Despite the coronavirus — or perhaps because of it — credit unions are witnessing historic mortgage growth even as other segments of their lending portfolios lag.
The industry entered the year expecting a slowdown, but thanks in part to the Federal Reserve’s move to lower rates to zero as a check against the pandemic’s economic fallout, mortgage volumes at credit unions have surged. Data from Callahan & Associates shows first-quarter mortgage originations at credit unions were nearly double where they stood at the same time last year, pushing the industry’s market share up a full percentage point to 9%.
“Growth is an understatement right now — it’s been record breaking,” said April Gleason, vice president of lending at University Credit Union. “The last time we saw numbers like these was in the refi boom of 2009.”
A majority of the Orono, Maine-based credit union’s lending portfolio is in mortgages, with much of its growth centered around refis, though purchases have ticked up as well. Gleason said loan volumes started to increase in the fall but spiked starting in January, and the momentum has continued since then.
The surge in mortgage demand is helping credit unions balance out their lending portfolios. As of May 31, University Credit Union’s auto loan business is down $3.2 million year-over-year, but those declines have been swept under the rug by gains in its mortgage lending department. Total mortgage balances there are up by 212%, including a whopping 594% increase in refinance balances.
Gleason chalked up this newfound demand to low rates. The average fixed interest rate on a 30-year mortgage stood at 4.94% in 2018 and has steadily declined since then, now resting in the mid-3% range. As a result, consumers are moving to take advantage of rates that are near record lows.
Pent-up demand also plays a part, according to Joel Kan, AVP of industry and economist forecasting of the Mortgage Bankers Association, of which some CUs are members. Second-quarter mortgage activity has been “really strong,” Kan noted, since many loan applications received between February and mid-March kept lending pipelines full.
“The second-quarter numbers we’re expecting for purchases are about flat with 2019 and that’s actually not a bad thing with the second quarter — including the April activity — which was a really down month for most housing data and most of the economy at large,” he said.
Refis accounted for about 54% ($306 billion) of first-quarter mortgage business, according to MBA data.
RTN Federal Credit Union in Waltham, Mass., is seeing similar success. The $952 million-asset credit union has already booked $27.3 million in refis, compared with a total of $30.4 million for all of last year. It is on track to surpass that figure by the end of June.
Chief Lending Officer Lisa Rohmer said that while in previous years the market has peaked in April and May, the credit union has continued to receive applications well into June, meaning those loans likely won’t close until August.
“So I think COVID-19 came around, people were cautious and now people are ready to move forward,” Rohmer said. “They’re tired of their homes, they’re looking to purchase, they want to get out of apartments and I think low rates have pushed [this activity] farther into the year.”
Though credit unions may be enjoying the additional fee income that comes from refinance deals, it’s important for them not to lose sight of their entire pipeline, sources said. Tina Powers, chief operating officer at CU Realty Services, advised that credit unions not be too focused on the refinancing side of the business, lest that boom end and they’re left with nothing in the purchase pipeline.
Some lenders expect to see the pendulum swing from refis back to purchases relatively soon.
“My guess is that due to the fragile employment stability of many borrowers that want to refinance now and the continuing shortage of houses here, we will begin to see this flip back to a purchase market before year-end,” said Valerie Campbell, vice president of mortgage lending at Atlantic Regional Federal Credit Union in Brunswick, Maine.
Purchases at Atlantic are down 30% year-over-year through May, though refi deals are up by 40%. Some of that business has been building for a while. The credit union closed $25 million in loans during the first half of 2019, but as rates began to decline business kicked up, and Atlantic closed an additional $55 million in the second half of the year once rates began to lower, Campbell said.
The big question for many credit unions is how long this momentum will continue. And much of what’s to come may be out of their control.
“Looking ahead really depends on how the economy rebounds,” said the MBA’s Kan. “We’re still looking at a pretty bleak jobs picture. We’re still looking at a [high] unemployment rate … and it really does hinge on how many [furloughed] workers will come back quickly and start getting a paycheck again, because that’s not only going to impact the purchase and refi markets, but also servicing.”