Mastering Network Lending: Strategies from Industry Leaders

[00:00:00] Ryan: All right. Well, good afternoon and thank you for joining today's discussion on network lending. My name is Ryan Giffen. I lead the client success team here at Lendkey and with me today, we've got Margie Click and Kara Van Wert. Unfortunately, Kara's camera isn't cooperating with us, but we do have her on audio.

[00:00:21] Um, but I'll just do some quick intros. Margie is the CEO of AgFed Credit Union based out of Washington, DC. She has been a client with Lendkey since 2014 and she's utilizing Three of our asset classes. So those would be the in school private student loan, our student loan refinance option, as well as home improvement lending.

[00:00:42] Margie is also serving on the Board of Member Student Lending, and she's been in that position since 2021. And Cara Van Wert is our Chief Lending Officer from Viridian Credit Union. She's based out of Waterloo, Iowa. Uh, Viridian not only serves Iowa, but Nebraska and Minnesota as well. And they do have members all over the country.

[00:01:03] And we'll talk a little bit about CARES approach to the digital experience. And Viridian has been a partner since 2016, utilizing both the student loan refinance product, as well as our home improvement loan. Program so very excited for both of them to be here. And we're going to talk about, obviously, network lending.

[00:01:25] But before we do that, I should probably provide a quick definition of what network funding is. So, it is very much in the spirit of the cooperative, which credit unions are very familiar with. So, network lending allows credit unions to pull resources together, agree on common underwriting, common pricing, common program manuals.

[00:01:44] It creates a lot of liquidity management so that they can buy, originate, or sell loans through the network. And it's also a way to adapt to the market needs and really depending on the situation at your credit union at any given time, you can deploy capital, you can purchase, you can originate. And it also, as we're working with, you know, Hundreds of credit unions.

[00:02:09] It does allow for some better pricing power as well and increasing your wallet share. So a lot of advantages and we'll get into some of those. Um, so let's begin. All right. We're going to try to keep this to about 20 minutes and we do want to allow questions. So if you guys do have questions, you can send those in, um, utilizing the, the question box and we'll circle up on those before we, before we wrap the call this afternoon.

[00:02:33] So Kara, let's just confirm that you can hear me. Okay. And I'll have the first question for you if that's all right.

[00:02:40] Kara: That is just fine.

[00:02:42] Ryan: All right, Kara. So let's talk a little bit about some of the key benefits and advantages that Viridian has experienced utilizing network lending.

[00:02:52] Kara: Yeah, so initially we looked at LendKey to help us provide.

[00:03:00] A product to our members that we did not have the internal expertise and or resources, um, to offer, uh, with student lending, you have additional regulations, you have different, um, collection practices that we just didn't specialize in those. So we were looking for a partner who had that area of expertise.

[00:03:25] Uh, we were also looking, um, at that time for a. An opportunity to attract, uh, uh, maybe a younger demographic member or, and, or borrower, um, and with then keys digital solution, it gave us that opportunity. And. Um, we have been able to market to those younger members as well, you know, and then last but not least, just the ability to use LendKey's marketing channels, you know, when we look at the affiliate partners that they have relationships with.

[00:04:05] Um, using search engine optimization, um, as potential borrowers are looking for refinance options out there, um, and then as well as, you know, using, um, LendKey's expertise in the direct mail space in order to attract those borrowers. So it's been very beneficial, um, as we rolled out our. And continue to market our, um, refi student loan option.

[00:04:37] Ryan: No, that's great to hear. Appreciate the, uh, appreciate the feedback there. And I picked up on something that you had mentioned as far as getting younger. Uh, and that is one of the, you know, One of the things that we hear a lot from credit unions who are kind of in our sales cycle is, is, you know, the average age of the credit union membership is about 52 years old.

[00:04:58] And this is an opportunity for them to get introduced to younger members. Right? Some of these, the in school borrowers are, you know, between 19 and 22 on the student refi side. It's more like 25 to 30. 4 to 32. So still relatively early on in their credit journeys and an opportunity to really, you know, have a lot of lifetime value with these particular borrowers.

