Where To Find Opportunities In Lending
A credit union recently shared a story with me that encapsulated the lending opportunities available today. The credit union had asked a member if it could help her save on her monthly loan payments. She said she had an auto loan with a 22.9% interest rate and wondered if the credit union could provide a lower rate. To say the credit union could help is an understatement. It refinanced the member's loan at 3.5%, saving her more than $5,000 in interest payments over the life of the loan.
The story is just one example of how credit unions have helped to spur the economic recovery for families across the country by helping them recognize the extraordinarily low interest rates today and what they can mean for their household budgets. Our just-released issue of "Credit Union Strategy & Performance" serves as an annual report for the industry and highlights how credit unions entered 2011 with record lending momentum. Fourth quarter 2010 originations of $69.3 billion and second half originations of $139.1 billion were the highest on record for the industry over those periods. First mortgage lending was a key driver of the last six months' volume, but originations increased in all categories - first mortgage, consumer, home equity and member business - versus the first six months of the year.
Although it is not possible to determine from the call report data what proportion of this volume was tied to refinancing, the Mortgage Bankers Association estimates that 76.1% of first mortgage originations in the second half of the year were refinancings. For many members, the refinancing of a first mortgage was the first step in gaining value from their credit union.
An Opportunity For 2011
Like the member who refinanced her auto loan, credit unions have increasingly reached out to engage members and help them understand the extra dollars they can save each month by switching to a credit union loan. Those extra dollars are in their pockets every month and can be directed to paying off more debt, increasing savings or spending in their local economy.
These opportunities continue to exist in 2011. Credit unions need to continue to help consumers understand how their membership can help them become smarter financial services customers. It is a role that credit unions uniquely play in the financial services market.
Beyond refinancing, credit unions have an advantage in building new relationships in segments such as:
• First-time home buyers. The real estate lending market has experienced structural changes over the past three years that has reshaped the competitive field. Large mortgage lenders such as Countrywide and WaMu have been absorbed into larger institutions that are not as focused on the segment. In addition, hundreds of mortgage brokers in communities across the country did not survive the downturn and the new mortgage lending regulations. As a result, credit unions can play a leading role as the local mortgage lenders in the communities they serve. With home prices re-setting to more normal levels and interest rates continuing to hover near historic lows, it is a perfect opportunity to work with local real estate agents and gain relationships with people just entering the home buying market.
• Credit cards. Credit unions are increasingly recognized for the value they provide through their credit card programs. Data shows the average credit union credit card rate is about four percentage points below the average bank card rate, and fees are consistently lower. In a market in which large issuers such as Bank of America and Chase have indicated credit cards will be smaller components of their business going forward, credit unions continue to attract new accounts and balances.
• Auto loans. The story above highlights the opportunities in recapture programs. The new auto financing market is highly competitive today, but auto lending remains a core credit union business that is often a starting point for member borrowing relationships.
Consumers will continue to look for ways to be smarter borrowers in 2011. Credit unions can continue to be at the forefront of helping them achieve that goal.
Jay Johnson is executive vice president at Callahan & Associates. He may be reached at firstname.lastname@example.org or (800) 446-7453.