Credit Union Mortgage Lending Surges Despite Pandemic

Lending channels at credit unions have remained open despite economic uncertainty stemming from the coronavirus pandemic. Industrywide, total loan balances increased 6.7% over the past 12 months and surpassed $1.1 trillion as of the first quarter in 2020.

With interest rates at historic lows, credit unions are experiencing a surge in mortgage activity, particularly with refinance loans. In the first quarter of 2020, mortgage production across the industry nearly doubled from levels reported one year ago. This resulted in a 1 percentage point increase in market share as credit unions originated 9% of total mortgages nationwide.

Refinancing Outpaces New Purchases

The Federal Reserve has kept the effective federal funds rate between 0% and 0.25%, resulting in the national mortgage market reporting higher refinance activity than purchases as consumers seek lower monthly payments.

According to the Mortgage Bankers Association, first quarter refinance production accounted for 54% ($306 billion) of total mortgage originations nationwide ($563 billion). In the first quarter of 2019, refinance production accounted for just 30% ($97 billion), of nationwide mortgage originations ($325 billion).

Historically, credit unions have benefitted during periods of higher refinancing activity – a dynamic that the MBA has forecasted to continue through the second quarter of 2020.

Production Skyrockets, Pushing Up Market Share Significantly

Through the first three months of 2020, mortgage originations at the cooperatives reached $50.8 billion. This is almost double (up 95.2%) the levels reported in the first quarter of 2019. Credit union mortgage market share increased 1 percentage point over the past 12 months to 9% as of March 2020.

As of the first quarter, mortgages make up 36.3% of total loan originations at U.S. credit unions, up 13 percentage points year-over-year. Of the $50.8 billion in mortgages originated in the first three months, $37.3 billion (73.5%) were fixed rate mortgages, reflecting members’ desire to lock in low rates over the life of their loans.

Balloon/hybrid originations reached $9.8 billion (19.2% of total originations) through the first quarter, while adjustable rate mortgages made up the remaining $3.8 billion (7.3%).

Mortgages Help Expand the Balance Sheet

First mortgages fueled lending growth at the cooperatives in the past year, up 11.2% annually, a 3.3 percentage point acceleration. Balances in this loan segment reached $484.3 billion in the first quarter, accounting for 42.8% of total credit union loans, and contributed 68.4% of total loan growth over the past 12 months.

Fixed rate loan balances reached $282 billion as of the first quarter, making up 58.2% of the credit union first mortgage portfolio. This is up 1.6 percentage points year-over-year as members look to lock in low rates on their mortgages.

Balloon and hybrid loans account for the second biggest share of the portfolio at $139.6 billion, or 28.8%, as of the first quarter. Adjustable rate mortgages make up the remaining $62.9 billion and account for 13% of the portfolio.

Asset Quality Remains Strong

Through the first three months of 2020, first mortgage asset quality remained relatively strong, with a delinquency rate of 0.46%. This is 17 basis points below the delinquency reported across the overall loan portfolio. First mortgage delinquency increased 7 basis points year-over-year but remains at historically low manageable levels.

As interest rates remain low in hopes of spurring consumer and business borrowing, credit unions will continue to see a growing mortgage pipeline. The MBA is projecting 56% refinance share ($444 billion) in the second quarter on $792 billion in total originations, which would suggest sustained mortgage production growth at credit unions nationwide.

Credit unions across the country are growing their presence as a trusted partner for getting members into a home.

Aman Johal is an Industry Analyst for Callahan & Associates in Washington, D.C.