CUNA Senior Economist Steve Rick told The Credit Union Journal that the credit quality of the credit union mortgage portfolio is not deteriorating, despite falling home prices in certain regional markets and rate shock posed by rising rates of Adjustable Rate Mortgages and Interest Only mortgages.
"There is very slow growth in ARMS," said Rick. "They've only gained 1.6% since the beginning of the year." The trend that is apparent, however, is that credit union members are locking into fixed rate mortgages, both from ARMs and Home Equity Lines of Credit (HELOC) loans.
"People are rational. They act in ways that benefit them," said Rick, noting the uptick in second mortgages, up 18% over HELOCS. And because the interest rate differential between regular savings and HELOCs is so narrow, people are taking money from savings to pay them off. HELOCs have fallen 1% in the first six months of the year, Rick said.
Consequently, the fixed rate mortgage portfolio has grown 5% in that time. Meanwhile, delinquencies have fallen by roughly 5-basis points to .67% in June from .73% in January, he said.
The overall market looks good for credit unions to go long because the general feeling is that this marks the peak of the interest rate spike, especially since the Federal Open Market Committee voted on August 8 to keep its benchmark interest rate at 5.25%, halting the string of 17 consecutive raises since June 2004. The Fed acknowledged that inflation was accelerating and economic growth was slowing. A retreating housing market was behind that slowing economy, said the Fed.
