MADISON, Wis. — Even as thousands of Americans are being foreclosed upon, growing mortgage originations could be a sign a recovery looms near.
"Anytime you start seeing a lot of mixed news that can be considered an inflection point. That's a good sign that we may be finally turning or about to turn," said CUNA Mutual's Chief Economist, Dave Colby, noting that despite the 7% rise in foreclosures in July, housing starts, permits and sales are rising and prices are declining at a slower rate.
"That's what we need first; price stabilization. With that comes no additional houses going under water and that should help the securities market as well as it puts a floor on their write-downs."
No Sharp Rebound Expected
Moreover, derivative improvements, such as home values falling at a slower pace, are usually coincident indicators of a pending recovery. Still, foreclosures are likely to continue for some time as Colby predicts that there will not "be a sharp rebound in anything," especially home values.
Credit unions can expect more pain, even from some of their best members, as prime rate mortgages were the biggest contributor to foreclosures in June and July; a full 12% of all mortgages are late according to the Mortgage Bankers Association. With unemployment likely to remain elevated for years, credit unions need to be prepared for additional write-downs. Deutsche Bank recently predicted nearly half of all mortgages will be underwater by 2011.
However, those value declines should make homes even more affordable despite interest rates slowly rising from their lowest ebb in the spring, giving CUs the chance to boost their lending portfolios.
"There's never been a better time to be a credit union mortgage lender. Members and non-members alike want to do business with local lenders that are trustworthy and reliable," Dan Green, executive VP at Prime Alliance Solutions, told Credit Union Journal. "Now's the time to demonstrate what makes our industry the best choice, and turn our advantages into long-term strategic differentiators."
"What better time for making real estate loans than now when values have already dropped 40 to 50%?" mused Bob Dorsa, president of the American Credit Union Mortgage Association. "We could be to the mortgage industry now what the savings and loans and thrifts were in the '60s and '70s."
With the worst of the financial crisis likely behind them, banks are getting stronger, Dorsa contended, and credit unions must doggedly defend the business they have earned and be even more aggressive to break further into the mortgage origination market.
"For the credit union business, I think we've wasted the bulk of a tremendous opportunity," he said. "While the CU system has increased marketshare from 3% to almost 6%, if we just rest on our laurels we're going to slip back."
Unlike many recessions where the hardest hit segments of the economy see the sharpest recovery, credit unions in the "sand states" will likely see a much longer slog through the trough and a slower rebound, Green suggested.
"Looking at it geographically, those parts of the country that never seem to experience rapid appreciation aren't, for the most part, seeing drastic depreciation. These are the areas best for both buyers, sellers and lenders," said Green. "Those parts of the country where the most rapid appreciation, or over-building occurred are a different story, and will take longer to recover."
