SAN DIEGO (8/18/15)--The San Diego Business Journal covered CUNA’s recent Economics and Investments Conference in San Diego, relying heavily on CUNA experts to forecast how the lending landscape will look once the Federal Reserve bumps up short-term interest rates.
CUNA economists predict the Federal Reserve will raise interest rates for the first time since the recession during its meeting in September.
The Business Journal also discussed several of the challenges credit unions will face when higher interest rates materialize, including managing balance sheets that have healthy levels of long-term investments, and the potential loss of high levels of refinancing activity.
While long-term assets comprise one-third of credit union assets--a share rising slightly higher than pre-recession averages, according to CUNA numbers--Bill Hampel, CUNA chief policy officer, said during the conference that credit unions should have no major problems managing their balance sheets once rates climb.
On the other hand, Hampel said that as a result of higher interest rates, it’s likely that far fewer homeowners will attempt to refinance their mortgages.
Since the late 1980s, 10-year Treasury bonds have reached all-time lows on several occasions, which have led to surges in refinancing activity (San Diego Business Journal).
And with a rate hike likely leading to higher returns on Treasury bonds, Hampel said that if credit unions want to strengthen their mortgage asset portfolios in the future, they will probably have to find success in the purchase money market.
Todd Lane, president/CEO of California Coast CU, San Diego, added that his credit union’s mortgage lending business likely will feel the greatest effects of the rate increases.
“If rates are rising across the yield curve, it means fewer consumers have the opportunity to refinance their mortgage,” Lane said. “That’s where we’d see the first and largest impact.”