While in some respects credit unions are “turning the corner,''  there are troubling trends as well, including not enough auto loans and too many low-rate first mortgages, according to a letter from the NCUA to credit unions.

“Growth in low-rate first mortgages continues to far exceed growth in overall loans. Credit unions holding high concentrations of long-term fixed-rate loans will be subject to negative margins when interest rates rise and short-term funding costs exceed income from fixed-rate mortgages.

Although overall delinquency and net charge-offs were relatively stable through the third quarter, the percentage of loans with delinquencies 12 months or longer increased. This increase in long-term delinquencies indicates that charge-offs may spike in the near future,'' NCUA Chairman Debbie Matz wrote in the letter this week. She added the agency examiners will focus on several types of risks:

Credit risks – The agency will seek to ensure that credit unions regularly evaluate the adequacy of its Allowance for Loan and Lease Loss account and have adequate loan modification policies.

She also urged credit unions to pay careful attention to loan programs such as non-federally guaranteed student loans.

Credit unions' policies should “contain suitable limits in relation to net worth and total loans or total assets. Interest rate and liquidity risks – Matz reiterated her previous concern that credit unions' portfolios of long-term, fixed-rate loans also pose liquidity risks. She added that the higher rate of real estate foreclosures “increase the level of non-earning assets.''

Last month, the NCUA Board issued an advanced notice of proposed rulemaking   suggesting options for credit unions to gain access to liquidity. Matz also said the agency will ensure that credit unions “employ sound risk mitigation and diversification strategies to effectively manage concentration risks and prevent concentrations from reaching unsafe levels.''