Effectively planning for loan portfolio growth is a critical aspect for any financial institution that operates in the lending industry. Indirect manufactured home lending is just one of the tools financial institutions like credit unions can use to diversify their loan portfolios and enhance overall performance.
When the right indirect lending program is properly implemented, it provides certain advantages that also indicate the reasons why many credit unions find value in this type of lending. Here are the most important ones.
Thanks to the slow but steady growth of the U.S. economy, a stronger investment environment and an increasingly competitive lending market, many people continue to opt for manufactured home loans when purchasing a manufactured home.
By adding indirect loans to its portfolio, a credit union can address the financial needs of a broader pool of borrowers and mitigate portfolio concentration risks, according to the CUNA Councils.
Additionally, combining different loan products and services with competitive rates and enhanced relationships with a network of lending partners will allow a credit union to issue a higher number of loans and boost its total revenue.
More effective competition
In addition to facilitating a higher level of portfolio profitability, an indirect manufactured home lending program allows a credit union to provide a wider variety of financing options to its members.
As a result, the credit union will be able to compete more effectively in today’s rapidly evolving lending markets and increase its market share.
Considering the growing demand for affordable housing followed by a steady increase in manufactured home shipments and sales, which create a more favorable lending environment for financial institutions, now would be an opportune time for a credit union to implement an indirect manufactured home lending program and expand into a new lending market.
Reduced liquidity risks
When it comes to the financial condition of a credit union, the portfolio diversification rate and the performance of the lending programs it selects are two major determinants that affect liquidity.
A very essential aspect is that indirect manufactured home loans can vary greatly among lenders and product lines. Typically, opting for a high-performing, higher-yield and low-risk indirect lending program can have a positive impact on liquidity.
As an example, an indirect manufactured home lending program can provide a series of services, ranging from applicant screening, underwriting, loan origination, payment processing and collection to cash management, customer communication, performance monitoring, compliance and quality control.
What’s more, some manufactured home lenders that make available indirect lending are also able to fund cash-reserves at the credit union to protect the portfolio and shares, while guaranteeing funds for qualifying borrowers.
Although certain indirect lending programs can present some inherent compliance risks, leading manufactured home financing companies continue to invest in their overall compliance controls in order to eliminate any potential risks.
In addition to keeping up with industry rules and regulations, these lenders have robust, up-to-date training programs in place, assess their lending policies regularly, monitor program performance against compliance, and perform comprehensive analysis of loan data and lending transactions.
The risks associated with indirect lending cannot be denied. For this reason, a credit union should exercise caution and be mindful of all the risks involved in order to find true value in an indirect lending program.
By conducting proper due diligence and considering how indirect lending fits with its strategic direction before opting for specific indirect loan products underwritten and serviced by a third party, a credit union can put itself in a better position to succeed in this market segment.