MADISON, Wis. — Entering the second quarter of a year many expect to be a low point in a recession, demand for loans and the ability of credit unions to fund them is in large part dependent upon regional factors.
"I have never seen more variability by market and by member," said Dave Colby, an economist with CUNA Mutual Group. "They all say the member demand for loans is there; it's about what capability and capacity the credit union has to lend."
Refinancing activity has ticked up, and fortunately most are loans originated elsewhere, limiting the cannibalization effect, Colby observed.
In auto lending, most of the action is on the used side. "New vehicle loans are struggling," he noted. "It's tough to compete with subsidized financing."
One of the bright spots has been member business lending, but Colby urged credit unions to proceed with caution. "While it's good [that credit unions are seeing strong demand for member business lending], most are being extremely caution on new originations," Colby related. "It's not a good time for retail, and if they can't pay the rent, they can't pay off their loans, either."
CUs are starting to make a real dent in mortgage market share, and the timing is perfect. "They're doing their own underwriting, and when they're doing refi's, they are able to freshly underwrite and analyze the collateral, so the real estate loans they are making right now are actually in a better position," Colby noted. "These fresh loans actually should help dampen delinquency."
But there some notes of caution, as well. "Rates are at historic lows, so I'm not real keen on seeing credit unions holding all of those loans," he advised. "I think one thing we have learned is that writing loans to credit union standards is better than writing them to secondary market standards."
Colby had a trick up his sleeve that some credit unions may want to consider doing. "If in your field of membership you have a sponsor that stops funding the 401(k), that can be the perfect time to reach out to those members," he said. "You tell them 'We can help you find some money to set up a Roth IRA by refinancing your mortgage'."
Despite widespread reports banks have withdrawn from retail lending, credit unions have not. "The fact is, a credit union can still get a lot better return on average loans than what they can get on average investments," Colby offered. "And right now, credit unions need every basis point they can get."