[00:05:23] So I'll, I'll move over to Margie and Margie, you've obviously been in the student lending space with us for a number of years and recently have adopted the home improvement loan program. Um, and just wanted to hear a little bit about your decision to kind of grow the portfolio and move into a new asset class.

[00:05:42] Margie: Thank you, Ryan. Well, as, um, Karen mentioned, I think part of it has to do with the relationship and what LendKey offers as a lender. I mean, it's truly a partnership. And as you mentioned, we've been, had started with the, um, consolidated student loans back in 2014. And we really liked the relationship in working with the loan products as well as the back office, the servicing portal, and et cetera.

[00:06:17] So when the home improvement loan was offered, that, that also gave us the opportunity to help. We're, we're fairly small, we're about 350 million, and it's difficult for us to compete with. The much larger credit union, so we're always looking for additional loan products, additional partnerships. And the home improvement one, the way that it's presented and the way that it's structured, Lendkey vetted with the contractors, so those borrowers, these loans that they're getting are, whether it's swimming pools in their backyards, or they're large, substantial, but they're investing in their homes.

[00:07:00] Therefore, their collectability is very good. The risk is not as high as some of the other unsecured products. In particular, this one has an insurance wrapper on it, and therefore, we've been with the home improvement, um, thing since 2016, and we have not had a loss. At all, and that is something to say. And when I speak to some of my peers, the return of the products really good.

[00:07:38] It's been it's been great. Actually. Really good, so part of it has to do with the relationship, I think, with like, and I mean, we also would you have a choice of doing the full part, the full loan or participate it out, depending on how comfortable you are and where you are in your balance sheet

[00:07:59] Ryan: is a great point.

[00:07:59] I do think that, uh, as. Folks start to explore network lending a little bit more. There's a number of different levers that you can pull in terms of your level of your appetite, right? You can do 10%, you can hold 100%. And that allows you to, you know, test it out for a little bit, see how much you like it.

[00:08:18] But, uh, that's great. Appreciate the feedback on that Margie. So I want to switch gears a little bit back to the education lending space. And so both Margie and Kara serve on the board of member student lending, which is a QSO that's been around since 2010. And so they've got a lot of really great insights as to the education lending product.

[00:08:41] And Margie, I wanted to start with you on the in school. Product and just kind of get some of your thoughts about the importance of credit unions, offering a solution like this to their membership.

[00:08:56] Margie: Oh, absolutely. Well, I think a lot of it just probably because of the way the environment is, people are afraid of the private student loan.

[00:09:05] That's without question. We did begin it. We looked into it quite heavily and being able to look at the statistics, actually 94 percent of them are co signed by their borrowers. So that gives you as the lenders, you know, as a lender, you get the different generations. Not only are you helping the students, but you're also helping the parents.

[00:09:35] And I think the, both the parents and the family, that time of their lives is very critical. And this is something they're going to remember. So if it's done the correct way, and as Kara mentioned, it's you have those are student loans are very unique and they have a lot of different facets for the underwriting and servicing of them.

[00:09:58] So if you provide that pleasant experience for the borrower, Which is the student that also gets relayed to the parent. They will reach out to look for other things with the lender without question. We talk all the time. As Kara said, we're always looking for the younger member. Our membership base is like 60 percent of the older generation.

[00:10:24] And you know, for the younger one, when you establish and reach out that hand to help them, they will remember it. And they, most of them, we talk around the room here is most of us have that first relationship. We never moved. Because that's how much it meant. So it doesn't matter if you were born in the 50s, 60s, or, you know, 2000.

[00:10:50] So I think that's very critical with

[00:10:53] Ryan: it. And I just kind of piggyback on how you started. This is, you know, the perception of student lending. It took you guys some time to diligence it and really understand it. And, you know, we, we, we come across this quite a bit and that, you know, the headlines related to student loans are fairly negative, but, um, those are representing federal loans and what we're doing are private student loans, which are underwritten.

