A consistent lending strategy is a sound approach for credit unions in most states. And in states such as Texas, a stable economic footing is at least partly the result of conservative approaches to real estate lending.
At fourth quarter 2010, Texas credit unions held a lower average first mortgage market share, as well as a smaller junior mortgage market share, than the national average (2.34% and 5.81% versus 3.77% and 6.10%, respectively). But what Texas cooperatives lack in quantity they make up for in quality. Its reliance on traditional underwriting practices offers risks and rewards depending on the stability of the environment.
Real estate loans as a percent of the total loan portfolio have been increasing substantially, rising to nearly 33.92% of total loans at year-end 2010 from only 26.95% in pre-recession 2006.
Although this is lower than the national average of 55.68%, the first mortgages granted this quarter reached the second highest dollar amount seen at Texas cooperatives in 10 years. And the annualized percentage of originations sold to the secondary market, 24.8%, is well below national levels, which demonstrates a preference among Texas credit unions to keep loans on their own books.
In addition, Texas credit unions tend to stick with fixed-rate mortgages over adjustable-rate or hybrid products. At 84.38% of the total real estate portfolio, these loans can have far-reaching effects on ultimate portfolio stability. Such loan products might require a more rigid underwriting process to ensure continued desirable asset quality and low delinquency.
It appears Texas credit unions are up to this challenge. As of fourth quarter 2010, first and other mortgage delinquency rates at Texas cooperatives were 0.69% and 1.30%, respectively, which is roughly half the national averages.