feel any loyalty. behavior as well as the products and services they use. No one likes irrelevant ads but using your CRM data-mining software and a good email system can help you create offers that are targeted to each member s specific interests. Also consider affordable intuitive sociallistening software which can provide clues to big events in a member s life as well as her future needs. Offer a consistent friendly member experience Members expect to easily move from one to another and to receive competent service whether it s through the one-to-one attention of a live channel or personalized interactions in digital channels. It s easy to be friendly in person but if you write like you talk your digital messages can be welcoming too resulting in a richer member experience in every channel. Ask members opinions Fewer person-toperson interactions make it vital to get a beat on members feelings toward your credit union. Periodically send short member surveys (via their favorite channels) about a recent digital or in-branch experience. Ask how well a new product is working and whether they have suggestions for improvements. It s also a good opportunity to ask about upcoming needs but don t overdo it quick occasional surveys are best. Offer one-to-one help Most people are comfortable with self-serve banking but don t count out personal interactions. Members want you to understand the issues they face and engage with them to find solutions. They also want help keeping their daily behavior on track often the biggest obstacle to reaching their goals. Let them know in-person representatives are trained to offer guidance on everyday 26 22001177 C U B U S I N E S S . C O M Digital tools e-marketing strategy personal touches Over 113 million U.S. adults now use mobile banking but you can still stay connected. Most people want the flexibility of multiple channels. In a poll of 4 000 North American banking customers earlier this year Accenture found that 49% of respondents trust their financial institution more when they speak to someone in person and 47% said they receive better value in a live interaction. So also thanks to digital technology you can ensure that members continue to receive value and personal touches whether they use online mobile inbranch call center ATM or another channel. Consider these strategies Stay personal Your CRM contains a wealth of information about members banking C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA ARRCCHH MEMBERS DEVELOPMENT TAB money management as well as big decisions like buying a home. The best way to keep strong member ties is to be available in person or digitally to help at critical points in their lives. Today s consumers don t want to spend a lot of time doing their banking but they are looking for genuine relationships. Rather than being just another financial service icon on members screens dust off the cooperative principles and show that you know credit unions exist only to serve members and help them improve their financial quality of life. Jeff Kline is Chief Executive Officer for MEMBERS Development Company a CUSO owned by more than 40 top-tier credit unions and credit union partners. MDC serves as large credit unions growth engine facilitating a collaborative approach to research development and product innovation to serve the changing needs of today s members. C R E D I T U N II O N U N O N B U S II N E S S U S N E S MMA ARRCCHH 22 1177 U B unionB GROWS for your members 00employees CandU S I N E S S . C O M community. 27 PAYMENTS BY BILL PRICHARD Hit by Fraud Lessons Learned for Crisis Communications I Did you know that it was Ben Franklin who said in this world nothing can be said to be certain except death and taxes f the great wise Mr. Franklin lived today he might have added financial fraud to the short list of life s certainties. Unfortunately in today s digital economy the brilliant technology advances that opened the doors to sophistication and convenience in the financial services industry also unlocked the opportunity for criminals to lift billions of dollars annually from financial institutions and their customers. With record numbers of data breaches occurring every year it s inevitable every organization in the financial services industry will be faced with the trying time when they must address their customers about the occurrence of fraud. It is in this situation that another of Ben Franklin s famous sayings lends wisdom and guidance By failing to prepare you are preparing to fail. When fraud happens financial organizations automatically and immediately undertake the critical operational steps to create stop-gaps and mitigate damage. But we are all learning that we can t overlook the importance of a well-planned and attentively prepared communications response in combatting the fallout of the attack. Communication is critical because it greatly impacts one of a financial institution s most valuable assets its reputation. When fraud happens our industry is coming to understand a new golden rule What we say is as important as what we do. As we tackle the myriad of challenges associated with fraud a new paradigm for customer communications 28 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M is emerging. Many financial services