[00:11:22] Much like a consumer product at the credit union. So we're looking at FICO. We're looking at DTI, obviously ability to repay. All of that stuff is taken into consideration. Conversely, on the federal side, it's needs based, right? So it's a very, very different type of risk profile. And, you know, unfortunately, the cost of education is not coming down, right?

[00:11:45] So there is a very real need. There's a very real need to fill that gap between what the family has saved, uh, what they might be getting in scholarships or grants. Um, you know, the average loan amount for these private student loans is about 12, 000. Um, so it's a very real need. need out there for families.

[00:12:04] And, you know, if you are able to offer these, like you said, it's, it can be very memorable. They're going to achieve, uh, a college education, a degree, and hopefully set themselves up, you know, for the workforce shortly thereafter. So, um, yeah, I definitely think all important notes and carrot. Let's talk a little bit about refi.

[00:12:24] You've been, uh, offering the student loan refinance program for a number of years at You know, what would you, um, what was the reason for, for bringing that in house?

[00:12:35] Kara: Yeah, so we really focused on the refi product and as Margie said, sometimes you are a little bit leery on the in school and starting with refi is a good practice.

[00:12:48] Um, you know, it, get, those borrowers have, are in, Um, the workforce they graduated, they may be in a position that they went to school for, and they're looking for the opportunity to simplify their budget and to put all of their payments or most of their. Of their balances into one payment and just make it more manageable and, um, make just align better with their budget, especially today as they come out of the payment moratoriums.

[00:13:26] And, um, you know, maybe. They've taken a different job during all the pandemic or their incomes have come down. It just gives them the opportunity to make their budget more manageable. And we also knew that if we don't do this, Somebody else is going to do it and we want in our members, you know, in our set in our good members Our satisfied members are hard enough to come by we want to make sure that we keep we retain them and this gives us an opportunity to Get Give them this product as an option.

[00:14:09] Uh, so they're not out there looking at the other, you know, the other vendors that may be offering a similar solution.

[00:14:20] Ryan: Yeah, it's a very in demand audience, right? College educated, painfully employed. Um, so, like I said, relatively early on in their, their credit journey, they're likely going to be pursuing.

[00:14:32] Auto loans, mortgages, you know, all kinds of additional services. So they're, they're, they're definitely being marketed to, right. Not only by, uh, FinTechs and banks, but, you know, hopefully our, our credit unions are staying out in front of them as well. So we'll switch gears a little bit, but Kara, I'll stay with you.

[00:14:50] And I want to talk a little bit about the digital experience at Viridian. So you guys have branches across three States, but you've got members across the country. So maybe you could tell us a little bit about How you engage with them, um, through different mediums, obviously your websites, your apps, your contact centers, and just how those supplement one another.

[00:15:12] Kara: Yeah. So at Viridian, we've, um, strived to be a digital first credit union. Um, we want to give our members the opportunity to access whatever they need at Viridian. From where they are and at whatever time they, it fits best into their schedule. So we focus on a strong deposit and loan, uh, digital platform that's easy to use and really focus on how we can take the more difficult pieces of the process out of their hands and maybe put it in.

[00:15:56] To Viridian's hands and then partner with somebody who can, who can fulfill that need. Um, you know, we have. Insurance and investment offerings on our website where you can, you can start the different processes and find the best offerings for you. And if the need is recognized, we have a call center.

[00:16:22] That's open six days a week and in the evening. So, really, between the website and the call center, you can do almost anything without stepping into the branch.

[00:16:37] Ryan: Excellent. Thank you, Kara. And Margie, let's talk about some of the success that you guys have had, um, in cross selling right to, to some of these like, he borrowers, um.

[00:16:48] Yeah, any insights or strategies that you care to share with the group?

