COLORADO SPRINGS, Colo.-Credit unions should prepare in 2011 for continued marketshare growth in mortgages, regardless of where rates go, according to one analyst.
Bill Vogeney, SVP and chief lending officer for $3-billion Ent FCU, agreed the year ahead is "pretty unpredictable," with perhaps the most unpredictable area being mortgages.
"It boils down to the rate environment," he assessed, noting 14 months ago it was presumed mortgage rates would gradually increase in 2010. "That was dead wrong as mortgage rates were the lowest since 1952 until the last six weeks. The rates still are not as high as our forecast, but they are going up. I've seen some interest rate forecasts call for rates to drop back down in 2011 for a variety of reasons."
Rate Not A Driver
Ent FCU's mortgage lending volume continues to grow, Vogeney said, even though it is not the rate leader n its markets. In fact, it raised loan rates slightly during 2010 in an attempt to control volume.
"Credit unions will see this trend grow because banks did not respond well to requests for modification," he said. "The housing crisis is not over, because people have to get several months behind before lenders foreclose. There is a lot of shadow inventory, so it will take several years for the housing market to get on solid ground. This gives credit unions an opportunity to gain market share."
Vogeny, vice chair of the CUNA Lending Council, told Credit Union Journal he sees particular opportunities in 10-year and 15-year mortgages, as consumers see to shorten terms and reduce debt. The shorter terms pose less interest rate risk to the balance sheet of credit unions, he added. "The credit risk we are seeing is fantastic: our weighted average FICO score is 770 on this business."
'Signs Of Life' In Auto Lending
Ent is seeing "a few signs of life" on the auto side of its lending portfolio. Vogeney noted 2009 was a "great year" for credit unions because the captives and non-bank lenders found it difficult to repackage and sell these loans on the secondary market. However, 2010 was not a good year, because so many manufacturers offered 0% financing.
"Many credit unions lowered their margins to try to compete," with mixed results, he said.
Ford is projecting new car sales to reach 13 million units in the U.S. in 2011, which would be a significant improvement over 2009-2010, he continued.
"There is a lot of talk in the industry about how razor-thin margins have been over the last couple years. We are paying fairly low deposit rates, so we have the room to maneuver, but at some point the loan is not worth the risk taken, so credit unions must be really diligent about not taking on too much risk."
