Given the stall in lending activity for many in the industrysince the recession, AltaOne Federal Credit Union was expecting to see negativesigns in its auto loan portfolio at the end of 2011.

Rich Wendt,  assistant vice president of lending atthe $539 million credit union in Ridgecrest, Calif., said thegoal was to increase auto lending on both the direct and indirectlending sides while boosting yield and enhancing revenue.

“We exceeded our goals last year,” Wendt said. “We came in aheadof our business plan.”

That auto lending growth came through a program that helpedAltaOne offer loans to members with less than stellar credit scoreswhile mitigating the financial institution's risk. The credit unionpartnered with Open Lending Inc., an auto loan underwriter based inAustin, Texas.

The firm's Lenders Protection risk management program offersdefault insurance coverage that allows for the approval of near tononprime auto loans. The program features loan terms up to 72months, loan to value ratios up to 125%, not including additionalloan products, vehicles up to seven model years old, andeligibility for borrowers with credit scores as low as 580.

Wendt said AltaOne brought in $34 million in indirect loans andanother $28 million through direct in 2011. From October to the endof last year, the credit union booked nearly $2 million throughLenders Protection and another $900,000 in January. With a strongstart to 2012, the plan is to build even more.

“This year, our goal is to be more aggressive,” Wendt said. “Weexpect to grow many of our loan portfolios–commercial lending, realestate and consumer lending.”

While AltaOne's auto lending growth revved the portfolio'sengine, the credit union had to swerve around many potholes broughton by the recession. Wendt said competition is extremely intense inthe area. High unemployment among its members was a concern. Insome parts of Kern County in California, the unemployment rate was30%. Delinquencies and foreclosures were also worries in 2008 and2009. Even though a turnaround started in 2010 and 2011 was abanner year, Wendt acknowledged that some of these same issues maycontinue to be a challenge this year.

“We still have people living from paycheck to paycheck in somecases,” he said. “Delinquency is still a concern and foreclosuresthroughout the country have not sorted through. I don't think thepublic is quite buying into the recovery just yet.”

To counter the country's economic aftermath, AltaOne's use ofLenders Protection allowed the credit union to continue to lend andmanage risk efficiently, Wendt said. A variety of interest ratepromotions helped as well. What made a huge difference in 2008 and2009 was when competitors scaled back their efforts.

“When banks and captives cut back their lending and what theywere doing for franchise dealerships, we were there,” Wendt said.“We worked very hard to improve our processes to be as efficientand timely as possible including guaranteeing a decision with 48hours.”

The $2 billion Veridian Credit Union in Waterloo, Iowa, hadengaged in a large amount of auto lending when it started seeingthe competition drop out in 2009 and early 2010, said Kara VanWert, manager of consumer and indirect lending. Like AltaOne, thevoids also opened up opportunities for Veridian to grow itsportfolio.

“The biggest group we've been able to help are those that don'tfit into our current [loan criteria] guidelines,” Van Wertsaid.

Veridian also used the Lenders Protection risk managementprogram. Through extended terms, members with credit issues wereable to get a loan. The credit union has been involved with theprogram since 2008 but stopped its lending activity when OpenLending was going through a transition with a larger industrycompany.

When Veridian started back up in March 2011, Lenders Protectionindirect loan volume was 5% and had increased to 8.5% in July. ByDecember, that figure grew to 10.5% and in January, indirect volumehad climbed to 15.7%. After the credit union started getting theword out to dealers that it was back in the game, its indirectportfolio grew. Dealers became more acclimated to things likeadditional paperwork such as verification of income, which Veridiannormally requires, Van Wert said.

“My favorite part is being able to lend to people who otherwisewould end up at a finance company where rates are as high as 29%,”Van Wert said.

Unlike other parts of the country, some states in the Midwestdidn't collapse  as hard under the weight of therecession, she added. In Veridian's area, the region was insulatedfrom heavy mortgage fallout since much of the locale is surroundedby farmland.

“It's not like we didn't see any of it and those affected by it,but we were able to still lend,” Van Wert said. “We're not puttingthe credit union in jeopardy when we make these types ofloans.”

To grow its auto loans even more, Veridian launched a largemarketing campaign for its recapture program in February. Thecredit union is looking closely at those loans that are near payofffor new opportunities. Van Wert said recapture has been verypopular with members as lenders are recognizing that borrowers willgo elsewhere. Still, she recognizes that the competition can becutthroat.

“It's been very aggressive. Some of the larger banks areoffering rates under 2%. We can't beat 0%,” Van Wert said.

The start of 2012 has been the best kickoff year for OpenLending, said John Flynn, president/CEO. The firm now serves 85credit unions. “So many people have seen their credit scores dropsignificantly over the past two years, Auto lending is picking up.The number of units being sold will be huge this year.”