Credit Unions See Mortgage Lending Trends Consistent with Industry

Recent data released by Prime Alliance shows credit unions are in line with current mortgage industry performance.


June 2006 data from Prime Alliance, a multi-owned mortgage lending CUSO whose credit union clients originate 40% of mortgages in the credit union industry, indicates that credit union mortgage trends are similar overall to the mortgage industry.

Performance for the First Six Months of 2006

In data presented by Prime Alliance, purchase loans accounted for 59% of the $11.9 billion first mortgage origination volume with an average loan balance of $204,973. Refinanced mortgages comprised the remaining market share with 41% at an average loan balance of $210,203. Percentages for each classification mirror those percentages presented by second quarter 2006 Mortgage Bankers Association (MBA) data; 57% of mortgage originations were purchases and 43% were refinances for the overall mortgage industry.

Fixed-rate mortgage loans and adjustable-rate mortgages (ARMs) also performed similarly to the mortgage industry. Fixed-rate amortization type accounted for 70% of Prime Alliance credit unions, which is consistent with the mortgage industry’s capture of 75%. ARMs accounted for 22% of the remaining percentage for Prime Alliance credit unions, similar to the 25% held by ARMs for the mortgage industry.

The general consumer preference for fixed-rate mortgages as opposed to ARMs may be explained by – monthly payments. For example, a 30-year fixed rate mortgage at the current rate of 6.31% with a mortgage of 100,000 would equate to a monthly payment of $619.12 a month. On the other hand, a 5/1 ARM with a mortgage of $100,000 at the current rate of 6.00% equals a monthly payment of $599.95. With such a narrow spread, many individuals are looking to fixed-rate loans, apparent in the current market breakdown, because of concern for future interest rate increases.

According to Prime Alliance data, approved purchase applications for the first half of 2006 recorded an average LTV ratio of 91%, while, in contrast, the LTV for refinances were only 69%. Homeowners who traditionally choose to refinance their mortgage are lower risk candidates since they have built equity in their house.

How Will Mortgage Activity End in 2006?

In a recent Freddie Mac press release, vice president Frank Nothaft stated, “A slowing housing market and signs that inflation is leveling off have helped to lower mortgages lately and keep them more affordable.” Nothaft also stated, “Going forward, the economy is expected to expand at a somewhat slower pace than it did in the beginning of the year. This should continue to keep inflation in check, and therefore, mortgage rates low.”

According to the MBA September Finance Forecast, purchases and refinances will continue to hold the same percentage of the market for the rest of 2006 at 60% and 40% respectively. Fixed-rate loans will remain constant with 75% market share, with ARMs capturing the remaining amount.

Prime Alliance will be releasing its credit union mortgage performances on a monthly basis in order to gauge CU mortgage trends against the larger mortgage market. We will continue to monitor these and other methods to slice the data in future articles.

Try Callahan's Peer-to-Peer software or CUAnalyzer online financial analytical and benchmarking tools to evaluate how your credit union’s lending portfolio compares to the rest of the credit union market.




Oct. 9, 2006



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