LOAN ORIGINATIONS
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

• A sharp increase in first mortgage volume underpinned a jump in total real estate originations in the first quarter of 2026. That segment reached its highest level since 2022.
• Declines in mortgage rates, although modest, spurred demand, with borrowers re-entering the market after a prolonged pause during peak rate conditions. Increases in mortgage rates could jeopardize this trend.
• The market is moving away from a purchase-only dynamic. Early signs of refinance activity are reappearing alongside purchase originations, driven by borrowers with higher-rate loans taken out in the past two-and-a-half years.
• Borrowers are acting opportunistically — re-engaging quickly when rates improve, even slightly — suggesting this is a short-term lending opportunity rather than a sustained refinance wave.
• Although origination volumes are improving, the trend represents selective re-entry into the market, not a broad normalization. Credit unions would be well-served to target their lending strategies.

Don’t stop here. Callahan clients can dive deeper into how shifting borrower behavior, product mix, and early risk signals are reshaping mortgage lending. The full analysis is available now on the Callahan client portal. Read it today.

The post Mortgage Lending Is Back, But It Looks Different appeared first on CreditUnions.com.

As credit unions look to deepen their impact, helping members take control of their credit presents a powerful opportunity. The generational spread in average credit scores tells a compelling story.

While these numbers rise steadily with age, they also reflect disparities in access, experience, and education. Many younger members are still building financial habits, often doing so without clear or accurate guidance.

In fact, nearly one-third of U.S. consumers don’t know their credit score, and more than half don’t understand what a FICO score is. Credit misconceptions also persist, such as the belief that checking your credit can hurt your score and that more credit cards automatically equate to a higher ranking. These knowledge gaps limit financial progress, especially for younger members. Data shows that only 54% of 18–24-year-olds know their credit score compared to over 70% of adults ages 25–64.

Compounding financial pressure amid a high-interest rate environment is revealing measurable impact with younger generations. Between 2022 and 2024, average credit card debt for Gen Z rose 62%, while millennials saw a 50% increase. The percentage of consumers with subprime credit scores is also rising across both groups.

Yet, despite the challenges, younger generations are actively seeking help. Over 70% of Gen Z and millennials report having financial questions — but they struggle to access trusted advice. This is where credit unions can make a difference.

By delivering practical education, offering responsible credit-building products like secured cards, and guiding members through tools that support everyday financial decisions, credit unions can empower members to build lasting credit confidence.

However, when offering these tools in-house, credit unions often face practical constraints such as limited liquidity to absorb charge-offs, tighter risk tolerance, and operational challenges in expanding underwriting. These limitations can prevent even the most member-focused institutions from offering the kind of credit access and support many members are seeking today.

By partnering with Elan, your cardmembers gain access to a full suite of products and tools to strengthen credit literacy and support responsible usage. Download the full whitepaper to access more insights into what members know about their financial health, what they want to learn, and how credit unions can step in as trusted partners to build financial confidence.

The post Bridging The Credit Confidence Gap Across Generations appeared first on CreditUnions.com.

Top-Level Takeaways

• Wings Financial Credit Union offers competitive mortgage rates and other perks to make its repricing program appealing to current mortgage holders.
• The program not only draws in borrowers but also increases overall member satisfaction.
• The credit union can adjust its repricing strategies if necessary to maintain a balance between competitiveness and profitability.

For as challenging as the mortgage market is for credit unions, it’s even worse for consumers.

Rather than simply waiting for the market to improve, Wings Financial Credit Union ($9.7B, Apple Valley, MN)  took a proactive approach, launching a repricing promotion aimed at borrowers who were being locked out of refinancing or purchasing a new home.

“We initiated the program in November of 2023 with the goal of moving existing mortgages held in our portfolio from a sub-3% rate to something closer to current market rates at the time,” says Lia Patino, the Twin Cities cooperative’s vice president of mortgage lending. “We were looking for a program that would benefit the balance sheet while also providing value to our members.”

With interest rates soaring above 7%, touching 8% at times, convincing homeowners to relinquish their coveted 2.75% interest rates was no small feat, Patino acknowledges. But Wings found an angle that appealed to some.

“We knew there had to be members that were considering moving or taking equity out of their home but were waiting for the rate environment to change,” says Patino, a 14-year employee at Wings who has overseen mortgage lending for the past two. “We just had to figure out what that offer was.”

Exclusive Member Perk

That offer, Wings discovered, was 200 basis points off current market rates plus a few other perks.

Wings deployed a highly targeted marketing campaign positioning the offer as a loyalty benefit. It targeted mortgages priced below 3% for the initial phase of the repricing program, assuming those would be the hardest to win over. Marketers also scrubbed the list for standard exclusions, Patino says, including delinquency, loans nearing payoff, and do not contact. From there, the remaining group was randomly split in half to gauge the level of interest for different offers.

The first email offered only the 2-percentage-point reduction. Patino says it garnered a 59% open rate —  “a great result” — but only a 2% click-through rate, lower than expected. And no applications.

“When we delivered offers to the second group, we sweetened the deal by waiving the origination fee in addition to the rate reduction,” the mortgage VP says. “Additionally, we went back to the first group and presented this same offer. That is when we began to receive applications from both groups.”

The offer to the first group was valid for 45 days. The offer to both groups was valid for another 60 days.

“We were trying to determine what the members needed to feel the offer was significant enough for them to exit their current mortgage,” Patino says.

