Navigating Choppy Loan Waters
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 revealed that increased mortgage holdings generally result in higher returns on assets and inflation-adjusted asset growth.
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 that decade and up until the recent financial crisis, growth slowed to 11%. From 2008 to 2011, nationally, credit unions still added mortgages at a 4% annual rate.
Over the last 30 years, credit unions faced the two options of 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, hallmarks of a successful cooperative.
Manpreet Nat is a research associate at the Filene Research Institute. He can be reached at 608-661-3752 or firstname.lastname@example.org.