organizations are beginning to institutionalize three critical practices to preserve reputation in response to the rising incidence of fraud in our industry 1. Plan fraud response communications before the fraud occurs. We should not wait for a fraud incident to address how to communicate. Time will not be on anyone s side. Beyond having a general crisis communication methodology in place financial organizations can pre-plan a potential response specifically for a fraud situation. Doing so gives us the ability to gain alignment around how to address our customers. For example we can create fraud scenario draft documents and for credit unions those may include a statement to members general messages about how the credit union is handling the fraud situation and a potential FAQ that answers the tough questions members will undoubtedly ask. These materials can then be updated quickly with specifics for the actual fraud incident. Making Life EasierTM Hi Say Hello to the future of payments. Transform the payment experience. Start at www.tmg.global. 2017 The Members Group LLC. TMG logo is a registered trademark of The Members Group LLC. TM Making Life Easier is a trademark of The Members Group LLC. PAYMENTS TAB 2. Act Fast and Be Responsive. Immediately upon learning of a fraud attack we must assess the facts and strategize quick-response communications even if it is only to let affected customers know we are aggressively working to address the situation and determine a course of action. Then we must communicate that course of action to let customers know how we are helping them as quickly as possible. Demonstration of expedience and concern in resolving the issue is an investment in positive perception of the organization as a trusted partner. In addition we are all learning that we must address concerns and questions head-on with appropriate and truthful transparency. The organization s character and reputation are on the line. We must remember that not communicating the facts can cause hearsay and speculation to escalate into negative perception. Also we must ensure we communicate to all audiences who can impact the organization s reputation. While a need-to-know approach targeting affected customers may be the right plan initially ongoing chatter and hearsay may change that dynamic. Some stakeholders may not be directly affected but they can shape other s perception. When in doubt a crisis communications counselor can help navigate the myriad of audiences messages and strategies to communicate effectively. When a crisis occurs it s often not resolved after a single outreach and communication needs change throughout the duration of the event. We must ensure communications adapt to the evolving climate by continually monitoring what s being said about the organization to determine immediate short-term and long-term plans. After the issue has been resolved the final action should be to understand how the organization s performance resonated with customers. Surveys will reveal whether the organization needs to address any reputational damage that has occurred. A Final Word from Ben Franklin It takes many good deeds to build a good reputation and only one bad one to lose it said Franklin. How financial services organizations communicate after a fraud attack can be the good deeds that protect against the bad deed of criminal behavior. While the financial services industry will never be able to completely control fraud every organization can control how they impact the outcome with good communication practices that build member trust and a strong reputation for customer care. 3. Show empathy and take responsibility throughout the duration of the fraud crisis. Amid the deep angst of a fraud situation customers want to know that financial services organization s empathize with the impact fraud has had on their lives and that we are taking responsibility for helping them navigate solutions. We must all understand that taking responsibility for the situation is not the same as accepting blame for criminal activity. However the tone of communications should always convey deep concern for our customers situations and shared responsibility for resolution. 30 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S Bill Prichard is senior manager public relations and corporate communications for CO-OP Financial Services (www.co-opfs.org) a Rancho Cucamonga Calif.-based payments and financial technology company serving credit unions. Prichard can be reached at bill.prichard co-opfs.org and (800) 7829042 ext. 3450. MMA ARRCCHH 22001177 C U B U S I N E S S . C O M COMP LIA NC E BY CINDY WILLIAMS Warning for Lenders Regulators Watching Closely for Redlining The term redlining comes from early cases of discrimination in which lenders and real estate agents drew a red line on a map around neighborhoods they did not want to serve. Today we are focusing on redlining from an access-to-credit standpoint the CFPB s Sam Gilford told American Banker magazine. hile it may have been prohibited for decades redlining continues to be on the minds of regulatory agencies like the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) as well as the prudential regulators. In fact these agencies have issued more than 40 million in redlining-related