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The Sweet Spot

Turns out, what some members needed was an attractively low rate and no origination fee. The emails garnered interest and generated a fair number of calls, and loan officers followed up with outbound calls of their own.

“When we were able to speak with the members to answer their questions and run scenarios for them, that often resulted in an application,” Patino says.

Although Wings’ initial outreach was met with some expected resistance, such as members expressing contentment with their current low rates or a lack of interest in moving or cashing out equity, there were also positive reactions.

“Some stated if they had not received this offer, they would not be purchasing a new home,” Patino says. “That was what we were hoping for — an offer that positively impacts our members’ lives while also benefiting the organization.”

As the program progresses, Wings continues to rack up deals that help members meet their own financial and housing goals while removing some particularly low-margin loans from the books.

“At last check, we had converted $8 million in loans,” Patino says. “But that number is still growing. We will begin our second campaign with the loans priced between 3-4% in the next 30 to 60 days.”

This article originally appeared on CreditUnions.com on June 3, 2024.

The post How One Credit Union Is Combatting The Lock-In Effect appeared first on CreditUnions.com.

Top-Level Takeaways

• Wright-Patt reported mixed performance in 2023 as interest rates and inflation impacted members’ wallets.
• Cautious optimism and seizing specific opportunities drive the cooperative’s goals and strategies for 2024.
• Refining board reporting and boosting member education also are on its agenda.

It’s a tough time to be running a credit union. Inflation has eased somewhat, but savings rates are down across the financial services space, meaning competition for deposits is stronger than it has been in years. On top of that, high interest rates have massively tamped down loan demand, and rates and high prices have scuttled mortgage demand to the point that originations in 2024 are expected to be just half of what they were last year, according to a LendingTree analysis.

But don’t tell all that to Wright-Patt Credit Union ($8.1B, Beavercreek, OH). Despite a 15-year low in mortgage originations, senior leaders at the Ohio-based cooperative are cautiously optimistic about 2024.

Join Callahan & Associates on Feb. 15 to learn how credit unions performed at year-end 2023 and what opportunities lie ahead in 2024. Register today for Trendwatch 4Q23.

“The only areas that really struggled were first mortgages and vehicle loan refinances, both almost entirely due to interest rates,” says Eric Bugger, chief lending officer at WPCU. “We saw moderate growth in all other areas despite going into 2023 expecting to have a little bit of a liquidity crunch. Thankfully, our deposit volume was strong for the year and we were able to move forward with lending without that worry.”

What does worry Bugger is the effects that rising interest rates and inflation have had on WPCU’s members, a diverse field of hundreds of thousands of members in the Dayton, Columbus, and Cincinnati areas.

Spending And Delinquency Concerns

“Many members who received increases in their paychecks and had a little extra money coming out of COVID are now struggling a bit because they’re spending more on necessities and not just what they want,” the chief lending officer says. “Prices have increased and the benefits of increased wages have been negated. We’re seeing a lot of members struggling again. I don’t believe our members are alone.”

Delinquency in the third quarter increased to 72 basis points, up 19 points from the year prior. For non-commercial real estate loans, it was 49 basis points in the third quarter of 2023, up 10 basis points from the year-ago quarter.

3 Priorities For 2024

Bugger, who served eight years as vice president of consumer lending before becoming CLO four years ago, says lending managers have multiple priorities in 2024, but three are particularly worth noting.

First, the credit union will continue to move its credit card portfolio from in house to Co-Op, a move expected to take most of the year, but that will enable it to offer better products and service.

Second, WPCU aims to increase its purchase money first mortgage business thanks to the dip in refinancing.

“We have a great team of mortgage loan originators,” Bugger says. “But most of them have only originated loans in a very low interest rate environment.”

To counter that, the credit unions is providing coaching on how to seek out referral sources and help first-time homebuyers who might be reluctant to make the move.

Third, WPCU is helping women-owned, minority-owned, and veteran-owned businesses. In the second half of 2023, the credit union began a commercial loan program and has set aside $10 million to help small businesses access capital, grow their businesses, and, hopefully, create local jobs.

Lower Interest Rates Underpin Growth Goals

Economists expect lower interest rates this year as inflation softens and recession concerns continue to influence the Fed’s thinking. That along with strategies specific to each of the cooperative’s lending products should help drive year-over-year growth.

For auto lending, Bugger says indirect lending continues to be fairly steady, but captives are coming back with aggressive subvented interest rates.

“Most of our direct business involves refinances,” Bugger says. “That business will likely increase if interest rates fall. Hopefully, we’re able to help members lower their interest rates and their monthly payment if needed by refinancing loans that were sent to banks or dealership captives at higher rates.”

Of first mortgages, Bugger says WPCU has invested significant time and resources and hopes to see some positive movement in purchase money and refinancing this year this year by improving pricing and other strategies.

“We’re cautiously optimistic,” he says. “We’re spending a lot of time getting out in front of the real estate community and trying to develop products that will appeal to future homeowners. We’re hoping that pays off in 2024.”

Second mortgages have been strong for the past two years at WPCU, and the credit union expects growth to perhaps moderate a bit.

“Members are continuing to use the equity in their homes to remodel and expand their existing homes instead of potentially moving up,” Bugger says. “That’s driving quite a bit of second mortgage volume.”

Meanwhile, unsecured lending is an area that might prove particularly impactful for helping cash-strapped consumers with tightening budgets in 2024.

