When it comes to homeownership, consumers desire financing options that are flexible and create financial stability.

With Fannie Mae and Freddie Mac in the spotlight, it's essential that credit unions build on a strong tradition of building options for homeowners.

The Filene Research Institute's Mortgages and Credit Union Performance: 1980–2011 report explores how credit union performance has been positively impacted by the rise in mortgage share over the past three decades.

The research indicates that increased mortgage holdings generally result in higher returns on assets and inflation-adjusted asset growth. Today, credit unions hold a quarter of their assets in residential mortgages.

With the significant booms and busts in real estate markets over the past three decades, credit unions have been forced to adjust how actively they participate in the mortgage market. After all, failing to adjust to interest rate fluctuations, regulatory measures, and inflation can hurt credit unions' ability to serve members sufficiently.

Luckily, credit unions have responded. The industry's direct holdings of mortgages grew from $3 billion in 1980 to $236 billion by the end of 2011. Those holdings averaged 14% annual growth during that time.

Credit unions care about mortgages, but mortgage growth is increasingly hard to come by. The Filene report's authors Luis Dopico from Macrometrix and James Wilcox from UC Berkeley's Haas School of Business, showed a decade by decade breakdown of credit unions' share of mortgage holdings.

One key finding is that mortgage holdings grew especially, at about 22% annually, during the 1980s. After the 1980s and until the financial crisis, growth slowed to 11%. From 2008 to 2011, nationally, credit unions still added mortgages at a 4% annual growth rate.

It's encouraging to see credit unions shift a larger share of their assets in mortgages, but what impact has it had on performance? Data show mortgages having persistent positive effects on performance.

Larger mortgage shares are associated with small but detectable and positive effects on measures of credit union performance. The research shows that over the longer term, credit unions with larger mortgage shares exhibit higher profitability and growth. One exception is when the economy and real estate markets struggle, larger mortgage shares can hurt credit unions at least in the short term.

Members' demands for mortgage products should not go unnoticed. Over the last 30 years, credit unions faced the two options of standing pat marginalizing mortgage shares or responding to member demand by increasing mortgage lending. Most credit unions opted for the latter and for good reason. Ignoring the need to increase mortgage holdings can jeopardize member loyalty and financial returns, which are hallmarks of a successful cooperative.

Using 30 years of credit union mortgage performance as a benchmark for what's to come, it's safe to say there will be ongoing challenges, opportunities, and crosscurrents credit unions will face.

Macroeconomic and real estate market conditions will continue to have large effects on performance, especially ROAs. But if this report tells us anything about mortgage share and credit union performance, it's that they go together.

Read more on how credit unions are holding their own in the ever-changing housing market in the Filene report, Mortgages and Credit Union Performance: 1980–2011.

The report is the latest in a series of exclusive content from Filene available to readers of Credit Union Times.

Also, check out these other Filene reports:

Manpreet Nat is a research associate at the Filene Research Institute. He can be reached at manpreetn@filene.org or 608-661-3752.

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