Professional sports thinking has it that the best defense is a good offense. Brian Daskalovitz feels much the same way about mortgage lending and its related fee income.
Daskalovitz, accounting services manager for FedChoice Federal Credit Union in Lanham, Md., is planning for flat financial growth in 2014. He also believes that rising interest rates will dampen any further mortgage refis, slicing into the $350 million credit union’s noninterest income.
To combat the anticipated income decline, Daskalovitz said FedChoice is ramping up its mortgage loan efforts in the new year.
“We’ve tried to stay out of this area because rates were at rock bottom,” said Daskalovitz of the credit union’s $10 million mortgage loan portfolio. “We anticipate rates moving up, so we’re planning to expand our mortgage lending program.”
Mortgage lending comprises about 10% of the credit union’s loan portfolio, the accounting manager said. Through more aggressive marketing and sales, the Maryland credit union hopes to double its mortgage portfolio in 2014.
FedChoice is not alone in its thinking. Fearing the decline in fees, credit unions across the country are looking for ways to replace what may be significant lost income from mortgage origination and sales fees, as well as other sources of noninterest income.
“Noninterest income makes up roughly 30% of revenues for all credit unions, but the distribution varies greatly from credit union to credit union,” said Dwight Johnston, chief economist for the California and Nevada Credit Unions Leagues in Ontario, Calif. “The 30% figure is historically on the high side.”
NCUA statistics bear this out. Total noninterest income peaked at $14.6 billion for fourth-quarter 2012, or about 30% of total income for federally insured credit unions, according to NCUA spokesperson John Fairbanks. Of that figure, fee income totaled $7 billion for the same period, also a record. Average noninterest income since 2009 has been about $7 billion for all types, or about 15% of credit unions’ total income, he said.
Rising rates definitely mean that mortgage refis will decline, Johnston stressed, resulting in lower levels of related fee income. Larger credit unions with significant mortgage portfolios will feel the hit, but may have the resources to compensate in other areas.
Conversely, many credit unions with less than $100 million in assets and not as deeply involved in mortgages may slide by with only minimal damage, the economist said.