“Members need our help to consolidate debt and make good decisions with their credit cards,” Bugger says. “We offer a low interest rate credit card that’s great for members who want to pay off credit card debt without getting swallowed up by the interest.”

The CLO adds WPCU also does quite a bit of closed-end signature loans for members who want to pay off other debt without worrying about running up debt on a credit card or line of credit.

“If they’re disciplined, this can give many members the fresh start they’re looking for,” Bugger says.

If interest rates drop at all, we’ll likely see a fair amount of our portfolio look to refinance from the higher rates they’ve gotten in the past two years. That’ll temper our growth numbers a little.

On the commercial side, lending has grown sharply over the past few years but remains a relatively small part of WPCU’s portfolio.

“We have some solid accounts on the books and our team of relationship managers is bringing in some great strategic relationships,” Bugger says.

Overall, the WPCU senior lender expects to see quite a bit of volume in 2024; however, the interest rate environment will have the final say.

“If interest rates drop at all, we’ll likely see a fair amount of our portfolio look to refinance from the higher rates they’ve gotten in the past two years,” Bugger says. “That’ll temper our growth numbers a little.”

Informing The Board. Educating Members.

Bugger says keeping the credit union’s board members up to date without overwhelming them is a challenge that will continue into 2024 as managers share changing metrics with the volunteer directors. The situation is further complicated by compliance.

As for members who might be struggling, Bugger says he hopes interest rates come down a little in 2024, which will help with credit card payments and other obligations. But WPCU isn’t letting up on the assistance it provides.

“We’re doing what we can to teach our members good money habits and how to budget properly,” Bugger says. “We’re reminding them to be disciplined on what they spend money on when times are more financially challenging.”

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The post Ready To Make The Most Of Today’s Lending Environment? Wright-Patt Credit Union Is. appeared first on CreditUnions.com.

Credit unions have seen their mortgage business grow since the recovery that followed the Great Recession, with average first-mortgage originations growing by more than 60% in the past 10 years.

So how are member-owned financial cooperatives, the lender of choice for millions of Americans, handling this sudden sea change as the Fed ratchets up interest rates to deal with inflation the likes of which we haven’t seen in four decades?

CreditUnions.com asked eight credit unions to share what they’re seeing and what they’re doing. Here’s what they had to say.

Read “How Credit Unions Are Coping With Surging Mortgage Rates (Part 2)” featuring insights from One Nevada Credit Union, Texas Trust Credit Union, Together Credit Union, and United FCU only on CreditUnions.com.

BECU

Lorraine Stewart is senior vice president of mortgage lending at BECU ($30.4B, Tukwila, WA), one of the nation’s largest member-owned financial cooperatives. She joined BECU in 2014. BECU has a real estate portfolio of about $9.7 billion, nearly 19% larger than at this point last year, and offers a wide range of mortgage and home buyer programs and education.

How have the interest rate increases affected your mortgage business?

Lorraine Stewart: Refinance applications at BECU are down about 60% year-over-year due to increased interest rates. The combination of higher interest rates with low levels of home affordability and availability has put some pressure on our purchase applications, too. Our members are competing in what is still very much a sellers’ market. While inventory is loosening up slightly, we’re seeing housing supply levels of less than four weeks in our primary markets.

What adjustments are you making in your lending practices and operations as a result?

LS: We are not tightening our underwriting standards in response to higher interest rates. Instead, we have broadened our jumbo lending limits to adapt to the rise in home prices and are looking at ways to optimize our First-Time Homebuyer Grant to continue helping our members as market and economic conditions continue to evolve.

What about home equity loans and lines? How much has that activity changed?

LS: While we’ve seen mortgage refinance application volumes drop over the past few months, there has also been a surge in home equity application volume. To keep up with that demand, we’ve shifted resources from our mortgage team over to our consumer lending team to help process those applications and maintain the excellent service levels our members rely on us to deliver.

Coastal FCU

Wendy Dawson has been vice president of mortgage lending at Coastal FCU ($4.8B, Raleigh, NC) for 13 years. The Research Triangle-based cooperative has a real estate portfolio of about $1.1 billion that’s grown by 1.2% since early last summer. Coastal offers a diverse lineup of mortgage services and products, including a new 105% loan-to-value note.

How have the interest rate increases affected your mortgage business?

Wendy Dawson: We’ve seen some contraction in the housing market in our lending footprint, primarily due to rising interest rates and the continued lack of inventory. Low rates over the past two years encouraged many people to either get into the market, buy a larger home, or refinance. Rates increasing, especially as quickly as they are, is deterring some buyers from purchasing.

However, we expect that even as the economic environment shifts, demand will continue to outpace supply, especially in our market. Experts say homes in the Research Triangle have been undervalued and rising prices here have reflected the market catching up to where it should be.

What adjustments are you making in your lending practices and operations as a result?

WD: Our goal has never been to grow quickly. Instead, we want to grow responsibly and sustainably while staying agile to react to evolving market conditions while meeting the needs of our members.

For instance, we developed the 105% loan-to-value mortgage to address the needs of first-time homebuyers and make it as easy as possible to enter the market. Also, due to the addition of new products and the growth in our construction-to-perm loans, Coastal has been able to shift employees who have been working on primary mortgages or refinances to other areas.

We’ll keep making changes as needed, but we do this regardless of the market conditions. For example, we noticed recently the percentage of the loans we sell to the government-sponsored enterprises (GSEs) has shifted. Wherever possible, we still work to service those loans so that our members continue to get the level of customer service they expect from Coastal.

