Pub. 1 2021 Issue 1

February 2021 | 31 Greg Schultz is the Director of Product Management Greg Schultz is a seasoned con - sumer-centric product manager. In his role as Director of Product Management for Kasasa Loans, Greg focuses development on value enhancement for both Kasasa’s institutional partners and their borrowers by increasing loan functionality, lending transpar - ency and borrower empowerment. Non-bank lenders first overtook bank and credit unions with more than 50% market share back in 2017. 5 This rise in competitors from big tech, to f intech startups, to nontraditional lend- ers is saturating an already narrowing environment for banks and credit unions to f ind prof itable new loans. And many of these newer competitors are more expe- rienced in navigating the digital-f irst way of doing things that every institution has been forced to adopt in 2020. Lending predictions for 2021: the road ahead. Refinancing is projected to drop by 46%. Yes, it’s still a pretty great time for consum- ers to refinance. But the current pace of re- fis we saw in 2020 is simply unsustainable. At this point, the majority of rate shoppers who are actively looking to refinance already have. That leaves consumers who aren’t currently thinking about refinancing or necessarily paying attention to the rate environment. Refinancing could still make sense for large numbers of consumers, but it won’t be low-hanging fruit anymore. The Mortgage Banks Association also expects the 30-year fixed-rate mortgage to rise to 3.3% in 2021 (up from the 2020 rate of 3%), in which case they forecast refinance mortgage originations will drop more than 46% next year. 6 Consumer lending and credit cards can expect a slower recovery. Outside of an immediate government injection of cash — i.e., a stimulus package — growth should be steady, but slower than in recent years. If there’s a market recovery, both consumer lending and credit card lending should pick back up — however, not necessarily at the same rate debt is paid off. And the flip side of any new stimulus package would be a reduction in credit card debt (as happened on the heels of the 2020 stimulus). Though we’ve already seen a huge rebound in the job market since March, the overall change in employment (now close to -7%) is still lower than the change in employment over the course of the 2007-2009 recession (-5%). 7 And after an initial hiring V-shaped spike, that curve is starting to plateau. Qualified borrowers could be hard to come by. Given the current state of the economy, while demand for consumer loans should stay high, the quality of eligible consumer loans might not. There’s been a massive amount of job rotation with a cycle of open- ings and shutdowns this year — a trend that could continue at least until a COVID vaccine is fully distributed. As a result, job verification services will prove more crucial than ever to mitigate lending risk and bring in qualified borrow- ers. And you can expect there to be elevated amounts of loans in hardship among affect- ed borrowers, barring a stimulus. Auto loans remain a source of high-quality loans. One reliable avenue to qualified borrowers has been the auto loan market. Not only did new auto loans grow in 2020, auto loans in hardship went down overall — driven by a large decrease of loans in hardship for prime and super-prime (the highest-rated) borrower. According to TransUnion, from July 2019 to July 2020, the distribution of prime plus loans in hardship fell from 16% to 12%, while super-prime hardships dropped from 23% to 14%. 8 This growth in high-quality loans is in part thanks to borrowers capitalizing on cap- tive finance offerings — the 0% financing deals you see offered through Ford, Toyota, Honda and other major automotive manu- facturers. Looking forward to 2021, prime and super-prime borrowers will likely con- tinue leveraging these captive financing promotions and steadying the auto loans market overall. Fintech lenders will attract more loans. And better loans. Not only are fintech lenders increasing their market share of total loans originated — they’re moving up credit tiers. They’re moving into auto loans. They’re going full mainstream. In the early days, fintech lending was relegated to lower tiers of credit, taking on the loans no one else wanted. But now, as marketplace lending gains in popularity and consumers go online first to find the best offer, fintech lenders are consuming more and more of the A- and B-paper loans that banks and credit unions need on their balance sheet. How can you stay ahead of these trends in 2021? If you’re one of the banks and credit unions across the country who still need loans, you’re far from alone, the compe- tition is tough, and the environment is tight. To compete, you need to create a competitive advantage for your lending products and meet consumers where they are (online). There are more loan options than ever. What would motivate them to choose yours? Transparency, f lexibility, peace-of-mind — now is the time to provide value that goes beyond just a competitive rate. Give consumers a reason to choose your loan. And if not as many new loans are avail- able (and marketing budgets to target new customers are limited), give your best ex- isting borrowers more reasons to deepen their relationship. The fintechs are coming harder and faster than ever, but they don’t own innovation. Now is the time to re-evaluate your existing loan offerings before it’s too late. ■ 1 Source: FDIC, figures represent the median bank result for all FDIC-insured institutions. 2 Source: NCUA. Figures represent the median result for all NCUA institutions. 3 Source: Freddie Mac, 30-Year Fixed Mortgage Rate Average in the United States. 4 Source: Google trends, September 2020. 5 Source: FDIC Analysis of Home Mortgage Disclosure Act data. 6 Source: Mortgage Bankers Association, Oct. 27, 2020, www.mba. org/2020-press-releases/october/ mba-forecast-purchase-originations- to-increase-85-to-record-154-trillion- in-2021. 7 Source: Bureau of Labor Statistics. https:// www.bls.gov/spotlight/2012/recession/pdf/ recession_bls_spotlight.pdf 8 Source: TransUnion Q2 2020 Consumer Credit Trends webcast, Aug. 27, 2020.