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

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

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

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

With the significant booms and busts in real estate markets overthe past three decades, credit unions have been forced to adjusthow actively they participate in the mortgage market. After all,failing to adjust to interest rate fluctuations, regulatorymeasures, and inflation can hurt credit unions' ability to servemembers sufficiently.

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

Credit unions care about mortgages, but mortgage growth isincreasingly hard to come by. The Filene report's authors LuisDopico from Macrometrix and James Wilcox from UC Berkeley's HaasSchool of Business, showed a decade by decade breakdown of creditunions' share of mortgage holdings.

One key finding is that mortgage holdings grew especially, atabout 22% annually, during the 1980s. After the 1980s anduntil the financial crisis, growth slowed to 11%. From 2008 to2011, nationally, credit unions still added mortgages at a 4%annual growth rate.

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

Larger mortgage shares are associated with small but detectableand positive effects on measures of credit union performance. Theresearch shows that over the longer term, credit unions with largermortgage shares exhibit higher profitability and growth. Oneexception is when the economy and real estate markets struggle,larger mortgage shares can hurt credit unions at least in the shortterm.

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

Using 30 years of credit union mortgage performance as abenchmark for what's to come, it's safe to say there will beongoing challenges, opportunities, and crosscurrents credit unionswill face.

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

Read more on how credit unions are holding their own in theever-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 fromFilene available to readers of Credit UnionTimes.

Also, check out these other Filene reports:

• ChannelDelivery for Tomorrow

• InSearch of Member-Friendly Noninterest Income

• From Presence to Purpose: Developing Social Media Strategies andMetrics for Credit Unions

• Innovationsin the Payment Ecosystem

• Next Generation: CU Loyalty Among Adults

• Human Resources: What Workers Want

Manpreet Nat is a research associate at the Filene ResearchInstitute. He can be reached at [email protected] or608-661-3752.