10 FOCUSREPORT/Mortgage Lending
Credit unions are con- tinuing to build on a record of success- fully serving members
while expanding the movement’s
footprint across the country.
One way we can see that?
First mortgage market share has
reached another new record high:
8.6% in the first quarter of 2017.
That’s $30.9 billion spread across
2,849 of the nation’s 5,859 credit
unions on record in the Callahan &
Associates Peer-to-Peer database
as of March 31.
The industry also just posted its
11th consecutive quarter of dou-ble-digit loan growth and the highest first-quarter share growth since
Credit union market share for
first mortgage originations has
also recovered from a recent low of
5.9% in Q1 2013, steadily rising to a
new high of 8.6% at the end of the
first quarter of this year.
That’s 160,410 individual first
mortgages made in the first three
months of 2017, each one a story
behind the numbers.
We can’t tell all those,
but we can extrapolate from the numbers
that the credit union
industry as a whole
seems to be lending more responsibly
than the competition.
First mortgage delinquency at credit
unions has dropped
steadily from a high
of 2.29% in December
2010, to 0.44% in Q1
2017. Compare that to
the 5,856 U.S. banks in
our database, which
as a whole posted first
mortgage delinquency of 2.93% as
of the first quarter.
Net charge-offs are also showing
a similar decline, as are home equity loans, reflected as “Other RE”
in the accompanying charts.
Underlying both the growth
of the portfolio as well as the improvement in asset quality is a shift
in the makeup of the portfolio.
still account for two-thirds of all first mortgage originations,
down from a relatively
recent high of 83.2%
in March 2013. The
composition of the
portfolio has varied
since the recession
due to changes in interest rates, homeowner demand and
consumers’ risk appetite for mortgages.
Using the market
rate, as reported by
Freddie Mac, for 30-
year fixed rate mortgages as a proxy, coupled with
the percentage of first mortgage
refinancings from the Mortgage
Bankers Association, we’re able to
better understand how the composition of the origination portfolio
has changed over time. As noted in
the accompanying graphs, you can
see that interest rates began falling
Accordingly, refinancings notably account for a larger percentage
of first mortgage originations as
homeowners capitalize on falling
rates. Many of these refinancings
are in the form of fixed-rate mortgages, likely happening as homeowners move out of riskier, interest rate-sensitive adjustable rate
Striking a Balance
In 2013, as interest rates started
to rise, there was a corresponding shift in the balance between
purchases and refinances, leading to a decline in the latter. Additionally, as purchase mortgages
increased relative to refinancings,
the share of fixed-rate products fell
as homeowners locked in lower
rates, and payments, via adjustable rate and balloon mortgages.
That may reflect many factors, in-
cluding homeowners thinking
they’ll stay put for several years
instead of 30 and/or simply find-
ing ARMs and balloon notes much
more affordable. Home values and
homeowner job security and sala-
ries also play a role in this shift.
Whatever the reason for each
of those individual decisions to
finance a home, there are a lot of
people doing it. First mortgage
originations were up 15.9% year-over-year in the first quarter after
rising only about 2% from Q1 2015
to Q1 2016. And that’s while the
whole U.S. mortgage industry saw
only a 3% rise from early 2016 to
There’s also the liquidity perspective. Credit unions, of course,
can manage liquidity in many
ways, some of the most common
include selling mortgage originations and selling participations.
Selling first mortgages to the secondary market has traditionally
been the channel of choice for
credit unions looking to free up
liquidity and manage interest rate
Year-to-date, first mortgage
originations sold to the secondary
market increased 10.2% to $10.8
billion, however, as a percentage
of total first mortgage originations, this metric fell 1. 8 percentage points from the first quarter of
2016. Sales as a percentage of first
mortgage originations peaked in
March 2013 at 58.1% and has gradually declined through the first
quarter of 2017.
As credit unions’ origination
portfolios shift to more adjustable
rate products, combined with rising interest rates (albeit gradual),
managers are increasingly choosing to portfolio more loans due
to the friendlier interest rate risk
characteristics of adjustable and
balloon mortgage products.
In the larger picture, this overall loan growth is happening while
member growth has been accelerating to 109.4 million, growing
4.2% in 12 months ending Q1 2017.
Again, credit unions appear to
be continuing to take advantage
of the momentum in the market
and increasing their share. We discuss all this and more in our latest
Trendwatch webinar. Check it out
All in all? It’s a good time to be
a credit union. And a credit union
Mortgage Momentum Highlights CU Industry Success Story
Director of Industry
202-223-3920 or staft@