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Gregg, thank you for your comment. Certainly, there is much more to the picture than is included here. This article is meant primarily to be a summary of credit union mortgage lending activity over the past quarter and how this compares to years past. As such, there are those that perform better or worse than the aggregated data presented here.
You are correct that mortgage lending is primarily done by larger credit unions; the 300 credit unions with the highest origination volume account for $20M, or 78% of the total industry origination volume. However, in the first quarter of 2009, 58% of credit unions were originating mortgages.
In response to your question regarding the nature of these originations: 61% of first quarter mortgage originations were fixed rate over 15 years; another 24% were fixed rate 15 years or less. The interest only & option arm mortgage volume totaled $228M, or less than 1% of total originations. While the quality of loans being funded at this time is uncertain, rate risk for fixed rate products is a very real concern for credit unions, as identified in the article. As of the first quarter, secondary sales were at 54% compared to mortgage origination volume.
The intention of the article is not to recommend mortgage lending for all credit unions – each one has to make that determination - but rather acknowledges that there is value in meeting the credit needs of current or prospective home-owning members. In addition, by growing market share, credit unions have the opportunity to further expand relationships in other areas of members’ financial needs.
Your looking at all loans as if they were equal. There are $7 billion in Interest Only and Option ARMs on credit union books. Of that, over 6% are delinquent. The top 40 CU's account for $5 Billion and 23 of those are located in California. Of the 550+ cu's with these disastrous loans on their books - 15 have 100% delinquency.
Also, what are the nature of the current loans being funded? 30 year fixed? With interest rates at all time lows there is a real risk associated with them. When rates go up, they will be unsellable except at huge market losses.
Just because volume went up, I don't necessarily think that that's a good thing. I surely can't tell from the data provided. Indirect autos was thought to be a good thing at the time because volume was increasing. You might want to ask SAFE cu what they are doing with their 800+ repos for sale now.
It's easy to recommend when the losses don't come from your operation at Callanhan's... More insight is required to see if this is a good thing or another NCUSIF debacle that could have been avoided.
Ok, now it's clear as mud! In order to correctly disclose delinquency we have to list "possible but not really" delinquent loans. No wonder funding the ALLL account is a bottomless pit.
When discussing delinquency, it is important to note that modified loans that qualify as Trouble Debt Restructures are required to be reported as delinquent until 6 full payments have been made under the modification agreement. Therefore, there may be loans reported as delinquent that are currently performing under the terms of the modification--but you can't distinguish between them and loans that are "truly" delinquent.
In reviewing the delinqency data at 1Q for IO/Payment Option mortgages, there are 10 credit unions with 100% "reportable" (over 2 months) delinquency for 1st mortgages. Of those 7 report all of that total is under 6-months--so are they modified and performing but still being reported as delinquent under TDR accounting? or truly delinquent? We can't be sure. At least 4 of these institutions are reporting the same volume under "modified" delinquency which indicates that they may be in the first category--modified TDRs that may or may not be performing.
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