Preliminary 1Q Data Reveals that Credit Unions are Continuing to Lend

With the largest recipients of TARP assistance cutting back on lending, preliminary 1Q data shows credit unions continue to increase lending at a time when the country needs it most.


A recent Wall Street Journal article, "Bank Lending Keeps Dropping," sheds a bright light on the recent lending activity of the largest beneficiaries of TARP funding. After conducting their own in-depth analysis of Treasury data, Wall Street Journal analysts conclude that lending decreased dramatically among some of the largest recipients of federal government aid - "The biggest recipients of taxpayer aid made or refinanced 23% less new loans in February, the latest available data, than in October, the month the Treasury kicked off the troubled asset relief program."

It's no secret that expanding the credit markets has been a primary focus for the Federal Reserve, Treasury Department, and Congress, and the TARP program was designed, and funds distributed, with this goal in mind. Despite this unprecedented amount of government assistance, lending activity has actually fallen among many of the recipients that received the largest amount of taxpayer assistance.

The FDIC's release of year-end 2008 data reported a decline in consumer loan balances across FDIC-insured institutions for the fourth consecutive quarter, and the second consecutive quarterly drop in total loan balances. According to their April 2009 mortgage finance forecast, the Mortgage Bankers Association predicts lower bank first mortgage originations in 1Q 2009 than 1Q 2008. The story is dramatically different for credit unions, who have continued to assist members and the communities they serve, since the economic crisis began.

Credit Union Lending Activity Tells a Different Story…

Preliminary first quarter data indicates that many credit unions have continued to lend and meet the needs of their members, even as economic conditions continued to deteriorate. Callahan & Associates recently launched the quarterly First Look Program for 1Q 2009, allowing credit unions to compare performance data weeks before complete figures are released by NCUA. First Look credit unions currently account for $243 billion in assets, or approximately 28 percent of the entire industry. The results from these credit unions are typically more positive than the total industry average, but are a good early indicator of industry-wide trends.

Tightening lending standards, combined with increased demand for mortgage loans, has left a nation-wide void between credit supply and demand. Credit unions have stepped up to fill this void, with First Look institutions growing loans 8.4% on the balance sheet between 1Q 2008 and 1Q 2009, with growth seen across the portfolio. Real estate lending, specifically first mortgage loans continued to be the primary driver of this loan growth. First mortgage originations grew 28.8% among First Look credit unions over the past 12 months and the amount of total first mortgage loans outstanding grew 16.1% over the same period. These credit unions experienced growth solid by serving the mortgage needs of new and existing members, maintaining sound and liquid balance sheets that enable additional lending, and taking advantage of the refinance surge.

This performance is coming on the heels of one of the most successful years for lending that the credit union industry has ever experienced, with credit unions' share of the U.S. first mortgage market reaching an all-time high of 4.0 percent. As a cloud of uncertainty hovers over many financial institutions, and banks retreat from the lending market, credit unions have an opportunity to build their reputation as trusted real estate lenders.

Delinquency for First Look credit unions rose across the real estate portfolio over the past 12 months. Total real estate delinquency rose to 1.32% from 0.57% at March 2008, for First Look credit unions. Between March 2008 and March 2009, first mortgage loan delinquency rose 78 basis points to 1.27%, while delinquency for other real estate loans rose 69 basis points to 1.45%. Although the negative economy has taken its toll on members, credit unions are doing what they can, and working with members to keep them in their homes. Nearly 3,000 modified real estate loans were reported on the books at the end of the first quarter by First Look credit unions.

Despite a very difficult economic environment, credit unions continue to fill a pronounced need for loans and services, serving members when they need it the most. As Callahan receives additional credit union first quarter data, we will publish further comprehensive analysis in the coming weeks.

Enrich, David; Crittenden, Michael; Tamman, Maurice, "Bank Lending Keeps Dropping," The Wall Street Journal. Aril 20, 2009.