A Bigger Slice of the Mortgage Pie

Low rates, rising prices, and pent-up demand push more buyers into the housing market.

October 1, 2014

Big gains in credit union auto lending may be grabbing the headlines, but credit union mortgages also are growing at a healthy rate

Credit unions’ first mortgage portfolios have grown more than 9% in the year ending June 2014, and their share of originations has nearly tripled, from 2.6% in 2007 to 7.7% during the first quarter.

Equally impressive, credit unions account for a bigger piece of the mortgage pie—even as originations have declined. Slightly higher mortgage interest rates caused refinancing activity to fall dramatically in 2013, but purchase money mortgage originations fell much more slowly.

Moreover, the Mortgage Bankers Association predicts purchase transactions will reflect quarterly increases throughout most of the next year and a half.

Credit unions originated $124 billion in first mortgages in 2012, $121 billion in 2013, and more than $17 billion during the first quarter of 2014. The 2012 total was a record level, representing a 50% increase over 2011 and a 30% increase over the previous (2009) record, when credit union first mortgage originations totaled $95 billion. Higher interest rates also have shifted originations from fixed-rate to hybrid and variable-rate paper. In 2012, 83% of originations carried fixed rates—vs. 63% during the first quarter of 2014—while balloon/hybrids accounted for 23% and adjustablerate mortgages accounted for 14%.

Not surprisingly, first mortgages are an increasingly important part of credit union loan portfolios.

They now account for 42% of credit union loans and 25% of total assets, up from 25% of total loans and 18% of total assets in 2000.

Why are more consumers gravitating toward credit unions?

• Trust. People trust credit unions, as indicated by the Chicago Booth/ Kellogg School Financial Trust Index, which shows banks with an index value of 30% and credit unions with a value of 60%.

• Affordability. Although the differences between mortgage interest rates at credit unions and at banks are quite small (because the secondary market determines pricing), credit union mortgage origination fees are more than $200 lower than banks’, on average.

• Flexibility. As smaller, membercontrolled institutions, credit unions seem more willing than other lenders to adjust loan decisions due to extenuating circumstances—rather than strictly adhering to guidelines passed down by a distant corporate office.

Expect more gains ahead. Both new and existing home sales have shown signs of life.

Year-over-year existing home sales are down marginally, but the National Association of Realtors reports a June annualized sales pace of 5.04 million units—the strongest showing since October 2013.

New single-family home sales have averaged 425,000 (annualized) during the first six months of 2014, according to the Census Bureau. That’s a modest decline from the 2013 level of 430,000, and well below the one million pre-recession annual average. It is, however, 15% higher than the 2012 total.

Home prices have stabilized and are rising quickly in areas that suffered greatly during the downturn.

Builder confidence also has grown, reaching an important milestone in July for newly built, singlefamily homes: a reading of 53 on the National Association of Home Builders/Wells Fargo Housing Market Index. Readings over 50 indicate that more builders view sales conditions as good than poor. This is the first time since the start of the year that the builder confidence reading has been above 50.

All good news.

Don’t be surprised to see a seasonal slowing in originations in the fourth quarter. But expectations for a 10% increase in activity in 2015 seem reasonable.

Continued low interest rates, modestly rising home prices, and tremendous pent-up demand should push more buyers off the sidelines and into the market.

MIKE SCHENK is CUNA’s interim chief economist. Contact him at 608-231-4228.