MADISON, Wis. — Credit unions were feeling good about their increasing mortgage market share, but the product has started losing its spread.As of Jan. 6, Freddie Mac 30-year fixed mortgage rates were sitting on the precipice of 5%, recording a 5.10% rate, down 136 basis points over the past nine weeks. Fifteen-year fixed rates fell to 4.83%, and one-year ARMs dropped to 4.85%. All three rate categories have fallen significantly from this time last year; 30-year fixed are down almost 100 basis points.Bankrate's most recent jumbo mortgage rate survey bucked the trend, reporting a 30-year fixed rate of 6.96%, which is up 23 basis points from one year ago.On Jan. 6, real estate tracking Web site zillow.com entered the sub-five percent realm, reporting a national mortgage rate average of 4.93%.Rates are lowest in areas that have suffered the greatest property value declines and number of foreclosures. According to zillow, California is right at the national average of 4.93%, but Florida and Arizona are reporting 4.83% and 4.84%, respectively. Nevada reported a higher-than-average mortgage rate of 5.01%, with New York reporting 5.02% and Ohio at 5.05%.Economically battered Michigan reported some of the highest rates in the country, with an average of 5.25%; it was the same average rate as South Carolina, which has suffered relatively few foreclosures.Dave Colby, chief economist for CUNA Mutual, said he's not surprised to see rates falling because so many entities are pushing for mortgage liquidity and the stabilizing effect of long-term loans. And, he expects rates will sink even lower, saying it's likely Freddie Mac's 30-year fixed rate will fall below 5%."Short-term rates have gone to zero, the yield curve is extremely steep, and everybody-the Federal Reserve, Treasury, Congress-is throwing whatever they have at the wall to see what sticks," he said.Colby agreed with what many have already observed: Current mortgage underwriting standards are probably a little tougher than they need to be, due to a backlash of poor underwriting practices like no-doc applications. However, borrowers who are being approved are rock solid, and values are more realistic."This is going to be some good mortgage paper," Colby said. "They're all freshly underwritten mortgages, they reflect current, realistic prices and the current employment outlook of the borrower; and, they probably include 10% to 20% down payments."Though overall credit risk is down, rising unemployment will unavoidably turn some A-paper mortgages into foreclosures. The economist didn't go as far as some have to predict a 10% unemployment rate at year-end, but Colby did say he expects unemployment to rise through mid-2010, and said the jobless rate could climb as high as 9.5% by year-end.Colby said he was recently discussing real estate loans with an Idaho-based credit union. Real estate values have plunged in areas previously popular with California vacation home buyers; however, now that the California well has dried up, prices have sunk to a level where locals can afford to buy again. For a local institution, that's good news."National forecasts are nice; but, like the Idaho example, sometimes things work out in an opposite direction," he said. "In fact, some industries and areas might do exceptionally well."Unemployment aside, tougher underwriting standards have decreased credit risk; however, in today's low-rate environment, interest rate risk is a problem. Nobody wants to portfolio a 30-year, fixed loan under 5%, and as Colby deadpanned, "there's not going to be a lot of prepays on 4.9%."But what's the alternative? Investments aren't much of a deal, either."We're in the business of making member loans, so to the extent a credit union can match the duration of its assets and liabilities, without taking too much interest rate risk, they should be OK," he said.Colby communicated some frustration with government bailout programs, which have provided banks with cheap funds they have leveraged to their advantage."Take the GMAC bailout, for example. That really changes the equation as far as their ability to buy down interest rates-they're out there playing with free money now," he said.Changes in the financial landscape have made it difficult for economists to advise credit unions, he said. For example, last month Colby said he forecast that subsidized financing plans were too expensive, and credit unions would pick up market share and new members as a result."Then, GMAC becomes a bank and gets access to the Fed's discount window, and my forecast went right out the window with it," he said.The CUNA Mutual economist was down on the immediate future of economic forecasting, saying big bailouts and charter changes will have an equally large effect on market dynamics. Additionally, the Madoff Ponzi scheme has clipped the wings of normally confident, savvy investors."Heck, we might even be under a different regulator two years from now," he said. "These days, all you can do is hold your breath, look into your crystal ball and forget about being confident with your forecasts for the next four to six months."–[email protected]