fines settlements and enforcement actions since the second quarter of 2015. The practice of excluding minority consumers from lending programs (or increasing fees for service to them) redlining can and does occur sometimes inadvertently. How does a discriminatory practice happen unintentionally Quite easily. Read on to learn how it occurs as well as a few suggestions for how to avoid it. partners ability to price up loan rates. To be sure this can be a challenge and should be addressed in your contract with the lender. Understandably dealers want higher rates because they often equal higher returns. However the reduced risk is worth the effort of negotiation. W Clear Written And Consistent Logic Required Indirect Lending Presents Challenges Auto loans marketed through car dealerships often create redlining potholes largely because of a fluctuation in pricing. The other trouble spot with these loans is they are often outside the credit union s immediate control with some dealers choosing to charge certain borrowers higher rates. This is a no-no. Even though not dictated by the credit union the choice to allow price differentiation is ultimately assigned to the cooperative. Examiners will tell you when it comes to indirect lending the buck stops with you. To lessen risk to the credit union restrict your dealer 31 C R E D I T U N I O N B U S I N E S S Many credit unions operate with a manual loan approval process increasing the risk of fair-lending violations. When regulators observe that humans are making decisions on creditworthiness and underwriting they consider these humans and therefore the credit union s approval process fallible. An example is the joint CFPB-DOJ penalty assessed to a Memphis bank in the summer of 2016. The bank allegedly required its employees to review minority applications M A R C H 2 0 1 7 C U B U S I N E S S . C O M COMPLIANCE more quickly than others in effect denying them the opportunity to receive credit assistance that may have improved their chances of approval. The amount of discretion a loan officer has to make exceptions to policy is of concern to regulators as well. Automated approval systems can remove much of the subjectivity loan approvals entail. However if a credit union feels an exception to the automated system s recommendation is warranted employees should proceed with caution. Exceptions catch an examiner s eye so be prepared to back up those one-off decisions with a clear written and consistent logic that governs when exceptions will be considered and granted. Fintech pressure mounts In this era of financial services innovation product development is on the minds of many credit unions. This is particularly true in lending as fintech disruptors like Lending Tree and Rocket Mortgage challenge traditional financial institutions to think outside the box. While a new loan product may be developed with good intentions it can bring with it negative fair-lending implications that go beyond redlining. Consider a loan for which only homeowners can qualify. That could be deemed as having disparate impact a violation of fair-lending regulations because the non-homeowner market is skipped. Often skipped markets are made up of protected consumer classes. Even though inadvertently discriminatory the design of the loan program could raise a fair lending concern. The same goes for marketing of that new product. Is the credit union placing promotional signage in every branch or just a few The later could raise examiner eyebrows. Traditionally redlining has been associated with mortgage lending. However the CFPB and others are beginning to consider redlining related to other products such as credit cards. As credit unions look 32 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M COMPLIANCE TAB to compete in an increasingly competitive payments marketplace feature-rich rewards cards with unique pricing and specialized marketing plans are beginning to percolate in the minds of cards teams. When a new card product is considered it should be given a comprehensive compliance review for potential redlining issues. Adding to the redlining compliance burden is the fact the CFPB and DOJ are applying complex algorithms and new screening standards such as peer analysis to their fair-lending exams. This has made it difficult for credit unions and other lenders to anticipate how they will view certain practices. Remember redlining does not have to be intentional to be punishable. The best way forward is two-fold First strive for a culture of fair-lending compliance one supported by consistent training. If employees know what to look for they will be better able to put a stop to questionable practices long before an examiner. Second consult with and follow the advice of your compliance officer or an outside specialist. Today s increased scrutiny dictates a better-safe-than-sorry approach to policies and procedures and your compliance expert will be a critical resource for drafting and executing those important fail safes. As Vice President of Regulatory Compliance Cindy Williams leads and oversees all of PolicyWorks compliance partnerships delivery of compliance solutions to credit unions leagues and new product development. She also assists credit unions with strategic compliance