2021 Starts Slower for Credit Union Lending

CUNA finds mortgage growth waning, cars flattening and cards falling.

Source: Shutterstock.

Credit union loan growth continued to slow in January, including further erosion in new car lending and the sharpest 12-month drop in credit card balances since the Fed began tracking them nearly 36 years ago.

CUNA’s Monthly Credit Union Estimates showed credit unions held $1.18 trillion in total loans, 4.6% greater than a year ago. December’s 5% gain was the lowest since 2011.

First mortgages, which have been the strongest part of the portfolio, rose 11.9% to $528 billion. That’s a strong gain, but it continues a pattern of slowing since July’s peak growth of 13.4%.

The Mortgage Bankers Association’s applications survey released Wednesday showed the trends are down. Its overall index showed applications in the week ending March 5 were 1.3% lower than the previous week — either unadjusted or on a seasonally adjusted basis.

Refinances, which have been the driving the boom in originations, fell 5% from the previous week and 43% from a year ago. Refinances accounted for 64.5% of applications, down from 67.5% in the previous week.

The MBA’s Feb. 19 forecast showed first mortgage originations peaking in the first quarter and having a gain of 88% from a year earlier. But the originations dropped and comparisons turned sharply negative for the rest of the year, in part because of expectations of rising mortgage rates.

“The 30-year fixed mortgage rate climbed to 3.26% last week, which is the highest since last July and up 40 basis points since the start of 2021. Signs of faster economic growth, an improving job market and increased vaccine distribution are pushing rates higher,” Joel Kan, the MBA’s assistant vice president of economic and industry forecasting. “The run-up in mortgage rates continues to cool demand for refinance applications. Activity declined last week for the fourth time in five weeks.”

However, the purchase index was 9% higher than the previous week.

“With the spring buying season at the doorstep, the purchase market had its strongest showing in four weeks, with gains in both conventional and government applications. Overall activity was 2.4% higher than a year ago, and loan sizes moderated for the second straight week — potentially a sign that more first-time buyers are entering the market,” Kan said.

Meanwhile total car loans nearly flattened at $381.7 billion, just 0.2% greater than a year earlier. New auto loans fell 5.8% to $140.3 billion, while used auto loans rose 4.1% to $241.4 billion.

Credit unions’ portfolio of new car loans was growing more than 12% over year-ago levels in the summer of 2018. Then growth began diminishing, entering negative territory in December 2019 and dropping faster since then.

Both banks and credit unions have been losing shares to captive lenders in the new car loan market, and captives have even gained share in used cars.

With credit cards, the Fed’s G-19 Consumer Credit Report released March 5 provided at least the solace that banks fared worse.

Banks held $842.5 billion in credit card debt as of Jan. 31, down 12.2% from a year earlier, while the balances at credit unions dropped 7.8% to $60.7 billion.

The 7.8% drop at credit unions was the largest 12-month decline since January 1985, when credit union credit cards first appeared in the G-19 report with a balance of $67 million, less than a 10th of a percent of the national balance for all lenders.

As of January, credit unions’ share was 6.5% in January — up from 6.4% in December and 6.2% in January 2020. Banks’ share was 89.7% in January, down from 89.8% in December and 90% in January 2020.

CUNA’s report showed the nation’s 5,292 credit unions had 127 million members as of Jan. 31, up 3.1% from a year earlier. It also showed:

Recommended Stories