Also, all lenders that sell in the secondary markets have seen non-interest income decline in 2022, and rapidly rising interest rates have created a challenging environment. We view that as an opportunity to retain more loans in our portfolio, which will, in turn, generate longer-term value and position us for future growth.

What about home equity loans and lines? How much has that activity changed?

WD: We’ve always offered closed-end and home equity loans. We’ve seen a contraction in that part of our business, especially given the lack of inventory the Triangle is currently facing.

Franklin Mint FCU

Marty Burke has been with Franklin Mint FCU ($1.6B, Chadds Ford, PA) since 1998 and served as its vice president/mortgage development officer since 2002.

The Keystone State cooperative offers fixed and adjustable-rate (ARM) mortgages and a first-time homebuyer program, as well as a non-QM product for members who don’t qualify under standard underwriting criteria. Mortgages represent 36% of the credit union’s lending portfolio. Real estate loans there have grown by about 12% in the last year to total about $735 million.

How have the interest rate increases affected your mortgage business?

Marty Burke: With interest rates rising more than 2.5 percentage points in the past 160 days, volume has been significantly impacted. It’s primarily a purchase market with nearly 90% of production being for a purchase-money mortgage.

We’ve also seen significantly reduced gains from secondary market sales that had been realized over the past two years due to the lower interest rate environment and the overwhelming demand for refinances.

What adjustments are you making in your lending practices and operations as a result?

MB: We’ve begun to offer an attractively priced 5/5 ARM that allows a 10% down payment with no PMI. We follow standard secondary market underwriting guidelines. With a recession becoming more likely, borrowers taking an ARM or a fixed-rate mortgage may have an opportunity to refinance at a lower rate in the near future.

Our staffing levels have remained nearly the same. We had a processor resign and did not need to replace that position. If someone was to leave, we would discuss the need for imminent replacement should loan demand and volume remain suppressed.

What about home equity loans and lines? How much has that activity changed?

MB:FMFCU offers HELOCs and fixed-rate home equity installment loans, and recent demand has been tremendous. Rising rates have caused a shift away from first mortgages to home equity loan options. We’ll see if that trend continues as rates rise across the board for all loan types.

Greater Texas FCU

Ben Teske is EVP/chief lending officer at Greater Texas FCU ($981.9M, Austin, TX). He joined the cooperative in 2019 and directs a loan portfolio of about $726 million that has grown by nearly 19% year-over-year and is 31% comprised of mortgages.

The Austin-based cooperative offers fixed conventional and non-conventional mortgages, FHA, VA, USDA, and adjustable-rate home loans.

How have the interest rate increases affected your mortgage business?

Ben Teske: Our mortgage lending has significantly shifted in the first half of this year. Our first-mortgage activity has moved almost exclusively to purchase transactions, though at substantially lower levels than in the previous few years. We’re experiencing a large increase in home equity loans as members cash out the built-up equity in their homes before rates get any higher.

The loans we’re underwriting are much more profitable, so we haven’t needed to make any changes to grow or attract those loans at this time. We’re fortunate to have continued growth and demand in the markets that we serve. Low inventory has impacted us more in this regard than increased mortgage rates.

What adjustments are you making in your lending practices and operations as a result?

BT: We’ve made a few changes to our mortgage loans recently to adjust to the current environment. We have raised the minimum FICO scores and tightened our debt-to-income requirements for our tier two, lower-FICO borrowers. We’ve made these changes to begin limiting exposure in our current economic environment and the possible market slowdown of appreciating home values.

We decided several years ago to partner with a mortgage CUSO to assist us with origination, processing, closing, and servicing the largest part of our mortgage portfolio. It’s served us well to outsource these services so that we don’t have high-paid professionals on staff, nor do we need to restructure during slow times or quickly staff up during busy times like the refi booms of 2020 and 2021.

What about home equity loans and lines? How much has that activity changed?

BT: We do offer home equity loans, which have picked up quite a bit. Our home equity portfolio has grown 15% year-over-year, 10% year-to-date, and 20% annualized. So a substantial amount of that growth has occurred during this period of frequent rate increases.

These interviews have been edited and condensed.

The post How Credit Unions Are Coping With Surging Mortgage Rates (Part 1) appeared first on CreditUnions.com.

While the national median home price has surpassed $400,000, a strong labor market and stricter underwriting standards are expected to provide a buffer against a sudden collapse, as was the case during the last housing crisis. That’s been the conventional wisdom as records for high prices and low inventory fell month after month through the pandemic.

But are things changing? The Fed is waging mortal combat with inflation the likes of which haven’t been seen in 40 years, and soaring interest rates are not just crimping affordability but also raising fears of recession.

Some industries already are laying off workers (especially among the big mortgage lenders), and there are other signs of change. Black Knight, for instance, recently reported the slowest month-over-month growth in home prices since 2006, while CoreLogic says foreclosures edged up this spring after hitting historic lows late last year.

So, are we in a housing bubble? Well, all real estate is local, so here’s what five credit union executives with their fingers on the pulse of their local markets have to say.

Tom Ernsperger, EVP/Chief Lending Officer, One Nevada Credit Union

To some extent, yes. Particularly here in the Las Vegas market, where housing price appreciation has been among the national leaders for some time. Remarkable home price increases combined with quickly rising rates have already priced a number of potential borrowers out of the market.

