Credit Unions Respond to Mortgage Demand Resulting from Low Interest Rate Environment

Credit union first mortgage loans outstanding grew 18.2% during the twelve months ending June 30, 2002. The $15 billion increase in first mortgages on the balance sheet made up 57% of credit union total loan growth. With the average 30-year fixed rate mortgage hovering around 6%, low rates have inspired much of this mortgage boom. But lower rates mean lower yields for credit unions. Credit unions need to control the amount of long-term, low-yielding loans they keep on their books. Recent data indicates that many credit unions are shifting their first mortgage lending focus to adjustable rate products to lessen the impact of holding long-term fixed rate assets.

 
 

Credit union first mortgage loans outstanding grew 18.2% during the twelve months ending June 30, 2002. The $15 billion increase in first mortgages on the balance sheet made up 57% of credit union total loan growth. With the average 30-year fixed rate mortgage hovering around 6%, low rates have inspired much of this mortgage boom. But lower rates mean lower yields for credit unions. Credit unions need to control the amount of long-term, low-yielding loans they keep on their books. Recent data indicates that many credit unions are shifting their first mortgage lending focus to adjustable rate products to lessen the impact of holding long-term fixed rate assets.

Credit unions, as an industry, granted 57.4% more adjustable rate first mortgage loans in the first six months of 2002 than the same period in 2001. By comparison, 34.4% more fixed rate mortgages were granted in the first six months of 2002 than 2001. Adjustable rate mortgages generally have an initial rate a couple percentage points lower than a fixed rate, but over time the rate moves with the interest rate market. If the interest rates begin to increase, credit unions will reap more return from their adjustable rate loans because those loans' rates will increase as well.

Listed below are the top 25 credit unions in growth in adjustable rate first mortgages granted year to date growth as compared to the same period in 2001 (based on all credit unions who had granted at least $1 million in adjustable rate mortgages by June 2001). The high growth rates of these 25 credit unions have resulted in a dramatic shift in the mix of fixed and adjustable rate mortgages granted, as the percentage of first mortgages granted that are adjustable rate increased from 9.9% at June 2001 to 39.5% twelve months later.

 

 

 

Oct. 14, 2002


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