program management. Loan Originator training You ve got this. Do you still need to satisfy your training requirements Look no further than the comfort of your own office. A new NMLSapproved self-study course is specifically designed for credit unions and meets the continuing education requirements of Reg Z. Enroll today at www.cuna.org MLO Check it off your to-do list Enroll today at www.cuna.org MLO OFFERED BY INSTRUCTED BY The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. Making compliance easy for you. 866.518.0209 POLICYWORKSLLC.COM 34 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA ARRCCHH 22001177 C U B U S I N E S S . C O M TEC HNIC A LLY SPEA K I NG BY CODY WINTON 5 IT Solutions to Improve Back-end Banking Operations T Big banks and credit unions have been quick to adopt digital solutions at least when it comes to front-end customer-facing operations. can have a unified digital system streamlining the process to not only limit work on the front end but also behind the scenes on the back end. Rather than sending faxes back and forth credit unions can use electronic imaging to make important client information available to all appropriate parties in just a few clicks. This increased accessibility can help speed up in-person client visits while also reducing costs tied to information management. Unlike paper statements electronic documents also provide clients with accurate real-time information they can use to gain a better understanding of their current financial situation. And when it comes to tablets clients have the opportunity to sign and send important documents regardless of where they are. Such convenience can go a long way toward improving the experience of clients who may not have time to visit their local branch. ake JPMorgan Chase & Co. for example who launched their mobile wallet service back in 2015 only to be joined by Wells Fargo one year later. Online banking platforms have also turned into a staple mobile offering by providing consumers the ability to manage their bank accounts and transactions digitally. In fact four out of five adults who manage their household s finances bank online. But while most financial institutions have used such innovations to enhance front-end operations similar IT solutions can be integrated on the back-end to improve transactions processing and even employee satisfaction. In addition to more efficient and effective back-end operations implementing IT-driven solutions could also result in an enhanced customer experience. Here s a look at five solutions that can save credit unions the trouble of dealing with outdated procedures that lead to wasted time and lost revenue. TURN ON YOUR 1. Digitization on the Front-end While many financial institutions still rely on pen and paper for front-end transactions back-end filing and major reports and transactions this outdated system is still a key process for many of today s banks and credit unions. And in terms of efficiency this outdated process may not be the best option especially when it comes to taking back-end operations digital. By digitizing the front-end operations with the help of electronic imaging and tablet interfaces banks and credit unions 35 C R E D I T U N I O N B U S I N E S S TECH STAFF withTEAMBUILDER. 4 TECHNICALLY SPEAKING www.cubusiness.com teambuilder buy 2 0 1 7 C U B U S I N E S S . C O M M A R C H TECHNICALLY SPEAKING 2. Automated Processing The banking industry is no stranger to manual processing. In fact most back-end operations involve at least some manual work. A mortgage application for example goes through 35 manual handoffs before completion according to a study from Capgemini. The bad news is that such processes are not only costly but also largely ineffective half of all paper work from an account opening is rejected. Over time these shortcomings end up having a negative effect on the customer experience. In fact Capgemini also reported that 60 percent of customer dissatisfaction sources originate in the back office. By automating reports accounts and transactions behind the scenes digital processing platforms and solutions can help credit unions cut costs and improve the customer experience. Employees once tied up by menial back-end tasks would be free to focus their attention on more pressing matters such as customer service. Perhaps even more importantly digital processing solutions have the potential to increase the accuracy of reports saving credit unions both time and money. When considering the sensitivity of financial information such security measures are crucial. Say for example an employee s wallet was stolen. Depending on a bank s verification system the plastic credentials kept within that wallet could potentially be used to compromise a client s account. Not so with digital credentials. In addition to stealing an employee s phone a fraudster would have to guess a 4 to 6 digit PIN. In many cases biometric authentication (such as Apple s Touch ID) is also supported on iOS and Android devices making it nearly impossible for criminals to find and use digital credentials. 