Benefits of a CUSO-Sourced Loan Program

With the overaching mission of people helping people at the forefront of their business model, credit unions are squarely focused on caring for each one of their members. Achieving this goal includes building a healthy and diversified member business lending portfolio that supports the goals of the credit union and mitigates unforeseen risk.

In 2019, roughly 5,000 credit unions throughout the U.S. held over one trillion U.S. dollars in total assets (source: Statista), a notable chunk of the country’s overall banking assets and one that is expanding rapidly. Over the past decade, credit unions have grown their assets at nearly twice the rate of banks, as reported by the Wall Street Journal.

Most credit unions are regionally based and smaller than their large banking and institutional lending counterparts, affording them the ability to provide a higher level of personal interaction and customer service. This places credit unions at a distinct advantage, whether they are serving existing members or attracting new members. The Wall Street Journal explained, “While banks that are publicly traded must balance the sometimes-competing priorities of both customers and shareholders, at credit unions those two stakeholders are one and the same.”

For commercial real estate borrowers, credit unions offer preferred loan terms, including no prepayment penalty, coupled with competitive rates over some banks, bridge lenders and insurance companies. This flexibility and competitive pricing, combined with superior customer service, provide additional value that advances a credit union’s position as a preferred lender in the financial world.

Today’s CRE industry is performing well. Backed by strong macroeconomic factors such as record-high U.S. employment and low interest rates, property values and debt markets have all remained stable in the last 18-24 months. Investment fund managers with excess cash to invest continue to seek CRE as an attractive investment that is supported by low bond rates and a highly appreciated stock market. Unfortunately, many credit unions desiring the advantages of this lending and investment opportunity may only be aware of potential obstacles and not the assistance available that can overcome them.

Though commercial real estate lending can pose new challenges for credit unions that have not yet expanded into this arena, this should not deter credit unions of any size from realizing the tremendous benefits of CRE lending because CUSOs are ready to provide the support and resources necessary to achieve a profitable MBL program.

CUSOs possess the experience, expertise and relationships that provide access to an array of lending opportunities and support resources and ensure that credit unions successfully surmount the analytical and geographical challenges of commercial lending. For example, a CUSO can furnish the necessary back-office staff and resources, as well as provide the channels to source and secure safe, low-risk lending opportunities that many credit unions may not have in place. Additionally, NCUA regulations require credit unions, or the third-party vendor the credit union engages to work on its behalf, have at least two years of commercial loan underwriting experience, a hurdle CUSOs overcome with qualified and experienced professional staff.

CUSOs help credit unions provide additional services to members and boost member returns through strategic investments. Equipped with the support of a CUSO, credit unions can add commercial real estate lending to the MBL loan programs offered to their members as well as utilize CRE lending as an investment tool that typically increases the credit union’s return over other, less profitable investment vehicles.

For credit unions wanting to capitalize on the investment opportunity commercial real estate lending portfolios provide, choosing to partner with a CUSO to source and fund CRE loans can be advantageous in many ways:

Back Office Support and Analysis

CUSOs specializing in CRE lending can provide a myriad of support services, as well as the risk advisory and market analysis that will help meet the credit union’s lending goals. A CUSO can also serve as an invaluable extension of a credit union’s back office by providing detailed underwriting, processing, loan servicing and educational support, so CRE lending transactions do not overwhelm credit unions not already set up with sufficient staff knowledgeable in the sector. A sophisticated CUSO will also provide a well-constructed and thorough annual loan review that ensures the credit union is aware of any trends pertaining to the property, borrower or guarantor that could indicate cash flow or liquidity challenges. This affords the lender enough time to get out in front of any potential issues and take appropriate mitigating action. CUSOs can also help provide consistent and reliable institutional-style reporting to the credit union.

Nationwide Access and Diversification

In addition to back-office support, a CUSO-sourced loan program provides nationwide loan opportunities that can help credit unions diversify their portfolios through a robust pipeline of loans on assets in multiple geographic markets. This provides credit unions the ability to balance their loan portfolio with a broader spectrum of asset types – retail, office, industrial health care and mixed-use. CUSOs also have the experience to vet quality loans with terms tailored to each credit union’s needs.

Credit unions continue to capture a larger share of U.S. financial assets and venture further into the CRE market. Utilizing a CUSO as a third-party resource can help credit unions take their portfolio and service offerings to the next level and reach their lending and investment goals and objectives. Through its specialized expertise, network and resources, a CUSO can serve as a valuable platform to elevate a credit union’s services and portfolio strength through diversification. As credit unions show increased interest in the benefits of CRE lending, a specialized CUSO could be the single critical resource for credit unions to realize increased profitability and added benefit to their members.

Craig Page is president/CEO of Extensia Financial, a commercial real estate-focused CUSO in Northridge, Calif.