Nowadays, credit unions are just as convenient, accessible, and safe as banks. But in order to compete effectively in the lending market, credit unions need to expand their revenue opportunities. One way to achieve this goal is to opt for new loan products, such as chattel loans.
Many financial institutions that have added chattel loans as well as other asset classes to their portfolios have achieved optimal diversification. This attests that chattel lending delivers a viable asset option that can enhance loan portfolios and increase earnings.
Here are just five benefits and reasons why adding chattel loans to a portfolio is important in the current low interest-rate environment.
1. Chattel loans can attract new categories of qualified borrowers.
After the recession of 2007-2009, many financial institutions have shrunk their loan portfolios. Conversely, some credit unions have started to make available new loan products, including chattel loans for manufactured homes.
While the vast majority of lenders have continuously reported lower loan origination volumes, the credit unions that opted for new lending programs have successfully met the growing demand for more accessible and affordable credit alternatives. This is evidenced by the fact that their overall loan market share has increased from 6.7% to 10.6% in just eight years.
2. Chattel loans give credit unions the opportunity to enroll in a new lending program.
Chattel loans for manufactured homes allow credit unions to effectively respond to the financial needs of many prime borrowers, who have good credit scores but are still underserved by mainstream lenders. Furthermore, a credit union that opts for these types of loans will be able to diversify its portfolio, grow its balance sheet, and increase mortgage market penetration.
3. Chattel loans fill an important gap in the mortgage market.
A manufactured home that is permanently affixed to a HUD-approved foundation can be purchased with either a conventional mortgage or a chattel loan. On the other hand, the manufactured homes that aren’t placed on permanent foundations can only be financed separately (without the land) with a chattel loan. Thus, chattel loans represent the sole financing option available for the manufactured homes considered personal property (chattel).
4. Chattel loans can strengthen loan portfolio performance.
A highly concentrated portfolio may turn out to have serious weaknesses that can lead to undesirable consequences, as experienced during the financial crisis of 2007-2009. One way to avoid excessive portfolio concentration is to follow a pluralistic approach to loan portfolio management.
For instance, adding chattel loans and other high-yield asset classes to your portfolio can lead to greater financial stability, lower portfolio risks, and desirable return performance.
Recent studies have found that the more diversified a loan portfolio is in terms of size and structure, the better it is able to overcome market volatility during the various stages of the economic cycle.
5. Chattel loans deliver lending opportunities you may miss out on.
A credit union that fails to explore new asset categories basically hinders new loan acquisitions. As a result, not only will it end up losing members; its loan portfolio will also keep shrinking.
Conversely, by adding new lending opportunities like chattel loans to its loan portfolio, your credit union will be able to earn better returns and provide greater convenience to its members.
To learn more about chattel loans and how they can help you enhance your loan portfolio, please get in touch with our experienced professionals today!