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Mortgage loans rise at credit unions
By Roger Showley, staff writer

San Diego Union Tribune

California's credit unions, bucking the lending squeeze in commercial banks, saw their mortgage loan portfolios grow to nearly $54 billion in the third quarter of the year as they shifted to making more fixed-rate loans to new home buyers.

“California credit unions have seen their mortgage lending balloon as the rest of the economy is deflating,” said Daniel Penrod, an industry analyst for the California and Nevada credit union leagues in a report issued yesterday.

The $53.9 billion in mortgage assets as of Sept. 30 was up more than $1 billion from the same time last year. The figure rose despite a decline in mortgage originations to 13,753 loans in the third quarter, compared with 21,562 a year ago. For the year to date, the total was 71,266, down from 78,066 for the first nine months of 2007.

The biggest change was a decline in adjustable-rate mortgages, down by 50.6 percent from a year earlier to only 267 in the third quarter. Home equity loans were off nearly as much, down 45.6 percent to 8,225. At the same time, fixed-rate loans totaled 5,261, down just 10.9 percent.

For the current quarter, in which consumers have been rattled by a constant barrage of bad economic news, Penrod said credit unions have been seeing less business.

“People aren't really looking to make large purchases at this time,” he said, even though home prices and interest rates have been falling. “There's a significant pullback on the part of individuals in terms of saving and borrowing. The likelihood is that the fourth quarter (ending tomorrow) is going to see slight growth, if any.”

But in 2009, Penrod said, interest rates that could fall into the 2 percent or 3 percent range could push home buyers off the fence and make it possible for existing owners to refinance their present mortgages.

However, lower rates are unlikely to help owners whose homes have lost so much value that they retain little or no equity and could face foreclosure if they cannot make higher payments triggered by loan resets.

“The rate drop unfortunately will not be able to stop all foreclosures,” Penrod said. Buyers who are not facing such hardships may return from the sidelines and “create a buffer so we do not just see a downward trend.”

Steve Volle, president of Members Loan Services Inc., which assists seven San Diego-based credit unions, said mortgage borrowers can benefit by lower rates and better terms than those available at commercial banks.

For jumbo loans exceeding $417,000, he said, the mortgage rate can be as much as three-quarters of a percentage point lower at a credit union. For example, a credit union might offer a rate of 5.75 percent, compared with 6.5 percent at a bank.

To refinance an existing loan, Volle said, his credit unions are typically offering 15-year fixed-rate jumbo loans at around 6 percent that can replace their current adjustable loan carrying a similar rate. For lower loan amounts, the going rate is 5 percent or less.

For borrowers in trouble, Volle said credit unions are offering to extend adjustable loans five years, depending on the borrower's debt load and financial circumstances.

But for worried credit union members holding non-credit-union mortgages, the fall in value can make it impossible to refinance.

“Certain people can't be helped because they never should have gotten into the loans to begin with,” Volle said.

Still, lower rates mean that adjustable loans may not reset as high as many owners were fearing some months ago.

Credit unions with 10 million members in the state represent about 6 percent of the California deposit market, but Volle said they have done little to market themselves to real estate agents, who often influence where clients take their mortgage business.

With the departure of many mortgage brokers from the business as the housing market has worsened, he said, credit unions are getting more attention from their members. He estimated credit unions have gone from 1 percent or 2 percent of the mortgage business to 3 percent or 4 percent.

“We don't make up a huge segment of the mortgage market,” he said. “But with the exodus of a lot of folks, we're seeing our market share grow generally because there are fewer players.”

Previously, only one-third of mortgage loans were for new purchases, the rest for refinancing and home equity loans, he said. Now, new purchase mortgages make up about half the activity at some credit unions.

