SAN DIMAS, Calif. -
Dwight Johnston of WesCorp FCU here said CUs are in a good position to step in with effective loan processes and loan products.
"Quite simply, the credit mess has eliminated a lot of the competition," he said. "But credit unions will have to consider that most mortgage loans, other than those conforming and sold to FNMA or FHLMC, will have to remain on their books."
Tom Moore, CFA, executive vice president of asset/liability management for Members United Corporate FCU in Warrenville, Ill., and president of Balance Sheet Solutions, LLC agreed, saying that credit unions continue to have a great opportunity to capitalize on the void that occurred as mortgage lenders exited the business or changed their underwriting standards.
Opportunities Continue
"Credit unions are uniquely positioned to make high-quality loans to their members and consumers in general," he said. "Credit unions have generally remained very competitive in the way they are pricing their mortgages, especially as it relates to conforming mortgages. An area of the mortgage market that is still a little unsettled is the jumbo loan secondary market where buyers of the credit unions' loans are still adjusting to the diminished liquidity for these products. Credit unions should continue serving their members with great mortgage lending services and appropriately priced products to reflect their needs and risks. I believe credit unions do this better than any other type of lender in the market."
There continues to be some opportunities with mortgage-backed securities that are attractively priced relative to the risk of these investments, offered Moore, who added that credit unions with excess liquidity should be evaluating whether this could be a good fit for them.
On the portfolio side, there is no right answer, Johnston said.
"For most of this year given our outlook for lower rates, we have advised credit unions to continue to focus on building laddered portfolios with bullet securities. We continue to maintain this stance."
The rate cut has no bearing on WesCorp's advice to credit unions, Johnston said.
Expect Lower Rates
"We continue to expect that rates will be lower into next year regardless of the Fed's most recent action," he said. "The Fed is a follower, not a leader on rates. We did warn credit unions as soon as the Fed cuts rates for the first time to expect longer-term rates to rise-not fall-for a few days or weeks. That is a fairly typical historical pattern. The bond market is a great anticipator of Fed moves, and when the Fed makes its first move, speculative traders in bonds usually take profits. That's what we have seen, and there could be more of that coming."
Bob Post, vice president and chief investment officer for Corporate One Federal Credit Union in Columbus, Ohio, advised credit unions to pay close attention to the economic data in the near term as most economists expect signs of weakness, he said.
"This is a new Fed regime so it's hard to predict how they will react with their policy moves. In past regimes, one move and done by the Fed was not usually the case. I'm not sure what credit unions will do with their loan rates. For deposit rates, since the yield curve actually steeped a little, rates may not be affected beyond one year. One money market and short-term rates, credit unions will most likely reduce them."
Therefore, Post said that Corporate One FCU advises credit unions to have a laddered approach when it comes to managing their investment portfolio, which instill discipline, he said.
"For example, you will always have funds to re-invest monthly for a one-year term at current market interest rates, if you employ a one-year ladder, once a year passes by. This way it takes the guesswork out of which term to buy, which essentially, is a bet on interest rates," he said.