[00:16:52] Margie: Uh, one thing is, is that it's really very basic. It's we take the, um, those people that have, you know, the loan products, whether it's the, um, you know, consolidated or the home improvement and. We just send them very simple, offering them what other products and services that there may have, and it was, it takes a couple of years to sort of just get it, um, and I make sure it can't, it's not done just after they open the membership, although we do include that right after they open the membership.

[00:17:31] Open the membership, but then we also periodically do it and we customize it to reach out to someone who has a student loan or the home improvement loan. And I have been pleasantly surprised. We have on the various channels we accept for private student loans. We just started, but we've had great success in cross selling.

[00:17:56] Other loan products. Now say maybe we've seen a couple certificates and checking accounts, but I believe those are harder to do. But the other loan products we've seen mortgages, home equity loans, as well as regular auto loans. So it's been like two products for it's been the statistics are high and with our partnership with Lendkey, it's the highest with that, that one.

[00:18:22] We have some other channels that it's not quite as high.

[00:18:27] Ryan: That's great to hear. And I think the approach of, you know, thinking about this long term, right? The overall lifetime value, and it may not happen immediately after you set up, but, you know, just staying in front of them at those moments. that are, that matter, right, to them.

[00:18:45] The AgFed name is, is out there. So, I think it's a really good approach. They

[00:18:48] Margie: become, instead of your third party member, they become your own member, your primary member. They become one of our SEGs, in a sense. So, now it's been working really well.

[00:19:00] Ryan: Good to hear. Very good to hear. So I do want to ask the same question to both of you, just regarding best practices for credit unions that might be considering network lending solutions.

[00:19:13] So Margie, we'll keep it with you. Anything that you would like to share with the group?

[00:19:19] Margie: Well, 1 thing I always would recommend and when, you know, Karen, I sit among our peers in the group. The key thing is, is to approach it. And once you make that decision, I mean, you have to go through the due diligence product.

[00:19:35] Process and depending how that process goes, that's your first vetting. So you're establishing how easy it is or how much information becomes forthright and how quick people are to answer. But once you do establish it, the key is to keep it as a partnership. It has to be, um, they have to be present. You have to continually engage.

[00:19:59] And I think that has been found to be very successful with us. Which has open given us opportunities to things that we may not have known or paid attention to. If we didn't do that. And, um, you know, as you said, we got involved in the home improvement lending and the, um, you know, the private student loans and, you know, you offer some other platforms and there's discussions of other things in the future.

[00:20:29] You could go on and I mean, I've gotten a lot of great ideas just from working with the partnership and I think that's really, it's very critical.

[00:20:40] Ryan: Excellent. Thank you, Margie. And Kara, any thoughts related to best practices for credit unions that might be considering network lending?

[00:20:50] Kara: Yeah, I would recommend looking for, you know, a portfolio class or an asset class that aligns with Your balance sheet, um, maybe looking for an asset class that you today cannot, um, offer internally, but you could partner with, uh, FinTech or, or a partner such as Lenski, um, to provide to your membership.

[00:21:21] And it also, Looking for a partner that allows you to compliment your liquidity at times when you've got funds to lend, you can, you can pour some money into these different loan classes at times when your liquidity is low and your loan to share is high, you can dial it back and it's, it's, it's quick and easy to do so.

[00:21:50] Um, But other than that, I would just, you know, as, you know, Margie and I have both alluded to just finding somebody that aligns with your values and because, you know, they're going to represent your credit union and, um, you know, really looking for that relationship that you, you want to establish long term

[00:22:17] Ryan: great advice.

[00:22:18] And I appreciate you sharing that. And we're kind of getting to the top of the, uh, top of the meeting here, or the bottom of the meeting, and we'll have to wrap it up here shortly. But before we open up the Q and a, um, any other. Advice that you would share with credit unions throughout your. You know, network lending experience, any closing thoughts from either Marjorie or Kara?

[00:22:43] Margie: Well, I have 1 that I forgot to mention when you said about with network lending and again. It's not with everyone so I don't want to say because I've tried a lot of different ones um It's nice that you have the way this is structured And that you have a number of credit union executives that are actually going through the underwriting guidelines so What you're doing and what you're underwriting it's under a common thread it's not you aren't getting personal preferences by and I think That helps and having the option to go having the flexibility and the option to go like full product or the full balance.