Showley, R.  (2008, December 30). Mortgage Loans Rise At Credit Unions. The San Diego Union Tribune. Retrieved. From http://www.signonsandieog.com

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Posted By: John Ulzheimer, Contributor to CNBC
Wednesday, 24 Dec 2008

2009 is sure to be a watershed year for how we make, spend and save our money. Particularly, the world of credit is in for a major shake-up. Here's what I expect in the new year:

1. More consumer credit lawsuits. Because of adverse actions taken by lenders to lower credit limits and close the credit card accounts, millions of consumers now have lower credit scores and don't understand why. We're predicting consumer's who have done nothing wrong and class action attorneys will take a very dim view on the credit card industry's attempts at mitigating their risk by modifying terms of their customer's accounts.

2. A rush to join credit unions. Little or no exposure to subprime mortgages, no shareholders to impress every three months and plenty of money to lend seems like the tri-fecta to me. Add to that the same level of insurance for your deposits and overall better treatment of their members compared to that of the large banks and this is a slam dunk. As I've said on more than on occasion, you're nothing but a number. 2009 sees consumers growing tired of that moniker and flock to credit unions where they truly are more than three digits and a credit report.

3. Sweeping credit card reform and early adoption. A new set of credit card rules was approved on December 18th by the Office of Thrift Supervision, the National Credit Union Administration, and the Federal Reserve. The new rules mean many more protections for consumers that include longer grace periods, fewer fees and no more Universal Default. The rules take effect in July 2010 but you should expect early adoption in 2009 by many of the 16,000 credit card issuers.

4. A new credit usage paradigm. This is the silver lining of the credit meltdown. Millions of credit users, both young and old, will recognize that credit is a privilege, not a right. They will use this credit disaster as motivation to learn more responsible methods of credit management. Paying 24% interest on credit cards and car loans is just flat out punishing. Many will see the light ... and just in the nick of time.

5. FTC smackdown part II. Credit repair organizations felt the sting of the Federal Trade Commission in 2008. 2009 it's the debt settlement industry's turn to learn what it means to have "ill gotten gains." Too many bad apples in this space overshadow any company who legitimately tries to follow ethical business practices. In lieu of the smackdown we may see new regulations governing how these companies do business and how much they can charge.

6. AnnualCreditReport.com will be busier in 2009 than any year except for 2005, when the free credit report laws rolled out nationally from West coast to East. Consumers who don't claim their Federally mandated free credit reports have been hiding in a cave for the past six months.

7. Academia to the rescue. Thankfully we'll see more institutions of higher ed run with the financial responsibility torch. Already schools like the University of Georgia and professors like Dr. Brenda Cude are introducing some of their seniors to consumer credit education that does more than just explain what interest rates are. Thumbs up also goes to Counselor Alicia Davis and The Westminster Schools in Atlanta for doing the same for their high school seniors.

8. Credit Repair Organizations Act ... a rewriting. If this doesn't happen it will be a crying shame. The law is too broadly written and prevents legitimate organizations such as the credit bureaus, Fair Isaac and boutique cred-ucators to subsidize the cost of education. When the credit bureaus and Fair Isaac have to settle lawsuits accusing them of being credit repair organizations then you know something is wrong.

9. More people depending on payday lenders. These guys get a lot of bad press but I've never seen an industry do a better job educating consumers why you SHOULDN'T use their services. A payday loan is a low dollar loan meant to be paid back in short order, a few weeks in some cases. You give them access to your checking accounts so they're gonna get paid back. As more people find it impossible to get loans with mainstream lenders the next step on the way toward Tony Soprano type lenders are the payday guys.

10. Some lender will develop amnesia and begin offering high LTV loans again. LTV stands for "Loan to Value" and it's a common term used in mortgage lending that represents the ratio of the amount borrowed to the appraised value of the home. In the past, mortgage lenders let consumers borrow more than their house was worth. So, you could actually have an "LTV" above 100%. And some really aggressive lenders would even go to 125% LTV. This was considered an acceptable risk because home values had always gone up. Those high LTV loans are next to impossible to find right now but, unlike the saber-toothed tiger, you can expect a comeback in late 2009.

John Ulzheimer is a nationally recognized credit expert, president of Consumer Education for Credit.com and contributor to On The Money. Learn more about him here.
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