CUs Stepping Up in a Down Mortgage Market

According to the Federal Reserve, 61 percent of banks have tightened underwriting standards on first mortgages. How are credit unions responding?


The housing sector has led today’s economic downturn as inventories are swelling, prices dropping, and foreclosures rising. The impact on the mortgage lending market is just as sharp, leading many financial institutions to pull back from the market.

A Down Year? Or an Opportunity?

The Mortgage Bankers Association (MBA) is forecasting first mortgage originations to fall 16 percent in 2008. This is due to tighter lending standards and the increasing delinquency and foreclosure issues many major banks are now facing. According to the January Senior Loan Officer Opinion Survey from the Federal Reserve, 61 percent of banks have tightened their lending standards on first mortgages. This is up from 47 percent as of the last quarter as it gets harder to not just get a mortgage, but any type of loan or line of credit.

However, due in part to the Fed’s aggressive interest rate cuts, mortgage rates are at their lowest levels since 2004. These low rates are expected to spur refinancing activity which is forecast to account for the majority of mortgage activity though 2008 (MBA).

With banks tightening their lending standards due to credit quality issues, credit unions are in prime position to take advantage of this opportunity, working with members to refinance existing mortgages and create purchase mortgage relationships with others.

4Q Shows Continued Momentum

Data indicates credit unions are already taking advantage of the opportunity. Credit unions in Callahan’s First Look program, with 33 percent of the industry’s assets reporting, saw their first mortgages outstanding increased 17.0 percent over the year as of December, up from 15.4 percent in September. Originations of first mortgages increase 13.7 percent over the year, also greater than September’s growth. With this positive trend continuing from the third quarter, first mortgage market share will continue to push upward.

Even with increased originations, credit unions are not seeing the wide-spread delinquency issues that other financial institutions are experiencing. First mortgage delinqencies are at a manageable 0.51% for the First Look credit unions, up from 0.38% as of September, with the overall loan portfolio at 0.78%.

Credit unions are being proactive to increase member and community awareness of mortgage issues as well as avoiding significant mortgage delinquency. How are three credit unions realizing the mortgage opportunity?




Feb. 11, 2008



No comments have been posted yet. Be the first one.