4. Shared Online Portal 3. Digital ID Verification Just like consumers employees value a seamless and convenient user experience. Digital credentials can provide just that. From driver s licenses to passports nearly any sort of credential can be stored on a mobile device. Instead of carrying an outdated plastic ID card which often times get s left at home or may fall in the wrong hands employees would be able to verify themselves at clock-in using nothing more than their phone. And because digital credentials are the more secure option for protecting employees identities and more importantly your banking customers personal and financial information there s little to no chance fraudsters could get their hands on any personally identifiable information in the event an employee loses his or her phone. 36 C R E D I T U N I O N B U S I N E S S Regional banks and credit unions often struggle to share customer data between different branches resulting in reduced efficiency and higher operating costs. One way to change is that by implementing an integrated corporate portal that both clients and financial institutions can use to monitor transactions. By connecting previously siloed credit unions and banks this comprehensive view of customer data enables banks to provide clients with a more consistent customer service experience. During a time in which the cost and complexity of banking have become significant sticking points a single customer portal that includes services offered across several different institutions could make the cross selling of such services easier than ever before. 5. Outsource When Possible Once in favor of in-house processing for compliance regulations a growing number of large credit unions are turning toward outsourced data processing and for good reason. On top of reducing compliance burdens outsourcing promises to eliminate periodic expenses such as server upgrades and storage expansion. Banks and credit unions should take note however that while outsourcing can lead to more predictable costs it also opens the door for a higher monthly bill. Careful consideration of both the pros and cons should help 2 0 1 7 C U B U S I N E S S . C O M M A R C H EW N introduces Self-Service Coin Centers MADE SIMPLE COMPACT and AFFORDABLE Simple One Button Operation Easy to read prompting display and instructional photos 423 4 Compact Less than 2 x 11 AFFORDABLE 7 500 As low as 400 SERIES CHOICE OF OUTPUT 233 4 Model 405 Full sort with exact bag stops for 5 bags 1 5 10 25 50 1 programmable for Federal Reserve half or full bags Model 424 Mixed coin output to 4 bags programmable by weight or piece count Model 401 Mixed coin output to a vault Contact a Magner Consultant Today Phone 800-243-2624 Email solutions magner.com Online www.selfservicecoin.com 2017 Magner Corporation of America. All rights reserved. 171 2 TECHNICALLY SPEAKING TAB financial institutions determine how outsourcing applies to their business. Yet another reason credit unions are skipping out on in-house processing is the fact that outsourcing enables staff members to spend more of their time on important initiatives. Rather than focusing on a series of tasks required to keep an in-house system running IT workers would be free to address more pressing matters. Over the past few years credit unions have turned toward digital solutions to improve their front-end operations. When it comes to enhancing back-end operations IT solutions could prove just as effective. From greater employee satisfaction to more efficient processing the five digital solutions outline above stand ready to replace antiquated processes that have contributed toward the loss of both time and money. By carefully weighing the pros and cons of each of these solutions credit unions and banks can choose to integrate a number of IT-advancements to meet the needs of their benefit their customers and boost their back-end operations. Cody Winton is CEO and co-founder of Credntia the world s leading digital identity management platform. An entrepreneur developer and a social leader in the identity management space Cody leads the company s business in personal identity management systems and its culture of empowering people to be who they are in the world. To learn more visit www.credntia.com or connect with Cody at cody credntia.com 38 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA ARRCCHH 22001177 C U B U S I N E S S . C O M CAS E S TU DY BY BILL HULSTRAND Manatee Community FCU Bradenton FL Assets 35 Million The credit union operates in a very low income community and had historically struggled to maintain positive growth. Sherod Halliburton started at Manatee in February 2012 as Executive Vice President and immediately kicked off a number of initiatives to get things turned around at the credit union. He was promoted to President in July 2013. We reached out to Mr. Halliburton to find out exactly how they ve been able to reach and exceed many of their goals. LSCI What is your background and how has that served We try to connect to the community in as many positive ways as possible. Word of mouth has been key. I you in your role as head of Manatee Sherod Halliburton My background is in community development so I have a lot of experience in connecting various organizations. I also have a background in credit so the credit union arena was really a perfect fit for me. At Manatee we ve formed partnerships with many local businesses and community