Feb. 14, 2011


  • A comment from Star One: Dave Osborn makes a good point about interest rate risk. Some credit unions sell fixed rate real estate loans to keep rate risk off their books. At Star One, 7 years ago we decided to use long-term borrowing to offset interest rate risk. We are very concerned if “rates climb several percentage points and then tell us what happens to their margins and NEV”. For the numbers: our fixed rate real estate is 29% of assets and our borrowing is 17% of assets. We track a “fixed rate RE less borrowed funds to assets” ratio (29% less 17%= 12%). Our equity ratio is 10.6%. We frequently test our interest rate risk with spreadsheets and simulations and feel that our borrowing has offset the risk. We will know if borrowing is as good or better or worse than selling fixed rate loans after a prolonged period of rising rates. The borrowing does “bloat” the balance sheet. Our ratios all have a denominator that is 17% larger than if we sold loans; so we tend to track regular and adjusted ratios for most key ratios.
    Rick Heldebrant
  • Some homes sell or refinance within 5 years. Many homes do not. My home loan is at a very low rate and we will not sell or refinance in the forseeable future. I suspect many folks are in similar circumstances.
  • As with any loan program as time goes on and rates change so will the program change it will balance it's self out with a steady income and average the rates. Also homes refinance or sell within a 5 year span. Good for Star One in having the guts to continue to operate as usual and servicing their members, so they didn't have to look to other means to continue to get financing.
    Savannah G Jarrell
  • Holding on to fixed rate 30 year mortgage loans may help them look good now, but wait until rates climb several percentage points and then tell us what happens to their margins and NEV.
    Dave Osborn