So far, 5,044 credit unions have reported 1Q 2017 data, representing 88.7% of the industry’s assets. Based on that data, credit unions will have originated $30.9 billion in first mortgage loans this quarter. This quarter’s estimate is a 15.8% expansion over the $26.7 billion seen in 1Q 2016.
With double-digit mortgage origination growth, it’s perhaps surprising to see sales to the secondary market growing at a slower pace, with a 12.3% growth rate to total $11.1 billion for the quarter.
Selling mortgages to the secondary market can be a way for a credit union to manage liquidity as loan demand increases. Consumer confidence is rising, and more members are taking out loans. Since the first quarter of 2016, total loans outstanding are up 10.9% to nearly one trillion dollars, at $897.4 billion, and loan originations are up 13.7% to $114.0 billion for the first quarter.
Therefore, it’s unexpected to see that sales to the secondary market as a percent of mortgages originated are projected to drop to 35.8% for the first quarter of 2017. The relatively low percentage of 35.8% is the lowest rate the industry has seen since 2014 when the Qualified Mortgage (or QM) rule took effect.
There are several reasons that could contribute to the decline in credit unions selling mortgages to the secondary market.
One contributing factor is that share growth has accelerated and allowed credit unions to keep a relatively stable loan-to-share ratio. The industry’s shares are projected to be near $1.2 trillion this quarter, which represents an 8.6% year-over-year growth rate.
The loan-to-share ratio, on the other hand, has increased at a gentler pace. The projected LTS in the first quarter of 2017 is 77.6%, up 1.6% from last year’s 76.0%. Credit union members are saving with their institutions and allowing credit unions to keep up with the loan demand without being too loaned-out.
Another reason credit union sales to the secondary market have slowed is the increased activity in participations. Participating a mortgage often accomplishes the same goal as selling to one of the Government Sponsored Enterprises (GSEs), but keeps the loan within the industry. Participations are up this quarter, at an estimated $5.5 billion, which represents a 23.4% year-over-year growth rate. It looks like many credit unions are turning to their peers before looking at selling to the secondary market.
Another metric to consider when discussing sales to the secondary market is the dollar amount of mortgages that are sold but still serviced by the credit union. This number is on the rise and will amount to $197.7 billion this quarter. That represents a 22.2% improvement over last year’s $161.9 billion.
Overall, as credit unions manage continue to grow shares, participate mortgages, and keep the servicing rights of mortgage loans, the industry will see a shrinking percentage of sales to the secondary market. However, with interest rates and loan growth on the rise, those sales could increase. Either way, sales to the secondary market is one way to analyze how the industry is responding to economic conditions.