[00:23:31] If you choose to or the 10 percent to make yourself feel comfortable. I think that's been really, really great. And I think that the structure has worked as far very successful.

[00:23:45] Ryan: Thank you, Margie. Kara, any thoughts from your side?

[00:23:50] Kara: Yeah, you know, and I would just touch on that same idea that Margie just mentioned, because, you know, the LendKey works very, very closely with the Member Student Lending Board as we look at the competitive analysis, as we look at our terms, as we look at our rates, and the underwriting.

[00:24:17] Margie. Piece as a whole, it's being done with lengthy, with, you know, the QSO board, which is peers of other credit unions. Um, you know, so we have all of those. And we're all vested in this program, so we have the best interest state with all of our products and services.

[00:24:44] Margie: And not every network lender has that.

[00:24:48] So, that's from my own experience.

[00:24:53] Ryan: That's a good call out. Very good. Well, it looks like we've got 1 or 2 questions in here. So I will ask these. Um, I'll read them out loud and then I'll pick on Cara for the 1st 1. And it might be relevant to something that you had mentioned at the start of the call, but how has network lending created efficiencies for your credit union?

[00:25:18] Um, So, yeah, I'll just toss that one over to you and see how relevant that might be.

[00:25:25] Kara: Yeah. So we're able to offer our borrowers this product and we're able to do it without a lot of credit union, um, with, uh, without a lot of intervention from our staff, you know, we have one person on our staff that works with our third parties.

[00:25:48] And when I say our third parties, it's not only Glen Key. Um, so she, you know, by the time you have a loan to approve or, or give the final approval stamp on, it's all there for you. Um, and so it's quick, it's easy, and you're able to, um, Just not have all of that done internally. It's all done with LendKey by the time you receive it.

[00:26:19] Ryan: Excellent. Thank you, Cara. And last question that came in here. Are there any benefits of participating in a network model versus just doing this completely in house? So, Margie, maybe if I'm, if I'm reading in between the lines here. Sure. Would you guys have ever considered doing education lending or the home improvement lending programs without assistance or without a provider?

[00:26:50] Margie: No, I can tell you real quick. No, that's for a few reasons. One thing that Kara mentioned early on is the student lending piece. I did not realize until we got into partnership with LinkedIn how unique it is, and if it's not done right, it can hurt your reputation and everything, the balance sheet. Um, so the expertise has to be there as well as.

[00:27:23] depends on how Whether it's these are really unsecured products, you know, student loans are unsecured just like home improvement loans are unsecured and Within our own credit union. Um, I know we would never do the loans I'll be absolutely they would I just know how tight and conservative we can be and um But doing it with a network who's has the expertise So these loans are getting vetted twice.

[00:27:55] They're getting vetted by the loan key expertise. We go through and we look at it. We just review according to the program manual and everything. And, um, you know, most of ours are participations. We hold 10%. And having that has made my board feel comfortable, where it also has made the regulators feel comfortable.

[00:28:20] They were leery at first, I can remember them, and then now they don't even bat an eye. They have, because it's, the risk is spread out among all the lenders. So, that's an easy answer.

[00:28:37] Ryan: Excellent. Thank you, Margie. Well, we'll go ahead and close it out from here, but to all of the folks joining us, we certainly appreciate you taking some time out of your afternoon.

[00:28:47] A big thank you to both Margie and Kara for sharing your experiences with with network lending and hopefully everybody found that insightful. And for anybody that's looking to learn more, please take a look at NetworkLending. com. Uh, you can feel free to reach out to myself or anybody from our account management team.

[00:29:05] Uh, but that does bring us to a close. Uh, thanks again. You guys all have a great afternoon.

[00:29:09] Margie: Thank you, Ryan. Karen.

[00:29:12] Ryan: Bye. Bye. Bye.