Mortgage Market Heating Up for Many Credit Unions

Real estate originations went through a long, dark winter, but credit union managers contacted this month said conditions started warming this spring.

Some are even raising their forecasts for the year, citing an uptick in refinances as rates for fixed mortgages have unexpectedly fallen.

Credit unions started seeing a drop in real estate originations in the fourth quarter, when they fell 5.5% to $40.9 billion. In the first quarter, they fell 12.2% to $33.2 billion, according to the NCUA data for the 5,335 federally insured credit unions in March 2019.

Among all lenders, purchase originations began slowing in the first quarter of 2017, and rose only 2.9% in the fourth quarter. Refinances plummeted after 2016 as interest rates rose, and were down 39.8% in the fourth quarter of 2018, according to the Mortgage Bankers Association.

The MBA reported improvement for the first quarter, with purchase originations rising 6.5% to $228 billion, and refinances falling 24.2% to $97 billion.

Total first mortgage originations fell 5% to $325 billion among all lenders.

With credit union originations falling more than twice as fast as other lenders in the first quarter, credit unions’ share of origination was 7.9% in the first quarter of 2019, down from 8.9% a year earlier.

In many ways the real estate landscape looks familiar:

There’s still a shortage of houses on the market. Homeownership rates are still below prerecession levels.

Young buyers are constrained by student debts and income that hasn’t kept up with rising home prices.

But other parts of the scene are in motion.

By the end of May, mortgage rates had dropped to their lowest level since the first week of 2018, driven by increasing concerns regarding the ongoing trade tensions with China and Mexico, said Mike Fratantoni, chief economist for the Mortgage Bankers Association in Washington, D.C.

Alliant Credit Union of Chicago ($11.6 billion in assets, 452,560 members) had a slow first quarter, but volumes were returning to normal in the second quarter as interest rates for a 30-year mortgage fell to the 3.625% to 3.8% range.

“People are responding to the lower rates,” said Mark O’Dell, manager of residential loan production for Alliant, a national credit union with its largest clusters of members in California, Illinois and Colorado.

MBA’s forecast for the second quarter issued in May was up sharply from just four months earlier. In January, MBA forecast total first mortgages would be down 1%. In May it forecast an 11% increase.

The biggest change was in expectations for refinances. In January MBA predicted second-quarter refinances would fall 15.3% to $100 billion; in May it forecast a rise of 23.7% to $146 billion.

For the year, MBA in May expected originations would rise 2% to $1.68 trillion. That’s up from a 3.7% decline forecast in MBA’s January report.

BECU in Seattle ($20.5 billion in assets, 1.2 million members) is seeing the change.

From mid- to late 2018, BECU was predicting a downturn for mortgage originations in 2019. Now they’re expecting an increase, said Lorraine Stewart, VP of mortgage lending.

BECU has funded $349.7 million in first mortgages through May, up 29.8% from a year ago.

This year’s decline in interest rates has led more people to refinance.

“This market is very strong in the purchase area anyway, so now we’re just getting added fuel with the refinances.”

Refinance originations for January through May fell 16% to $246 million, but Stewart expects the trend will turn positive by July.

“We saw a huge influx of (refi) applications in April and May, so those are just now funding,” Stewart said.

In North Carolina, originations continue to grow for State Employees’ Credit Union of Raleigh ($40.3 billion in assets, 2.4 million members).

SECU generated $921 million in purchase originations from January through May, up 11.6% from the first five months of 2018. Refinance growth was nearly twice as fast: It rose 21.3% to $506 million.

“SECU is fortunate that we have not experienced a downturn in mortgage originations, we are actually experiencing a boom,” said Mark Coburn, SVP of lending development at SECU.

SECU ran counter to trends by having minimal fluctuation in its mortgage rates over the past 12 months. “They have remained very competitive and low compared to similar products offered by our competitors,” Coburn said.

In Florida, total first mortgage originations have been flat at Suncoast Credit Union, Tampa, Fla. ($9.9 billion in assets, 826,311 members) so far this year as a surge of first mortgage purchase originations was canceled out by an equally steep drop in refinances.

Suncoast generated $160.1 million in purchase originations from January through May, up 30.4% from a year earlier, while refis dropped 30.8% to $81.5 million.

First-time buyers in Florida are continuing to struggle against a scarcity of homes at an affordable price range, said Rich Miller, Suncoast’s VP of mortgage originations.

“There has been some modest increase in inventories in early 2019, but not nearly enough to satisfy the demand,” Miller said.

Some Millennials have been unable to afford the higher cost of buying a home because of heavy student loan debts, and hesitate to stretch because of memories of watching their parents suffer during the housing crash.

For others, the barrier to buying is connected to their lifestyle, Miller said. Many “have developed a propensity to rent, giving them the flexibility to change jobs and cities at an instant.”