WASHINGTON – The latest numbers from Callahan & Associates on credit unions' real estate lending activity for the second quarter of the year show a continued strength for credit unions in the mortgage lending sector. That's the assessment of Callahan EVP Jay Johnson who noted that mortgage lending was the fastest growing category in terms of credit unions' balance sheet – up 17% over the last 12 months, and up 5.5% just in the second quarter from the first quarter 2004. That puts mortgage loans ahead of auto loans which were up 10.7% from June 30, 2003 and up 3.1% from first quarter 2004. "We know there was a rate drop toward the end of the first quarter, so a lot of the mortgage activity we saw in the second quarter reflects loans that were in the pipeline after that," says Johnson. Fixed rate mortgages continue to be popular and a big part of lenders' activities – they accounted for 40.9% of originations for CUs in the second quarter. There will always be some members who want the certainty of knowing just how much they'll have to pay monthly on their mortgage for the term of the loan, says Johnson. But the Callahan executive added that the latest numbers also reflect the increased interest of credit unions to offer members more flexible products to help put members in the homes they want – the second most popular mortgage that CUs originated in the second quarter were for "other real estate adjusted rate", 32.3%; and coming in after that was first balloon hybrids which accounted for 15.3% of loan originations. Looking ahead to the third quarter 2004 numbers, Johnson expects to see a continued growth in popularity among members for hybrids and ARMs "as consumers learn more about these products and become more comfortable with them." In addition, Johnson forecasts overall origination numbers won't be as strong because of a slowdown in refinance activity. Purchase numbers for new home sales will continue to be strong, he says, and credit unions need to be thinking now about ways to attract members' loan dollars in that emerging market. "Starting in 2001 and continuing over the last two years, refinances have been the driver of mortgage growth. Looking ahead though the market will be more challenging as the pie gets smaller with a slowdown in refinance volume. Credit unions still hold less than 3% of the mortgage origination market, so there's still a lot of room for growth," says Johnson. -

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