ALEXANDRIA, Va. — Credit unions' mortgage originations fell by almost 60% in the first quarter of the year, according to call report data released Tuesday by the National Credit Union Administration.
CUs originated an annualized $42.6 billion in fixed-rate real estate loans in the first three months of 2014, compared with $102.9 billion during the same period last year.
NCUA said that decline reflects reductions in refi activity and is consistent with the slowdown in the housing market during the quarter
The agency also noted that in addition to a big drop in mortgage originations, higher interest rates and ongoing growth in long-term investments also remain concerns for the credit union community.
On the plus side, credit union membership rose by more than 831,000 during the first quarter, hitting a new high of 97.1 million members and other lending areas grew.
"The continued growth in credit union lending and gains in membership during the first quarter are positive signs," NCUA Board Chairman Debbie Matz said in a statement. "Investing in people and communities will produce dividends for credit unions in many respects, but the higher interest rate environment of late 2013 and the first quarter of 2014 slowed mortgage originations. To protect the Share Insurance Fund, NCUA continues to closely monitor the risks posed by rising interest rates, long-term investments and fixed-rate mortgages."
Following the NCUA's release, NAFCU said in a statement that it "welcomed the results" of NCUA data showing CUs are continuing to experience solid loan and membership growth.
"The first-quarter data shows credit unions continue to meet the high standards of value and exceptional member service that people want in their financial institutions," said Carrie Hunt, NAFCU's senior vice president of government affairs and general counsel. "Moreover, credit unions continue to be a vital source of credit in helping small businesses expand and promote job growth on Main Street."
Mike Schenk, senior economist at CUNA, told Credit Union Journal that there were no real surprises in the data, with most of the numbers reflecting a continuation of trends from the past few years, though "they do show, generally speaking, a continued improvement."
Schenk attributed the uptick in loan growth to long-term pent-up demand and "the fact that people put off purchases and financing big-ticket items of the course of not just the economic downturn, but the subsequent weak recovery."
The 'Great Divide'
However, the total number of credit unions shrank by nearly 4% to 6,491 in the first three months of 2014, with 262 fewer credit unions in operation than during the first quarter of last year.
While NCUA said that trend is in line with the continued consolidation of the community over the last 40 years, small CUs continue to struggle when compared with larger institutions ($500 million in assets or more). See related graphic.
This is a trend Credit Union Journal has reported on in
Those 445 large CUs hold 68% of the system's total assets and reported higher ROA than CUs as a whole. Similarly, CUs of $100 million or less recorded higher net worth ratios, but struggled to match larger credit unions in the areas of net worth growth, loan growth, ROA and membership gains.
CUNA's Schenk added that NUCA's numbers "really do hide a lot of the challenges smaller institutions continue to deal with, and it sort of runs the gamut — weak membership growth, relatively weak loan growth and, unfortunately, weak earnings as well."
The good news for small credit unions, he said, is that much of the growth large CUs experienced in the last few years was tied to growth in mortgages.
"Many of the smaller institutions don't offer mortgage loans, so now that we're seeing a reawakening in the consumer portfolio, we do expect those results actually to improve," said Schenk. "Our expectation is that the economy will grow near long-run average rates this year, the job market will continue to heal, and what that means is take-home pay will be going up, earnings will be going up and therefore the appetite for more of the same in terms of buying and borrowing will continue to be obvious."
NCUA highlighted other data trends from the first quarter, including:
- Overall loan growth of 8.8% from the first quarter of 2013 to $652.7 billion
- Auto loans up by 13.9% year-over-year to $73.5 billion
- Used auto loans up by 11.3% to $37.5 billion
- Net member business loan balances rose by 11.1% to $47.3 billion
- Non-federally guaranteed student loans rose by 26.5% to $2.8 billion
- Short-term small loans and similar payday loan alternatives rose by a whopping 34.8% from the first quarter of last year to a total of $92.1 million
- First mortgage real estate loans reached $272.6 billion, up 9.7 percent from the first quarter of 2013. Slightly more than 61 percent of first mortgage loans in the latest reports had fixed rates.
- The growth in total loans contributed to a 3.3 percentage point rise in the overall loans-to-shares ratio relative to a year ago, to 69.2 percent, the highest first-quarter ratio since 2010.
Long-Term Investments
Credit unions also continue to add long-term investments to their portfolios despite year-over-year declines, the agency said, noting that investments dropped by $1.7 billion (0.6%) from the first quarter of 2011 to $291 billion.
Investments with three-year maturities or less fell by $22 billion, while those with three-year maturities or longer grew by $20.5 billion. The agency warned that this could pose interest rate risk for credit unions once rates begin to go up.
For more information, Credit Union Journal readers can visit NCUA's webpage