While I don’t see it being nearly as volatile as during the last recession, I think we’ll see home sellers coming off their asking prices to facilitate sales. We’ve already seen a bit of this.

Marty Burke, Vice President/Mortgage Development Officer, Franklin Mint FCU

I don’t believe we’re in a housing bubble nor are we headed for one. From 2008-2011, home prices decreased by over 30% and caused homeowners to become upside down, owing more than the home’s value.

In this market, house appreciation will slow to low single-digit appreciation by year’s end, but values will tend to stabilize and not decline. As rates rise, home-buying demand will slow. We’ll see more inventory available for buyers still seeking the opportunity of homeownership.

Wendy Dawson, Vice President of Mortgage Lending, Coastal FCU

Wow, that’s the magical question. No one can know for certain how the market will change over the next few days, weeks, or months, and economic news will continue to impact the housing market one way or another.

I do feel confident and fortunate that Coastal operates in a footprint (NC, SC, and VA) with enormous demand for housing that is likely to continue. The last estimate I read warned that the national housing inventory is well below what’s needed, potentially as much as 3 million homes below demand. This underpins the entire market and should be considered when discussing the current state of the market.

Especially as the market shifts, we’ll do our best to make sure our products continue to be tailored to the needs of our members and our markets. This, combined with our conservative and sustainable approach to growth, will continue to help us achieve our goals.

Doc Dougherty, Chief Lending Officer, Together Credit Union

There are good arguments on both sides, but I wouldn’t call it a bubble. A housing bubble requires both a rush of speculators entering markets and overvalued homes. From what I review and follow, values have increased swiftly over the past few years. However, unlike the bubble of 2008 -09, this recent housing boom is not underpinned by the crazy speculation that we saw back then, and underwriting practices have improved dramatically.

In some U.S. markets, we’ll likely see 10% to 15% declines if we end up in another recession. Fortunately, those of us living in the Midwest don’t experience the crazy market swings that occur more often in the Northwest and Southwest.

Andrew Clarkson, Vice President for National Mortgage Production, United FCU

I don’t believe so. The current economic stress isn’t originating from the housing market. Jobs and incomes remain in strong positions. Inflation and supply chain issues continue to be the primary stressors of this economy.

The housing market will eventually react to rising rates. We’ve seen an increase in price reductions and that trend may very well be normal over the next several months as interest rates climb. But, according to national real estate associations, there’s still a housing-supply shortage so a housing bubble seems unlikely.

These interviews were edited and condensed.

The post Are We In A Housing Bubble? 5 Credit Union Leaders Weigh In appeared first on CreditUnions.com.

Top-Level Takeaways

• Supply constraints have put the brakes on a lot of auto loans but a focus on refinancing has helped build the direct business.

• Data from Callahan & Associates show lending for new and used autos has bounced off pandemic lows.

The pandemic-driven auto shortage stood out in stark relief to Betsy Sommers when she drove by a large auction lot in northern Connecticut a couple months ago. It was nearly empty.

This place is just huge, acres and acres, and its lots are usually filled with used autos, says the senior vice president of Seasons Federal Credit Union ($168.2M, Middletown, CT). It was shocking to see how few cars there were.

The same is true for new vehicles, too. Sommers says she and her son, a student at the University of Arizona, visited a few Honda and Toyota dealerships in Tucson aiming to buy a new car and found almost no new or used cars available.

A semiconductor chip shortage has led to production slowdowns that have led to August sales dropping 13.7% nationwide from August 2020 and 25.3% from August 2019, according to J.D. Power/LMC Automotive estimates cited by Forbes.

We’ve had a significant number of loan applications withdrawn because of lack of inventory, Sommers says.

She expects a snapback when production returns to normal, but in the meantime, her Nutmeg State cooperative and others in the movement are faring reasonably well. According to second quarter data from Callahan & Associates, lending for both new and used autos has bounced off pandemic lows.

NEW AND USED AUTO PORTFOLIO GROWTH

FOR U.S. CREDIT UNIONS | DATA AS OF 06.30.21

Callahan data shows indirect and direct lending alike have bounced off pandemic lows.

Twelve-month auto loan growth for credit unions with more than $100 million in assets was 4.43% year-over-year. Indirect lending was up 5.18% and direct lending was up 3.09% from the second quarter of 2020.

Those aggregate numbers show the trends to watch, but institutions have a way of forging their own paths. Here, Sommers and the CEO of Pennsylvania cooperative BHCU($212.1M, Ridley Park, PA) share what’s working for their cooperatives.

Seasons FCU Buys Loans And Revamps The MSR Model

Second quarter figures from Seasons show auto lending down 1.12% overall from the year before, driven by a 28.92% drop in indirect lending. The credit union still has a big stake in auto lending, which comprise $56.61 million of its $168.2 million intotal assets. And its direct lending portfolio of $19,097,145 as of June 30, 2021, was up 35.9% from $14,048,722 as of June 30, 2020.

“Direct lending has always been our bread and butter,” Sommers says.

A lot of Seasons recent activity is the result of low interest rate refinancing. According to the Seasons SVP, 52% of the direct auto loans the credit union originated between Feb. 1 and July 31 were refis. The credit is offering up to a full percentage point off its existing auto loan rate, using a rate floor based on the borrower’s credit score.

