Year-To-Date Loan Originations Drop From Last Year

Inflation is finally slowing after more than a year of record price increases, but high financing costs and property values have made asset markets less accessible for many consumers. The average U.S. 30-year fixed mortgage rate reached 6.71% as of June 30, according to Freddie Mac. That’s the highest level since 2007. For five-year new vehicle loans, annual rates neared 8%.

As the Fed intended, high rates have suppressed demand for homes and cars; however, supply constraints have kept values high, leaving potential borrowers faced with a double dose of sticker shock.

On the other side of the balance sheet, weaker member savings has left financial institutions with limited liquidity to fund what loan demand is available. Relatedly, delinquencies have started to tick up — particularly in the consumer space — although they remain in line with historical norms.

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Key Points

• Year-to-date loan originations were down 31.3% from last year. Both real estate and consumer originations were down substantially from recent record-setting levels. Even so, pipelines remained ahead of pre-pandemic lending patterns.
• Despite the slowdown in loan originations, loan balances outstanding were up 12.6%, mainly due to members paying down loans at slower rates.
• Total delinquency rates rose quarter-over-quarter, primarily because of late payments in credit card and auto lending, which stood at 1.54% and 0.67%, respectively, at midyear.
• Conversely, commercial and first mortgage delinquencies remained relatively low, at 0.41% and 0.43%, respectively.

Performance At-A-Glance

Rising interest rates, sky-high asset prices, and limited liquidity priced borrowers out of markets and drove a 31.3% decline in loan origination dollars year-over-year.

The loan-to-share ratio climbed to 83.1% from 80.9% in the first quarter. The increase stemmed from a seasonal lending uptick on top of ongoing challenges in sourcing member savings.

Asset quality ratios worsened, mostly on the consumer side, but credit unions have funded allowance accounts to remain well-covered.

The Bottom Line

The economic landscape is rapidly adjusting to a new, post-pandemic normal. Although the elevated, relief-fueled spending of 2021 and 2022 was unsustainable, coming back down from that level of stimulation in such a short window is rarely painless.

For cooperatives and their members, the continued prioritizing members’ financial wellbeing is crucial. At a time when many members can’t afford the costs of homes and cars, credit unions could benefit their membership by getting creative with loan products and terms or pivoting to focus on building budgeting and savings plans for members.

Still, despite current challenges, credit unions remain reliable options for members’ lending needs, and Americans are turning to the industry in record numbers.

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