Housing indicators continue on a fragile path as an important deadline for the industry approaches. On November 30, 2009 the First-Time Homebuyer Tax Credit is set to expire. However, with support from top lawmakers, trade groups and two bills to extend the credit into 2010, signs are pointing to a continuation and possible extension of the program to include all home buyers. Over its life, the National Association of Realtors says the tax credit drew 350,000 new buyers into the market who otherwise would not have bought a house.
Today, over 675 credit unions offer first time home buyer programs as part of their mortgage lending strategy. This is just one factor that is driving record market share through the first six months of 2009.
First Mortgages Driving Growth
In the first six months of 2009, credit unions originated over 693,000 mortgage loans with an average balance of $96,700. First mortgage originations dominate the category, increasing 36.2% to $55.3 billion through the first half of 2009, as the previously mentioned first-time home buyer credit took hold. This represents 82% of the total $67 billion in mortgage originations year-to-date. Other real estate loan balances have remained largely stagnant in 2009 due to falling home prices drying up member equity in their homes.
As of June, credit unions captured a record 5.2% of the total first mortgage origination market. This percentage has more than doubled over the past two years as credit unions step up to provide financing to members in need in this difficult economy. That financing becomes more crucial than ever as banks continue to tighten their lending standards, with the Federal Reserve Board reporting in June that more than 25% of banks are still actively tightening their mortgage lending standards, even after the record 78% of banks reported tightening standards one year ago.
Asset Quality Remains High
The data show that credit unions have maintained strong underwriting standards and kept their asset quality high. Through June, credit unions reported a mortgage delinquency rate of 1.70%, much lower than the 6.79% reported at FDIC-insured institutions, even with a more stringent reporting standard. NCUA requires credit unions to report loans delinquent when they are 60 days past due; FDIC uses a 90-day standard for banks.
Lower delinquency has also carried over to net charge offs, with credit unions reporting a net charge off rate of 22 basis points. Banks are reporting a charge-off rate nearly 7 times higher. One factor contributing to this lower net charge-off rate at credit unions has been an increased focus on modifying troubled mortgages, helping keep charge-off rates low. Today, over 1,000 credit unions are actively modifying members’ mortgages.
Data from the National Association of Realtors shows existing home sales back on the rise heading into the second half of the year, providing evidence that we may have seen the bottom of the housing crisis. The Home Affordability Index is above 100 for both first time home buyers and the overall market. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home.
And, although the First-Time Homebuyer Tax Credit is set to expire on Nov 30, pressure is growing from trade groups for lawmakers to extend the credit. Two bills are already circulating the halls of Congress. Getting out in front of an extension can position your credit union to capture even greater market share this fall.