WASHINGTON — Despite an economy in upheaval, credit unions are holding their own and, in fact, "are winning this revolution," particularly in mortgages.
The upbeat assessment by the Washington consulting firm is contained in the quarterly Callahan and Associates' "Credit Union Strategy and Performance" report which found CU mortgage originations "up 53% versus the '07 first quarter–in a period when national mortgage volume dropped 7%."
Moreover, said the report, CUs had the highest ever first-quarter total loan originations at $61 billion and that their 60 basis-point return on assets "exceeded all other financial institutions."
In a statement, Chip Filson, Callahan's president, said the withdrawal of many institutions "from whole areas of the economy" has created "channel destruction, especially evident in mortgages."
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"We will not return to the status quo," forecast Filson, considering "consumers want trusted relationships" that CUs are providing.
"As balance sheet lenders, credit unions are not subject to the constraints imposed by the secondary market," he said. "Moreover, their ability to provide member solutions when difficulties occur has given numerous individuals facing credit challenges new hope and opportunity."
In an interview, Filson acknowledged that despite the optimistic industry outlook, CUs, particularly in California and Florida, have been severely buffeted now facing "probable losses."
Still, these are isolated, he maintained, considering CUs overall retain a revered reputation of member trust, which is more important than ever in the negative economy.
"This is not business as usual," insisted Filson. "There are abnormal times with negative headlines everyday of large layoffs, foreclosures, even Countrywide is in essence a failure."
"This whole bubble we've been in has been dominated by a transaction mentality in which institutions got their fee and moved on" without regard to consequences to customer relationships, he said. But those relationships and trust remain the cornerstone of CUs, he concluded.
Taking issue with Callahan's rosy scenario was consultant Marvin Umholtz of Olympia, Wash., who maintained "states like California and Florida are under noticeable stress with 153 California credit unions between $50 million and $500 million in assets showing consolidated ROA in the negative. An additional 152 California credit unions between $10 million $50 million reported a consolidated 0.07 ROA.
The Florida peer group consolidated ROAs, he went on, are all under 0.44 "with the largest peer group showing only 0.11 ROA accompanied by a delinquency rate of 1.63."
When compared to general economic conditions, Umholtz admitted that "the CU numbers aren't that bad," but the industry has not been "stress tested like this in a long time. The poor economy will shake out the industry and the longer it goes, the bigger the impact."
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