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ARLINGTON, Va. – More credit unions may be using mortgage securitization to reduce interest rate risk and provide needed liquidity, but the findings of NAFCU’s Flash Report Survey for April show most still retain the servicing rights on all mortgage loans. According to NAFCU federally insured credit unions sold $99 billion of first mortgage real estate loans from 2001-2004. More than half – 58% – of all federal credit unions participating in the survey indicated they’re approved sellers/servicers for Fannie Mae, and another approximate third are approved seller/servicers for Freddie Mac. The remaining credit unions sell their mortgages to entities such as the Federal Home Loan Bank, Countrywide, Chase Manhattan and CUNA Mutual. Interestingly, 32% of survey respondents indicated they didn’t sell any mortgages in 2004. Although credit unions want to minimize exposure to interest rate risk, they’re not as eager to release the servicing rights on their mortgage loans. Sixty-one percent of survey participants said they retained the servicing rights on their mortgage loans; 27% said they sold the servicing rights on all their mortgage loans; and 12% sold the rights on a portion of the loans that were securitized in 2004. Of those CUs who sold the servicing rights, 23% said they did so because they made a profit on the sale, while 18% made the decision because they didn’t have enough loan volume. Another 18% said they sold the servicing rights because they didn’t want to service the loans themselves, and the remaining 41% indicated “other” reasons for their decision – the most common “other” reasons were to reduce risk or because the investors or purchasers of the mortgages required that the servicing rights also be sold. NAFCU reported that first mortgage lending activity among federal credit unions was strong in February, reversing three consecutive months of relatively slow loan growth. First mortgage lending increased by 0.35% during the month – demand for other real estate loans, primarily home equity loans, increased by 0.78%. During February, total real estate lending increased by $1.2 billion to $201.9 billion – first mortgages accounted for $136.9 billion; second mortgages and home equity made up the remaining $65 billion. In 2004, credit unions originated $57.2 billion in first mortgages. The average loan value in February was $135,000, up 10.5% from 2004′s average loan value. Credit unions sold about $20 billion in first mortgages, down from approximately $37 billion sold in 2004. Real estate and first mortgage loans weren’t the only lending activity NAFCU’s Flash Report Survey for April looked at. It also included vehicles and unsecured loans. During February, Flash Report Survey participants’ new vehicle lending increased by 0.20% and used vehicle lending decreased by 0.33%. Also during February, CU non-revolving credit fell to $191.5 billion from $191.9 billion in January. At the end of February, CUs’ share of the $1.32 trillion non-revolving credit market was 14.5%, equal to their share at the end of 2004. According to the survey findings, over the past year indirect vehicle lending as a percentage of total light vehicle loans outstanding has increased to 33% from 17%. CU vehicle loan growth is expected in the 6.0%-6.5% range 2005-2006. Flash Report Survey participants’ expectations for new and used vehicle lending is for moderately weaker demand. As for unsecured lending, activity for Flash Report Survey participants during February 2005 was “very weak.” During the month, non-credit card unsecured loan demand fell by 2.1%. At the end of the month, the $44 billion of unsecured lending including $23 billion from credit cards and $21 billion from other unsecured loans, represented 10.2% of total loans at credit unions. At the end of February 2004, these loans made up 10.9% of CUs’ total loans. NAFCU expects unsecured lending to grow over 2005 in line with 2004′s results. According to the association, rising interest rates and home value appreciation will further constrain unsecured loan portfolio growth. Looking ahead, NAFCU expects the Federal Open Market Committee will continue to raise the Federal Funds rate by 25 basis points during the May and June meetings. Economic activity during the first quarter 2005 is estimated at 4%, with real GDP forecast to be around 3.5%-4.0% for the year. Although overall inflation in 2005 is expected to be moderate, NAFCU observed that “inflationary pressures are building,” and the association consequently expects the core consumer price index to increase to approximately 3% and the core producer price index to remain “at an elevated level.” -

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