Slowing Refinancing- How Are Mortgages Affected?

Even though the refinancing boom is largely over, real estate loans experienced double-digit growth in 2004. Learn how this happened.


The refinancing boom is slowing, according to a recent Primary Mortgage Market Survey done by Freddie Mac. However, the amount of real estate loans outstanding still grew 15.3% to reach $196.7 billion for the credit union industry in 2004. A slight increase in housing starts and new purchases contributed to the real estate loan growth according to the Mortgage Bankers Association. There are a few balance sheet factors that help explain this phenomenon.

Many credit unions are increasingly turning toward real estate loans to grow their overall loan portfolio. Real estate loans comprised 46.5% of the loan portfolio as of the fourth quarter, an increase of 1.8% from year-end 2003. The largest component of real estate loans with 67.8% of the portfolio, first mortgages outstanding ended the year at $133.4 billion, and are maintaining high volume levels for the loan portfolio. 2003 was a record year for first mortgages, and the growth rate, while still strong with double-digit growth, fell to 11.4% from 16.8% one year ago.

Credit unions also sold less of their first mortgage portfolio to the secondary market. In 2004, credit unions sold $20.0 billion compared to $37.5 billion a year ago, a decline of 46.5%. Navy Federal Credit Union in Merrifield , VA sold $4.3 billion of its first mortgage portfolio; however, this represents a fall from $4.7 billion in 2003. Navy accounted for 21.5% of all credit union first mortgages sales to the secondary market at the end of 2004.

Other areas of the real estate loan portfolio experienced high growth as well. Home equity lines of credit grew 29.6% to reach $34.8 billion at the fourth quarter. According to a fourth quarter survey by American Banker, 52% of executives believe that home equity loans offer the best growth opportunity for their institution. The Federal Reserve estimates there is up to $8.6 trillion that can still be borrowed nationally.

Credit unions have seen their members use their home equity lines of credit for several purposes. “We've seen members even use their line of credit to pay off their first mortgage,” said Tom Gray, senior vice president of lending at Workers Credit Union in MA, with $476 million in assets.

Even though refinancing is slowing, the mortgage portfolio remains a strong component of the credit union industry's balance sheet. Credit unions only accounted for 2% of all first mortgage originations last year. There is a growth opportunity for credit unions to obtain more market share as member demand continues to remain high according to fourth quarter data.

The credit union industry is in a period of rapid growth and you have the resources to keep up with the trends? Callahan's Financial Yearbooks help you benchmark your credit union's performance with key financial performance ratios, margin analysis and complete income statements and balance sheet summaries.




Feb. 28, 2005


  • In addition to showing percentage changes, please include the real dollar change as well so the reader can gauge the actual growth or decrease.