Industry Performance: Loans (4Q21)

Lenders reported a record year for originations in 2021 despite rising asset prices and rates increases, both of which were substantively driven by inflationary pressures.

 

 

Lenders reported a record year for originations in 2021 despite rising asset prices and rates increases, both of which were substantively driven by inflationary pressures. The average 30-year fixed mortgage rate rose 20 basis points from 2.90% as of Sept. 30 to 3.10% as of Dec. 31, according to data from Freddie Mac.

Despite increasing rates, homebuyers continued to purchase property at ever-higher prices, although it’s important to note the mortgage pipeline acceleration is slowing from mid-pandemic records. On the consumer lending front, the Federal Reserve reports that outstanding consumer credit balances increased 6.6% over the fourth quarter. Consumers are spending more, and the debt is starting to stick around as prepayments slow.

Key Points

  • Loan balances increased 8.0% year-over-year and 2.7% quarter-over-quarter to reach nearly $1.3 trillion. First mortgages and used autos were the main drivers of growth in 2021. They increased 10.8% and 10.3%, respectively, year-over-year. Notably, credit card balances — which were most impacted by pandemic-era paydowns — expanded 4.9% in the fourth quarter.
  • Total loan dollars originated by the industry in 2021 increased 17.4% from the previous year. The greatest growth came in the consumer lending space, which originated a record $386.8 billion in loans through 2021, $69.4 billion more than the year prior.
  • At 39.1 million, the year-to-date number of loans granted was the highest on record for credit unions. Non-mortgage lending reported strong growth in quantity though 2021. However, mortgage originations – while up in dollar terms - fell in number. Rising asset prices rather than volume are what spurred the production growth in the mortgage space.


The Bottom Line

First mortgage lending set another calendar year record and remains a primary line of business for credit unions; still, the real lending story of 2021 is in the consumer space. Despite headwinds from inflation, supply chain shortages, and rising interest rates, credit unions made more loans, in both number and dollar terms, than in any year prior. And these originations are staying on the balance sheet.

Asset quality remains strong, yet there was a slight degredation toward the end of the year. This is good to monitor, as higher-risk consumer loans encompass a greater portion of portfolios.



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AUTO

EARNINGS

HUMAN CAPITAL

INVESTMENTS

LOANS

MACRO

MEMBER RELATIONSHIPS

MORTGAGES

SHARES

 

 

 

 

March 28, 2022


Comments

 
 
 
  • Interesting, the greatest percentage growth was in Member Commercial Loans and Other RE combining to make YoY increases of 39.5 and 35.4 respectively, the largest percentage increase of the noted loan types. With the generally higher yield on Mem Bus Comm. Loans and Non Mem Bus Comm., loans it would be very interesting to contrast the yield on a used car loan portfolio vs. the yield on a MBCL. As the CU industry is proactively in the business of positively impacting our respective community's enabling women, minority, veteran, member and non-member owned business to start-up, grow and expand has a significant, material, and positive impact. It could be suggested a credit union with a disciplined credit culture, a solid loan pricing model, a commercial loan for a start-up business could do more for a local community with the hiring of local contractors, new jobs, more local tax rev. as compared to perhaps a used car loan, less than ideal investment albeit necessary. That being said it it would be interesting to learn more from those CUs doing more lending of this type, what are they seeing and experiencing, etc.
    Paul McGuire