“We did two campaigns with two different credit bureaus to filter for individuals in our FOM who might be ripe for refis, and we’re talking to members about how we can save them money,” Sommers says. “We’re really going back to basics.”

That back-to-basics, high-touch approach extends to a restructuring that took place when Seasons re-opened its four branches in May 2020. The credit union had been using a universal teller model but went back to having a member service representative off each lobby, handling non-teller tasks like opening accounts, issuing debit cards, and originating loans.

Additionally, the cooperative hired a full-time indirect lending specialist to network with dealers and restore a business the credit union had been putting less emphasis on since it began experiencing liquidity issues in 2018.

Sommers says she also began buying auto loan participations for the first time in March 2020. As of the end of July 2021, Seasons held nearly $7.3 million in such loans bought from other credit unions, brokers, and an online loan participation portal.

“We’ve learned a lot of lessons about what’s profitable for our credit union from a long-term perspective,” she says. “I could talk all day about that.”

BHCU Abandons Indirect And Avoids Buying Loans

At BHCU, year-over-year auto loan production fell by 2.40% in the second quarter of 2021. Indirect lending was down 98.54%, but direct was up 113.86%. The $212.1 million cooperative had a total auto portfolio of $7.38 million at that point.

“Very attractive rates have helped maintain demand for both purchase business and refinance activity for existing members,” says Gary Golden, CEO of BHCU. “However, the lack of inventory for new vehicles is now slowing down purchase activity. Clearly, 2Q21 was a bit of an anomaly and probably not the right benchmark.”

Golden says his Delaware County cooperative has de-emphasized indirect lending and instead now favors direct.

“We determined we could not compete in the indirect space without significant scale and resources and essentially exited the efforts behind it,” the CEO says. “At this point, indirect is a defensive product kept primarily for the convenience of our members shopping at CUDL enabled dealerships.”

According to Golden, BHCU has undertaken some minor promotions to recapture business from members with auto loans elsewhere, but generally the credit union is competing on rates and terms.

“We like auto loan paper and given the deposit rate environment can afford to be quite aggressive in pricing for this asset class,” he says. “We have zero delinquency, and auto loans tend to carry minimal extension/interest rate risk given their relatively short durations. It’s an easy spot to provide a value proposition for the membership.”

Golden also says direct lending is a natural sweet spot for cooperatives like his.

” If you’re not a large enough credit union or otherwise not in an area where you can compete for quality indirect loans, focus on what you do best,” he says. “That’s probably direct to member. Take advantage of the current rate environment knowing auto loans tend to become repeat business, so you don’t have to make a killing on every deal now. Higher volume with thinner margins in this business isn’t actually a bad thing.”

The CEO also recommends avoiding buying into large pools of auto loans spread out across the country to grow the balance sheet.

“The risk is rarely worth it,” he says. “Grow organically and seek the recapture business capitalizing on the brand awareness you have with your members.”

The post How Direct Lending Drives The Auto Portfolio At 2 Small Credit Unions appeared first on CreditUnions.com.

This surge began in March of last year, after the Federal Reserve implemented an emergency rate cut to preemptively mitigate the pandemic’s effect on the national economy.

Shortly after, mortgage rates began to follow suit leading homeowners and homebuyers to take advantage. Each month, mortgage rates hit record lows, resulting in the most volatile year for interest rates since 2008.

Despite credit unions closing their doors to visitors during the pandemic, phones have been ringing off the hook with homeowners looking to refinance.

Mortgage Rates Hit Record Lows

In October of last year, the average U.S. 30-year fixed mortgage rate hit 2.81%, the 10th record low that year alone, as well as the lowest rate recorded by Freddie Mac in the past 50 years.

In December, mortgage rates hit the astounding low of 2.67% and then fell to a new record low of 2.65% in January.

These repeated record lows motivated millions of homeowners to refinance their mortgages but it wasn’t just the falling rates.

Pandemic-Fueled Race To Refinance

With quarantines, new restrictions, and a transition to working from home, the pandemic gave lots of Americans more time to consider refinancing in the first place.

For homeowners looking to save money wherever they could, the record low interest rates were a welcome invitation to consider refinancing, even if they hadn’t thought about it before.

While the credit union industry was certainly threatened by the pandemic, the uptick in loan origination left loan officers flooded with loan requests and a pipeline that carried them well into 2021.

Now Refinancing Applications Are Declining

However, interest rates are slowly starting to creep back up as Americans shed their pandemic restrictions and enter the world again. The average rate for a 30-year fixed refinance loan is currently 3.14% (as of July 6), up from that record low of 2.65% in January.

While interest rates are still low, demand for refinancing and purchase loans has been steadily falling in the past few weeks.

Housing inventory is still at an all-time low, and many Americans who were considering a home purchase are now looking to stay put. As the refinancing boom begins to slow and rates begin to creep back to normal, credit unions need to prepare to fill their loan pipelines.

The best way to meet members’ needs in today’s environment and tap the largest overlooked lending opportunity? Renovation loans.

Demand For Renovation Financing Is Exploding

While the white-hot real estate market may be hurting mortgage loan applications due to the lack of housing inventory, it’s forcing homeowners everywhere to take a look at their current homes and find a way to make them work by fixing them up.

According to Houzz, the share of homeowners planning to renovate (56%) in the upcoming year is the highest it’s been since 2017 (52%). And not only is demand growing, but specifically, demand for higher-cost projects.

Higher budget projects saw an increase to $85,000 or more in 2020, compared to just $80,000 in 2019 and 2018.

