Credit Union Delinquency Rates Remain Low in Comparison to Mortgage Industry

Mortgage lending has remained in the headlines throughout the credit crunch. Credit union delinquency rates offer another perspective on the situation.

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Amidst the market turbulence, second quarter data indicated credit union asset quality remains sound compared to historical levels. The total real estate delinquency rate nearly doubled over the past year, climbing to 0.44% from 0.26% at the end of the second quarter of 2006. The increase can likely be attributed to home value declines combined with higher interest rates on ARMs.

Credit union delinquency rates are still well below that of the overall mortgage and banking industries. The Mortgage Bankers Association released quarterly delinquency survey results on September 6, stating a delinquency rate of 5.12% for all outstanding mortgages. Serious delinquencies, those more than ninety days late jumped to 1.11% of all loans, up thirteen basis points from the first quarter.  Credit unions had an overall real estate delinquency rate of 1.01%, with a reportable delinquency rate (more than 60 days delinquent) of 0.44%.

As expected, 1 st ARMs are seeing higher delinquencies (0.70%) than 1 st fixed rate mortgages (0.35%). 1 st ARMs account for 12.5% of all RE originations by credit unions, and subprime ARMs are under increasing scrutiny, prompting pressure from President Bush and Congress for federal regulators to take a stronger stance against sub-prime mortgages and other predatory lending.

In addition to rising first mortgage delinquency, other RE loans are also moving upward. Both Fixed rate and Adjustable rate Other RE Loans delinquency rates doubled over the past quarter to 0.51% and 0.49% respectively. In June of 2006, these delinquency rates were relatively stable at 0.24% and 0.25%. As evident in the graph below, other adjustable rate RE loans have been steadily climbing since March of 2005 when there was a delinquency rate of 0.16%. Some select credit unions have been experiencing balance sheet trouble in financing 2 nd mortgages without recognizance of the possible poor asset quality of the 1 st mortgages, which had been financed elsewhere. Credit union asset quality though, remains comparable to the banking industry.

Delinquencies should be expected to increase as ARMs continue resetting at higher interest rates throughout the fall. Mark Zandi, chief economist at Moody's estimates that nearly $2 trillion in ARMs will reset by the end of 2008, potentially increasing total interest payments by ARMs holders by $50 billion in 2009. Credit unions across the United States already offer alternatives to serious delinquencies or foreclosures to their members with adjustable rate mortgages, as seen in our recent webinar, The Subprime Trap.




Sept. 10, 2007



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