NAFCU economist advises CUs to prepare for upswing in mortgage rates, downswing in lending

<p>ARLINGTON, Va. – Last year was a banner year for first mortgages for credit unions, but with home prices rising to levels beyond many consumers’ reach and interest rates expected to go up, some CU experts are cautioning CUs to be proactive and get their portfolios in order for the time when the predicted slowdown in mortgage lending activity hits. NAFCU Economist Jeff Taylor is certain credit unions will be able to deal with the changing mortgage lending environment. “Credit unions have shown their ability to handle risk under changing conditions,” he said. He advises credit unions “not to panic,” but to be cognizant of the changes. According to the National Association of Realtors, from 1991 to 2001, the rise in family income (45%) lagged the gains in home prices (52%), despite a surge in the number of two-income earner families. That trend has been mollified by last year’s low interest rates. But expect that to change in the coming months, said Taylor. “A one or two basis point increase could mean the difference between a member paying $1,500 a month for their mortgage, to $1,900,” he noted. For one thing, says Taylor, credit unions have to look at how they’ve been funding mortgage loans and ask themselves what happens when the money they’ve been using to fund loans is turned around by members and put in to certificates of deposit or money market accounts. “While interest rates have been low and the market shaky, a lot of members have kept their money in share accounts and that’s given credit unions a great source for liquidity. But members are going to start moving their money back in to short and long term investments, and then what are credit unions going to do?” he asks. With mortgage lending changes in the wind, Taylor suggests credit unions ask themselves how much in fixed rate mortgages they want to hold on to and how much do they want to sell on the secondary market. He offered that credit unions may want to consider moving in to adjustable rate mortgages. “There is still room for mortgage growth, but not at the rate credit unions became accustomed to last year,” said Taylor. [email protected]</p>