Many homeowners are looking for a way to take advantage of newfound home equity and renovate their homes (without refinancing out of the incredibly low rate they just locked in).

New Kind Of Home Equity Loan For Major Remodels

To gain new members and keep up with homeowner demand, some credit unions have focused their efforts on offering new renovation loan products.

RenoFi, a financial technology company, has partnered with credit unions nationwide to offer RenoFi Renovation Loans, including home equity loans and refinance mortgages.

Unlike traditional home equity loans and mortgages, RenoFi Loans are a unique product that allows homeowners to borrow based on the After Renovation Value of their home.

Rather than purchase a larger home and move, homeowners can use these loans to finance major projects to transform their current house into something that meets their needs.

What makes these new renovation loans possible is RenoFi’s Renovation Underwriter, a proprietary platform that analyzes the renovation project and the contractors, before homeowners even reach the credit unions to apply.

This pre-application not only helps lenders vet homeowners and their projects, but it also allows homeowners to collect all necessary documentation and an appraisal so that it’s all ready to go for lending teams at the credit union.

Renovation financing is the largest untapped opportunity for credit unions to take advantage of as the housing and interest rate markets shift in the coming year. Now is the time to act.

For more information, visit https://www.renofi.com/credit-unions

The post The ReFi Boom Is Coming To An End, What’s Next For Credit Unions? appeared first on CreditUnions.com.

Top-Level Takeaways

• For decades, Star One has allowed members to change loan terms as long as the loan is in good standing.

• The low-rate environment brought on by the COVID-19 pandemic reignited interest in modifications at the California credit union.

The interest rate for a 30-year fixed-rate mortgage has hovered around the 3.0% mark for six months, making this a desirable time to buy or refinance a home. Indeed, performance data from the second half of 2020 shows refinancing is soaring at credit unions. At Star One Credit Union ($10.0B, Sunnyvale, CA), though, modifications are more popular than refis.

California’s fourth-largest credit union by assets is headquartered in the heart of Silicon Valley. It holds its first mortgage originations on the books so it can offer competitive terms both at the time of origination as well as later in the life of the loan. For decades, Star One has modified the interest rate and monthly payments on active loans in good standing upon request, driving loyalty among members.

“All in all, the credit union’s real estate modification program boasts a process that is easier and more member-friendly than a refinance,” says Victoria Tabler, Star One’s vice president of real estate lending. And there’s no limit on the number of times a member can modify.

For example, rather than paying closing costs and other fees for a refinance, borrowers pay 0.5% of their outstanding loan balance with a minimum of $750 and a maximum of $1,500. The loan amount stays the same, the rate and payments go down, sothe credit union doesn’t have to reverify the borrower’s ability to repay, which cuts down on time and labor expenditure.

“The process is easy,” Tabler says. “A member submits a request through our website, we review and prepare a two-page modification agreement, the member provides a single signature, and we make the change.”

On the request, members provide their loan number, their desired interest rate and term, and an authorized form of payment, among other details. Star One’s rate tracker available on its website allows members to view available rates and set an alert for when rates reach a certain threshold.

If a member wants to drop their interest rate lower than the available market rate, Star One offers an option for that, too. After the credit union confirms certain details, borrowers can buy down their rate.

A New Reality

Historically, Star One has not marketed its mortgage modification program. Instead, members learned about it through word of mouth or independent research. But along with nearly every facet of life, that changed when the novel coronavirus hit in March 2020.

“Star One immediately instituted a robust mortgage deferral program and secured regulatory approval for drive-by appraisals. It also worked with its legal department to rethink documentation practices and reduce health risks,” Tabler says.

Still, by mid-year 2020, the credit union started to see members, tempted by low rates, refinance their mortgages with other lenders. That’s when it decided to fully leverage its real estate modification program.

Don’t Refi. Modify.

Across the industry, refinancing became a tool for lenders to expand their portfolios. As rates steadily decreased, the interest in refinancing steadily increased.

Star One, however, retained its commitment to a five-day turnaround for modifications. The cooperative, after all, didn’t have to re-originate the loan, it just had to change the rate and payment. Competition did force the credit union to reduce its program fee to a flat $500, and for a time it even ran a promotional rate.

Star One started marketing its modification program first to members whose mortgage rates were higher than the current market rate. It also leveraged analytics to develop a trigger campaign that scored members based on the probability they’d move their loans. It called members likely to move based on information such as pay-offs to other institutions or credit pulls to retain the relationship before losing the loan to another lender.

A Bright Performance During A Dark Year

“To accommodate the increased volume in modifications, Star One expanded its mortgage servicing team and provided additional training to branch staff. By the end of the year, it had processed more than 3,800 modifications totaling more than $1.8 billion a record year for both,” Tabler says.

Retention is smart lending.

The credit union also set records in 2020 for new originations 2,800 for $1.3 billion.

Looking forward, Tabler expects member interest in mortgage modifications to continue, although she acknowledges the market will play a role. “If rates continue to drop,” she says, “members will be likely to request modifications.”

Regardless of future demand, modification activity in 2020 pushed the mortgage department at Star One to cultivate team relationships and enhance service skills. It also highlighted how important the department’s servicing arm is to the credit union.

And that won’t change any time soon.

“You can turn your focus toward originating new loans and driving growth, but if you can’t keep those loans, you’re wasting time, money, and resources,” Tabler says. “Retention, on the other hand, is smart lending.”

