Mortgage financing received a kick when rates dipped in March producing a rise in originations through the second quarter. According to the Mortgage Bankers Association (MBA), mortgage originations for the second quarter reached $890 billion, a 44% increase from the first quarter 2004. Credit unions mirrored national statistics as mortgage originations topped $18.3 billion in the second quarter, up 57% from first quarter results. Total real estate loans reached over $184.2 billion. Real estate loans comprised the largest portion of the credit union loan portfolio at 45.7%, with first mortgages representing 31.7% of all credit union loans as of end of month June 2004.
Adjustable rate mortgages (ARMs), hybrids and balloons have become more popular with credit unions, which now comprises 37.7% of all first mortgages. This is up from the first quarter by 1.1%. Credit unions are using ARMs to increase sales and mitigate interest rate risk. ARMs usually translate to lower monthly payments, which allow members to purchase homes that they could not otherwise afford.
As interest rates are projected to rise, MBA forecasts a drop in mortgage activity for the remainder of 2004, with refinancing expected to be cut in half by year-end. Housing starts and homes sales are expected to cool off in the late half of 2004 and continue through 2005. To suppress the expected drop in originations, credit unions are offering a variety of mortgage products to entice members with lower payments and the opportunity to afford a more expensive home. Northwest FCU offers two variations of 40-year mortgages. Other credit unions offer interest-rate only, option ARMs, hybrid ARMs and balloon mortgages. Along with offering an array of adjustable rate mortgages, Pentagon FCU is offering reduced closing costs to maintain high origination volumes. Overall credit unions took advantage of the favorable interest rates late in 2003 through March 2004. Maintaining mortgage originations will be a challenge in the coming future.