CU Q2 Mortgages Sagged, Instead of Springing

The winter is typically the doldrums for house hunting and first mortgage originations, followed by a big bounce in the spring.

This year spring came unsprung at credit unions as the shriveling refinance market sucked any gain out of purchases.

First mortgages actually fell 5.3% from $58.1 billion in the first quarter to $55.1 billion in the second.

Sales of mortgages dropped and gains from loan sales of all types dropped even more. That was one contributor to falling non-fee income, which in turn drove the annualized return on average assets to fall to 0.84% in the second quarter from 1.16% a year earlier and 0.87% in the first quarter.

Among the 4,956 credit unions tracked by the NCUA, a CU Times analysis of its data released Sept. 7 shows that while 190 credit unions gained $106 million from the sale of loans in the second quarter, 55 credit unions lost $179.6 million.

Combined, credit unions lost $73.6 million on sales in the second quarter, compared with a gain of $91.8 million in the second quarter. NCUA introduced this data point this year, so comparisons to previous years are not available.

Moreover, the biggest losses were concentrated among large credit unions — those with assets of $4 billion or more. They collectively lost $106.4 million in the quarter on loan sales, compared with a $24.3 million gain in the first quarter.

Small credit unions, those with less than $1 billion in assets, gained $14.8 million on loan sales in the second quarter, up 70% from the first quarter.

Medium-sized credit unions gained $18 million on loan sales in the second quarter, down 69% from the first quarter.

A data point that has been around longer is sales of first mortgages to the secondary market. Those sales were down both absolutely and as a percent of originations.

They were $7.6 billion in second quarter, down 73% from a year earlier and down 57% from the first quarter. Sales were 14% of residential first mortgage originations in the second quarter, down from 30% in the first quarter.

In the first quarter, sales of first mortgages were $17.6 billion, down 41% from a year earlier.

NCUA created a break in first-mortgage data for credit unions this year. On the plus side, it created discreet sets for residential originations for first mortgages. The drawback is there are no comparable numbers from previous years. Past numbers for first mortgages also included a small, but growing amount of commercial real estate, and there was no originations data to break one out from the other.

However, the past data sets did allow math to show residential lending, but the math had to combine both first and second liens.

For that reason, year-ago comparisons in 2022 will largely use that residential lending data. But this quarter does allow the first quarter-to-quarter measure of residential first mortgages, which shows the unseasonal decline of 5.3% from the first quarter to the second quarter.

That’s worse than the 1.6% consecutive-quarter decline in the Mortgage Bankers Association’s Aug. 22 forecast for residential first-mortgage originations. It shows they were $678 billion among all lenders in the second quarter, down 35% from a year earlier.

All credit unions originated $72.5 billion in residential loans in the second quarter, down 14% from a year earlier and down 1.1 %from the first quarter. Second liens gained, as first liens fell, but first mortgages remained 76% of the total. By size groups, residential originations were:

• $39.6 billion from the 97 large credit unions, down 10% from a year earlier and up 2% from the first quarter.
• $20.4 billion from the 321 medium-sized credit unions, down 18% from a year earlier and down 5.3% from the first quarter.
• $12.6 billion from the 4,538 small credit unions, down 20% from a year earlier and down 3.3% from the first quarter.