The post Don’t Refi. Modify. appeared first on CreditUnions.com.

CORE DEPOSIT BALANCES AND ANNUAL GROWTH

FOR ALL U.S. CREDIT UNIONS | DATA AS OF 09.30.20

Source: Callahan & Associates.

No. 1: Core deposit growth underpins total share growth and increased liquidity.

Consumers are saving money in preparation of a personal financial downturn; consequently, core deposits at credit unions are on the rise. Total share balances grew 18.2% in the third quarter, with core deposits checking, savings, and money market accounts accounting for 94.8% of that growth. Core deposit balances increased 24.5% annually, nearing $1.2 trillion as of Sept. 30.

Core deposits generally command a lower interest rate; consequently, the cost of funds at credit unions is declining. The average cost of funds rate fell 15 basis points year-over-year to 0.84%, which, in part, resulted in a 13-basis-point decrease in the interest expense ratio to 0.74%.

In December, a second Federal relief bill provided $600 to eligible citizens; a Democratic-controlled Congress and White House will likely lead to additional coronavirus relief measures in the coming months. As members continue to sock away savings, credit unions must contend with swelling core deposits that will shape balance sheets and income statements through 2021.

FIRST MORTGAGE ORIGINATIONS AND SALES TO THE SECONDARY MARKET

FOR ALL U.S. CREDIT UNIONS | DATA AS OF 09.30.20

Source: Callahan & Associates.

No. 2: First mortgage origination sales offer one-time income gains.

The average interest rate for a 30-year fixed-rate mortgage dropped 27 basis points to 2.9% as of Sept. 30, 2020. Refinancing is soaring, and first mortgage originations as well as balances are at record levels for credit unions. The movement funded $211.7 billion in first mortgages through the first nine months of the year, up 76.6% year-over-year. At nearly $514.1 billion in balances, first mortgages accounted for 44.0% of all loans at credit unions.

Sales to the secondary market increased, too 100.5% annually to $87.2 billion. Credit unions sold 41.2% of first mortgages originated year-to-date. This is a year-over-year increase of 4.9 percentage points as credit unions exchanged low-margin loans for upfront gains from sales. And, despite low interest rates, these one-time payments have propped up income at credit unions.

The Federal Reserve has held down interest rates, but the pipeline for refinances will likely shrink in the coming year. The Democratic party now controls both houses of Congress and the White House, and the 10-year treasury has increased 20 basis points since the end of the year. As mortgage rates edge up, fewer borrowers will refinance. As the refinance boom tapers off, credit unions will need to lean on investments and consumer lending for income.

NET INTEREST MARGIN

FOR ALL U.S. CREDIT UNIONS | DATA AS OF 09.30.20

Source: Callahan & Associates.

Callahan & Associates is conducting a survey to identify the process and the extent to which credit unions around the country offered loan repayment and relief programs to their membership base during COVID-19. Participating credit unions will receive a copy of the full report upon completion. Click here to take the survey.

No. 3: Interest rate dynamics underpin earnings pressures.

The net interest margin at U.S. credit unions decreased 29 basis points year-over-year to 2.87% as of Sept. 30. Contributing to the decline was a reduction in total interest expense which was down 5.1% to $9.4 billion as members increasingly opted for core deposits in lieu of interest-bearing accounts.

Asset balances surged 16.1% year-over-year, pushing down the interest expense ratio 13 basis points to 0.74%. However, this was not enough to offset the decrease in the interest income ratio, which was down 45 basis points to 3.61%.

In response to the pandemic, consumer lending slowed, spending fell, and consumers paid down debt. Consumer loans generally hold higher interest rates, and the net interest income from loans was up 3.2% annually. However, this is 10.2 percentage points lower than one year ago. Additionally, annual share growth of 18.2% outpaced loan growth of 6.3%; consequently, cash and investment balances increased 44.8% to $552.6 billion. Despite that bump, income from investments decreased 23.6% annually to $4.9 billion as of Sept. 30.

Consumer sentiment is beginning to rebound, but federal relief packages could continue to feed liquidity and suppress interest rates through 2021. Credit unions will have to monitor these pressures on their earnings statement throughout the year.

PROVISION FOR LOAN LOSS/AVERAGE ASSETS

FOR ALL U.S. CREDIT UNIONS | DATA AS OF 09.30.20

Source: Callahan & Associates.

No. 4: ALLL and provision account allocations slow but remain high in case of potential defaults.

In 2020, credit unions increased their allowance for loan and lease losses to protect themselves against increased future default rates. Their total loan delinquency in the third quarter, however, was down 13 basis points year-over-year to 0.54% as members took advantage of payment deferral programs and federal relief packages.

Total provision for loan and lease losses was up 47.5% through the first nine months of 2019 to $7.1 billion as of Sept. 30, 2020; however, total annualized provision expense decreased 2.7% on a quarterly basis. On the balance sheet, the total allowance for loan and lease losses was $12.7 billion as of Sept. 30. Its 32.2% annual growth is the fastest rate reported since March 2010; quarterly, its growth slowed to 3.2 percentage points.

Total delinquent balances decreased 13.5% year-over-year to $6.4 billion, yet credit unions are holding nearly double the provisions they held one year ago. U.S. unemployment remains high 6.7% at year’s end and the future remains uncertain. As such, credit unions are preparing for potential loan defaults and a downturn in members finances.

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