Increasing Rates, What Happens Next with CU Mortgages?

The year 2001 was a period of dramatic growth in the mortgage industry. Mortgage loan originations almost doubled from 2000, to reach an unprecedented level of $2.04 trillion, according to the Mortgage Bankers Association. Mortgage rates dropped close to a historical low, as the Fed cut interest rates 11 times in an effort to lessen the nationwide recession.

 
 

The year 2001 was a period of dramatic growth in the mortgage industry. Mortgage loan originations almost doubled from 2000, to reach an unprecedented level of $2.04 trillion, according to the Mortgage Bankers Association. Mortgage rates dropped close to a historical low, as the Fed cut interest rates 11 times in an effort to lessen the nationwide recession.

Even with these rate reductions, the high levels of first mortgage loan activity across all financial institutions was only partially due to the refinancing of existing loans. According to the Mortgage Bankers Association, 44%, or $896 billion of total loan originations were for new home purchases and 56%, or $1.14 trillion, was for refinancing activity.

Within the credit union system, the spread between originations and refinancing is even more dramatic, according to a recent survey by Callahan & Associates. The survey included responses from 39% of the total $46.6 billion in credit union first mortgage originations in 2001. The survey finds that only 31% of the credit union originated mortgages were for new home purchases, while the remaining 69% were for refinances.

One of the primary reasons for this difference is that credit union marketing endeavors are primarily focused on existing members as opposed to new members moving into the community purchasing homes. Applications from non-members averaged just 15% among survey respondents.

The vast majority of credit unions as yet make limited used of real estate agents and independent brokers as a source for new applications. According to the study, 18% of applications were sourced by a real estate agent, while only 12% were provided by independent mortgage brokers.

Given the dramatically low interest rate environment in 2001 and the first quarter of 2002, refinancing has been very important for the experienced short-term growth. However, the February 2002 study reveals that since most credit unions are not yet open real estate leaders, they are not effectively positioned to continue to take full advantage of the mortgage lending opportunity once the number of members looking to refinance decline in a higher interest rate environment.


Pre-order your copy of Callahan's latest research report: Credit Union Mortgage Lending! Due out in early-April, the study provides insight into how credit unions can take advantage of the opportunity to become first mortgage providers to members, even as interest rates rise. Click here to learn more!

 

 

 

 

April 1, 2002


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