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After delinquencies shot up for indirect auto loans at Michigan Legacy Credit Union, the board decided to shift that part of its lending muscle into first mortgages.
The Detroit-area credit union offered a 4.99% rate on a 30-year fixed-rate mortgage in September. Within weeks, members had gobbled up the $25 million set aside for the offer.
Carma Peters, who has been president/CEO since 2014, said the credit union had been hoarding cash for several years, and earlier this year it was trying to decide what to do with it.
The credit union soured on indirect lending because of the deteriorating credit quality and relatively low returns.
The credit union was earning 4.25% on overnight funds, but management expected those rates to drop as the Fed cut rates. An analysis by McQueen Financial Advisors of Detroit said the yield on a traditional investment ladder was 3.7%.
“So then we said, well, our members are having a hard time,” Peters said. “Consumers are having a hard time with mortgage lending at rates a lot of people haven't seen.”
So the credit union then projected what would happen if it lent $25 million to members for 30-year mortgages at a 4.99% fixed rate.
The answer: It would earn more than overnight rates while helping members. Plus, at that rate, members wouldn’t be likely to refinance for a while.
“We don't want to book the loans and then just turn around and lose them in a few months,” she said.
On top of the higher rate, of course the credit union earned origination fees. It said it expects about $170,000.
The credit union launched the offer in September.
“The response was overwhelming. So two weeks into it we had to shut that off,” she said.
Most of the $25 million will close this year; the rest in early 2026. “We just needed to give the mortgage department time to breathe.”
Most of the borrowers who took the offer were refinancing their homes. Peters said the credit union might consider a similar special next year, but this time it would target home purchases.
NCUA data pulled from Callahan’s Peer Suite showed Michigan Legacy held $65.6 million in first mortgages on Sept. 30, down 1.9% from a year earlier but up 0.7% from June.
Its auto loans were $42.7 million, which accounted for 31% of its total portfolio on Sept. 30.
Its auto loan balance has dropped by $30 million over the past two years, including a $25 million drop in indirect loans. The indirect loans accounted for 69% of its total car loans, down from 75% a year earlier.
Nationally, both direct and indirect auto lending has fallen in the past year, with direct lending falling slightly faster than indirect.
Like many credit unions, Michigan Legacy’s auto loan quality has eroded from two years ago.
Its new car delinquency rate was 0.64% on Sept. 30, down from a recent high of 0.72% in March but up from 0.17% two years ago.
Its used car delinquency rate was 1.68% on Sept. 30, down from a recent high of 2.34% in June but up from 0.38% two years ago.
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
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