Expect a Modest Lending Comeback

Business conditions should improve in 2012.

June 1, 2012

Credit unions can expect loans outstanding to grow 4% during 2012, fueled by an improving economy, the resulting job growth, and rising consumer confidence, says Steve Rick, CUNA’s senior economist.

Other factors indicating a rosier lending outlook:

Pent-up demand for durable goods due to falling consumer spending from 2009 to 2011. This will promote growth in auto loans, credit cards, and purchase money mortgages.

“Auto loans will go up because people will start buying cars again, and credit cards will go up because people will start buying appliances and furniture,” Rick says.

Plus, home prices should bottom out, which will encourage consumers to re-enter the housing market.

On the flip side, home equity loans outstanding will keep declining as consumers pay down debt.

“One debt they’re paying off is home equity loans,” Rick says. “Expect that to continue through the remainder of 2012.”

Households have accelerated loan payments and payoffs, which has reduced consumer loan balances.

Rising stock prices will produce a “wealth effect,” which will increase consumption. But stock market volatility could eliminate this effect, he warns.

Rising auto sales may quell captive finance companies’ below-market financing offers.

Rick highlights a new issue facing lenders: How to serve the newly credit impaired.

“The Great Recession created a large pool of borrowers with subprime credit scores,” he explains. “Maybe they were unemployed for six months and missed a mortgage payment—and now they have a 600 credit score.

“We need to decide how to serve them, Rick continues. “How do we adjust our underwriting standards?”

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