groups which has really allowed us to connect with people and move the needle in our local marketplace. One of my mantras has always been doing well by doing good and we ve tried to incorporate that in to everything we do at the credit union too. spent the first year giving presentations to community organizations networking and getting the word out about the credit union. We ve created an environment where the population is treated with respect and dignity. More specifically we hold twice a year car sales for our members. We ve started relationships with dealers and weeded out the bad ones. We definitely have more staff than peers as we believe in an old school high touch approach. But we re also big on high tech with a new online banking system and other innovations on the way. LSCI What kind of things did you do when you first Sherod Halliburton Negative loan growth has turned started at the credit union to turn things around LSCI What results have you seen Sherod Halliburton We are the smallest financial institution in the marketplace and we felt very clearly that we needed to be different. We are in a very low income community so we pursued ways to uncover the needs of the population. We found that auto lending LSCI Your loan yield is very high compared to industry is what really drives people around here. People need averages. What kind of things are you doing to attain reliable transportation to make it to work each day so such high yields we focused our efforts on creating programs to meet this need. 40 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M into positive loan growth from about negative 21% five years ago to over 55% positive growth this year. We ve been able to translate these positive earnings into savings for members through better loan rates and deposit rates. Our ROA is a very healthy 1.7%. CASE STUDY Sherod Halliburton As we mentioned we serve a very low income community where the average credit score is not very high. Rather than turn these members over to the payday lenders we looked at ways to help lower paper members get approved. We started our Second Chance lending program designed for those with less than perfect credit and so far we ve been able to help a lot of members that would have otherwise gone elsewhere. We don t view it as a bully approach. We know once the member gets behind they will have a very hard time catching up so it s in everyone s best interests that they stay current. GAP and warranty products are also built in to the second chance program. LSCI Your fee income is also very high. How have you achieved these results Sherod Halliburton We have a lot of products to LSCI How have you been able to keep delinquencies protect our members Credit Life and Disability GAP MBI Overdraft protection. These are in place not to and charge-offs in check and mitigate the effects of exploit members but to protect them. more risk Sherod Halliburton First off we put a strategy in place for quality origination on the front-end. With our Second Chance lending program we incorporated such things as gps units with auto interrupter devices to encourage members to stay current. We also hired a full time collector and a formal collections process was put in place. We are on the phone with the member the first day of delinquency. We are respectful but aggressive. LSCI What is one thing that has made the biggest impact on your success over the past year Sherod Halliburton If you truly care about your members you have to truly care about your staff. Put them into positions to succeed and they will carry out your vision of making a difference in members lives. We also invest a lot in our people. CONCLUSION As you can see Manatee s metrics are up acrossthe-board. Their investment in their people and commitment to serving their members have paid huge dividends for both the credit union and the community. We congratulate Sherod and his management team on a job well done and wish them continued success in their future endeavors Bill Hulstrand. 41 C R E D I T U N I O N B U S I N E S S M A R C H 2 0 1 7 C U B U S I N E S S . C O M PSCU brings together credit union members and credit unions themselves. Greg Barnes Sr. VP Marketing One Nevada CU He says She says PSCU was built to serve members the same way we were. Karen Rosales CEO Arlington Community FCU Let s talk about the value of being a PSCU Member-Owner. Since 1977 PSCU has been owned by credit unions and is for credit unions. Today over 800 credit unions claim ownership of PSCU and benefit from payment products and services that enable them to compete with much larger payments issuers. By serving as an extension of credit unions PSCU remains the catalyst to conversations that matter. See what else our Member-Owners are saying at pscu.com cuso. pscu.com cuso 844.367.7728 Editorial Calendar 2017 Editorial Closing Dates 30 Days Prior To Publishing Money January February March April May June July August September October November December Payments Credit Debit Cards Car Wars Auto Lending Mortgage Lending Mobile Banking Security Branch Business CUSOs Executive Hiring & Compensation Auto Lending & Lleasing 2 Mortgage Lending 2 Payments 2 Business Lending THE ONLY A LL-D I G I TA L A LL-B U S I NE SS RE SOURCE F OR CRE DIT UNIONS