NAFCU's Tun Wai and CUNA's Steve Rick both understand why credit unions are booking more mortgages: secondary market prices are deeply discounted, and consumer loans not only bring credit risk, demand for them is low, too.
However, the two economists disagree whether holding mortgages is good balance sheet strategy.
NAFCU's top economist said he'll warn credit unions about interest rate risk during sessions at the trade's annual conference. Wai predicted the Fed Fund rate will remain at 0.25% for the rest of the year, but said at some point, cost of funds will rise.
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"Many new mortgages are locked into a fixed rate," he said.
Rick disagreed, saying he's not worried about interest rate risk, because "we won't see a 300 to 400 basis points rate increase anytime soon."
This economic recovery will be "one of the weakest we've ever seen", he said, which means prices will "remain weak for awhile." When the Fed raises rates, it will do so slowly, and credit unions will have plenty of time and opportunities to adjust, Rick said.
Wai said liquidity could also become a problem if consumers return to old spending habits and banks increase competition for deposits, increasing loan to share ratios.
"You can't fund long-term assets with short-term money," NAFCU's top economist said.
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