Credit Unions Switch Mortgage Gears as Refi Boom Ends

WEST PALM BEACH, Fla. – Record low interest rates over the last couple of years continued into the first half of 2004 and helped feed the refinancing boom that boosted many credit unions’ and other mortgage lenders’ portfolios. But all good things must end, and that was true for the refi boom with the emergence of a purchase mortgage market and the gradual rise in rates. According to Callahan and Associates, from 2000-2002, credit union real estate loan originations increased steadily from $20.6 billion to $62.3 billion, peaking a year later in 2003 at $88.2 billion. But by September 2004, that volume had dropped to $44.2 billion. CU first mortgage sales experienced a similar trend: from 2000-2003, they increased from 5.9 billion to 37.7 billion. By September, though, sales were down to $15.6 billion. The Mortgage Bankers Association has already predicted refinance loan volume will drop to 42% in 2005. While real estate still comprises nearly half of credit unions’ loan portfolio, CUs that offer the service – many of which got into mortgage lending during the refi boom – are being forced to adjust their strategies to compete in the emerging purchase mortgage market. Experts agree the purchase market is radically different from the refi market, and credit unions are going to have to come out with creative products to compete for their members’ mortgage dollars. Already several credit unions have begun offering innovative products such as 40-year, fixed rate mortgages, to meet members’ diverse mortgage needs. Still others have taken various initiatives to raise members’ awareness of CUs’ mortgage lending activities. Credit union mortgage experts agree that credit unions typically are less experienced lending in a purchase market and need to be able to adapt to compete in this market if CUs are going to be able to garner more than 2% share of the mortgage market they currently hold as they have the past several years. -