Credit unions: Part of the American dream machine
Credit unions have great potential to help Americans realize the dream of homeownership, yet they remain relatively minor players in the mortgage market. We hope to change that by eliminating some of the barriers credit unions, especially smaller ones, face in originating loans and selling them to the secondary market. While 64% of all federally insured credit unions are involved in mortgage lending, and one-fourth of all Americans have credit union accounts, only 2% of Americans have their mortgages with a credit union. In fact, fewer than 10% of credit union members who own a home got their mortgage through their credit union. So there is a tremendous opportunity for credit unions to serve a broader segment of their fields of membership. That's not to say that credit unions aren't getting more involved in what has recently become an over $2 trillion market. Over the last decade, the value of mortgage loans granted by federal credit unions tripled - from $12 billion in 1990 to $39 billion in 2000. In fact, 2001 went down as the busiest year in history for mortgage lending, and federal credit union originations soared over 120% in the last year. There's no question that with interest rates at a 40-year low, more Americans are buying homes, and more are refinancing existing loans. With shares still at historically high levels and consumer loan demand still somewhat weak, mortgages offer an excellent opportunity for credit unions to expand their loan portfolios. And with continued low interest rates forecast for at least the rest of 2002, we don't see the current boom in the housing market losing steam any time soon. As the population ages, more Americans are moving into the time of their lives when they are most likely to own a home. And minority homeownership rates - which are still 20 percentage points below the national rate - are growing faster than for any other group. The mortgage business is likely to be one of the best businesses in the country over the next 10 years. Indeed, this decade is likely to be the best ever for the housing industry as a whole. We think the industry is going to originate, over the next 10 years, $16 trillion in mortgages. Sixteen million new homes are going to be constructed. What does this mean? First, credit unions that are able to offer mortgages are in an excellent position to help their members realize the dream of homeownership - and at the same time put excess liquidity to good use. Second, credit unions with a large percentage of fixed-rate loans on their books need to be prepared for coming interest rate increases, which may occur sometime in the first half of next year. Many credit unions will want to sell their fixed-rate portfolios on the secondary market. The enormous potential for credit unions to expand their mortgage activity, and the risk to credit unions posed by keeping large portfolios of low-interest, fixed-rate loans, led NAFCU and Fannie Mae to enter into an alliance this summer. The agreement, the first of its kind between Fannie Mae and a credit union trade association, will give virtually all NAFCU members the means to become the primary source for mortgages for their members; and it will provide them with the tools necessary to better manage portfolio risk in a dynamic interest rate environment. When credit unions, particularly smaller credit unions, link up with secondary market institutions like Fannie Mae, they get access to the capital markets, which allows them to offer mortgage services that can compete with the largest financial institutions in the country. Reduced pricing on mortgage products is just one aspect of the NAFCU-Fannie Mae alliance. It also will provide credit unions with a risk analysis of their mortgage loan portfolios for possible sale into the secondary market, a key benefit given NCUA's new emphasis on risk-based examinations. In addition, through a new partnership with Prime Alliance and NAFCU's subsidiary, NAFCU Services Corporation (NSC), NAFCU members of all sizes will be able to bring the benefits of homeownership to their members. Credit unions are natural partners in the nationwide effort to bring the dream of homeownership to more Americans, including the underserved. Despite enormous progress in the 1990s, too many families with lower incomes, financial challenges or blemished credit histories are overlooked, steered away or turned off by mainstream lending. So they go to the subprime market or even predatory lenders to get the capital they need, often at punitive rates. Credit unions can provide equal access to affordable mortgage credit and offer more Americans a chance to own a home. NCUA Board Member Deborah Matz noted in a speech at NAFCU's Annual Conference in Seattle last July that the biggest difference between the "wealth-poor" and those better off economically is that the poor have fewer assets, especially homes. "Eighty-six percent of wealth-poor households are renters, compared to 33% for all households," she noted. Matz stated that "through mortgage lending and other services, credit unions can play an instrumental role in helping low- and moderate-income people build wealth and at the same time build or expand the credit union market." Owning a home is the working man and woman's capital engine, the democratization of capital. More Americans earn more wealth owning a home than they do investing in the stock market. Owning a home is the most important investment - and the only leveraged investment - available to most Americans. It is a powerful way to transmit wealth from generation to generation. We applaud NCUA Chairman Dennis Dollar's "Access Across America" initiative, designed to harness the power of credit unions to serve more of our nation's financially underserved. As Chairman Dollar remarked this summer when President Bush announced his housing agenda to help dismantle the barriers to minority homeownership, credit unions are part of the answer in bringing low-cost loans to minority neighborhoods. The surge in housing is expected to continue. The desire to own a home has never been stronger. Policies to expand homeownership have broad and bipartisan support in Washington. Most of our leaders, lawmakers, and policy makers recognize that homeownership is good for families, good for their financial futures, and good for our communities. We have no doubt that credit unions will play an integral part in this unprecedented expansion, and we are working together to ensure that they have the tools to make the dream of homeownership a reality for their members.