Credit Unions Outshine Banks on Mortgages to Low-Income, Minority Borrowers
WASHINGTON -- With the recent release of the 2006 Home Mortgage Disclosure Act data, credit union trade group economists are applauding the fact that credit unions are approving more mortgages to low-income and minority applicants than other lenders.
NAFCU President/CEO Fred Becker touted the fact that, upon further analysis by his research team, "The findings of 2006 Home Mortgage Disclosure Act (HMDA) data demonstrate once again that credit unions are a preferred choice in the financial services industry, especially for people of modest means seeking mortgages. Credit unions are more likely to approve minority applicants, and they are more likely to offer loans at a lower rate of interest."
According to NAFCU, of minority applicants making less than $40,000, credit unions had a 58% approval rating compared to 49% for banks and 51% for thrifts. Among all applicants earning under $40,000, credit unions achieved a 75% approval rating compared with banks and thrifts at 61% and 63%, respectively. Mortgages (1-4 family) to households with less than $40,000 in income accounted for 17.7% of credit union lending compared to 13.7% for banks and 10.8% for thrifts.
Additionally minority applicants earning more than $40,000 a year also had a better chance of getting a mortgage at a credit union than a bank. Credit unions approved 79% of minority applicants versus 66% by banks and 65% by thrifts. This was the 13th year in a row that credit unions' mortgage approval rating exceeded banks and thrifts.
CUNA Senior Economist Mike Schenk pointed out that 27% of credit union originations go to low- to moderate-income folks while banks and thrifts are roughly 22%. "What it shows is that credit unions not only remain true to their mission but are growing in that market," he said. Schenk said this is despite the fact that banks have worked to
keep credit unions out of underserved areas.
Though he had not completed his analysis, Schenk also pointed out that the figures for noncredit union lenders could be skewed because of inappropriate subprime loans made to lower-income borrowers, which are now at the heart of the crisis. Many of those loans are now in default while credit union mortgage delinquencies and charge-offs remain near historic lows because making those types of mortgages were not beneficial
to the borrower.
Regarding loan pricing, NAFCU Research Assistant Steve Weldon explained that the 2006 HMDA data demonstrate that credit unions originated fewer loans above the 3% Treasury interest benchmark than did banks and thrifts. Only 2.7% of credit union loans granted to minority applicants had interest rates 3% greater than the Treasury benchmark compared with 28.5% for banks and
38.6% for thrifts.
Not only was credit union pricing better but also the size of the loans was smaller. Among the 2,036 credit unions reporting under HMDA, the mortgages averaged $166,900. On the other hand, bank loans averaged $191,800 while thrifts' average was $209,100.
The combination of these two factors is particularly important as the draft HMDA report noted that, overall, "Higher-priced loans tended to be somewhat smaller than others; for example, among conventional home-purchase loans, the mean size of higher priced mortgages was $209,000, compared with $246,000 for others."
"We're still making the loans that we need to make and we
definitely outperform banks and thrifts even without CRA," NAFCU's Weldon stated.
This is a point NAFCU's lobbying department plans to trumpet to lawmakers in Washington, D.C. "It indicates the good job that we're already doing...CRA was put on banks and thrifts as a punitive measure for discriminatory actions and we have the HMDA data here to prove that we're still outperforming banks and thrifts even though they have CRA," NAFCU Senior Vice President of Government Affairs Dan Berger stated. "So, absolutely this will be part of the story we will be telling on Capitol Hill."