CUs Continue to Provide Credit to Members

The Fed’s just-released March Senior Loan Officer Opinion Survey reported banks are continuing to tighten mortgage lending standards. Meanwhile, credit unions are reporting double-digit increases in mortgage volume.


Bankers continue to be concerned about loan standards and the quality of borrowers that are coming in the door. This sentiment was confirmed, again, by the Fed's Senior Loan Officer Opinion Survey released last week. Over the past several quarters, this survey has showed significant increases in the tightening of lending standards. Underwriting standards for first mortgages have increased across product types, including both prime and subprime mortgages. Survey results indicated that 60 percent of respondents tightened lending standards on prime mortgages, a slight increase from January results.

A Flight to Trusted Providers of Mortgages

Bank's retreat from the market is an opportunity for credit unions because of the barriers described above, borrowers are turning to credit unions to take advantage of their first mortgage offerings. First mortgage originations for credit unions participating in Callahan's First Look program increased a whopping 63.3 percent over the past year.

As a reflection of increased loan demand, credit unions actively managing their liquidity. Sales of first mortgages to the secondary market have increased 17.0 percent over the past year in order to provide liquidity for more lending activity. Borrowings are also on the rise, up 74.1 percent over the past 12 months.

Callahan & Associates has received preliminary first quarter results from 446 credit unions representing 35 percent of industry assets with an average asset size of $611 million through our First Look program.

CUs Show Strength in Uncertain Markets

Even credit unions in hard hit areas like California are seeing strength in mortgage lending. Fred Ferrell, V.P. of Mortgage Fulfillment for SchoolsFirst ($7.8 billion in Santa Ana , CA ), recently commented.

“Our mortgage program has done very well recently. Delinquencies are below the national average due our avoidance of subprime lending. Demand is also high as we are receiving more calls for mortgages than ever before. We are now looked at as a trusted entity and have new consideration when there is a home loan need. Activity is 15 to 20 percent ahead of last year, mainly driven by refis,” explains Ferrell.

Asset Quality Remains Manageable

Asset quality in First Look credit unions has declined but remains very manageable compared to the financial services industry at-large. The overall delinquency rate currently stands at 0.85 percent, a two-fold increase over last March. The net charge-off ratio also increased from 0.48 percent to 0.80 percent. Delinquencies have also continued to rise for real estate loans outstanding. First mortgage delinquencies stand at 0.50 percent, a significant increase over the past year. The same trend holds from other real estate loans outstanding, with delinquencies increasing 58 basis points over the past year to 0.90 percent.

The increase in non-current loans has resulted in an increase in loan loss provisions. As of March, the annual increase in loan loss provisions was 145.3 percent. While this has had some impact on ROA falling to 0.51 percent, First Look credit unions continue to hold a strong capital position with a net worth ratio of 10.1 percent.

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May 12, 2008



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