Credit unions are pessimistic about mortgage loan growth in 2014, according to the National Association of Federal Credit Unions (NAFCU). The Arlington, Va.-based NAFCU reported in its December Economic & CU Monitor survey that although credit unions are optimistic about member, asset and share growth in the near future, they expect first mortgage growth to slow.
Survey respondents predicted that in 2014, membership would grow 5%, compared to 2013's growth of 3.5%. Respondents also predicted their share growth for 2014 would be 4.8%, which would be better than this year's average growth rate of 3.7%. Asset growth would be 5.3%, compared to 2013 growth of 4.1%.
The mortgage business, however, looks less promising. Credit unions predicted that in 2014 overall loan growth would be 9%. While they expect credit card loans to increase 10% and new vehicle loans to increase 9.5%, first mortgage loans are forecast to increase only 4.1%.
The report points to uncertainty in the economy and new regulations as the reasons for the slowdown.
‘People will still be buying houses and getting mortgages, but there will be tougher requirements with qualified mortgages (QMs),’ says David Carrier, Ph.D., chief economist and director of research for NAFCU. ‘That's a big unknown. We don't know what effect the [Consumer Financial Protection Bureau's] qualified mortgage rule is going to have.’
Carrier says refinance activity is expected to decrease. Currently, refinances total 60% of all mortgage originations, and the association predicts that in 2014 that share will drop to 40%.
Credit unions agree that the mortgage business will slow in 2014, but some are looking at the bright side.
‘We've seen some unprecedented growth in our mortgage portfolio over the past few years,’ says Richard Whitman, vice president of mortgage lending for Texas Trust Credit Union. ‘I do anticipate growth slowing, but I do anticipate growth.’
Whitman adds that the Mansfield, Texas-based credit union has been anticipating the slowdown and will respond by focusing on other products besides refinancing. ‘They may not be entirely new products, but may be products that haven't been popular for awhile,’ he says. For example, adjustable rate mortgages (ARMs) are more suitable for the current environment of rising interest rates, and home equity lending might make a comeback as home prices increase.
Other credit unions are also optimistic.
‘We don't take the same view as far as how we will fare,’ Mark Coburn, senior vice president of lending development for State Employees' Credit Union, says about NAFCU's survey. ‘We are optimistic about the mortgage business.’
He agrees that this is a good time to develop new products or rethink current loan offerings. The Raleigh, N.C.-based credit union offers a two-year ARM and will launch a five-year ARM in 2014. State Employees' Credit Union does not offer 30-year fixed-rate mortgages. It ended its relationship with Fannie Mae and Freddie Mac five years ago and does not want to keep 30-year loans in its portfolio.
The upcoming QM rules, such as the 43% debt-to-income ratio limit for borrowers, will not affect State Employees' Credit Union's underwriting. ‘We feel like there are a lot of qualified borrowers and 43 is not a magic number,’ Coburn says. ‘We don't sell loans to the secondary market so we use our own underwriting criteria.’
Other credit unions don't offer details but say they are generally optimistic. ‘While rising rates and rising home prices are likely to dampen the available loan volume for all lenders, Navy Federal is optimistic about our opportunities in 2014,’ says Katie Miller, vice president of mortgage products for the Vienna, Va.-based Navy Federal Credit Union. ‘With the near evaporation of refinances from the market, total first mortgage volumes will be lower in 2014, but we are confident we will be able to meet every member's need and see significant growth among our purchase originations.’
Barry Stricklin, vice president of real estate lending for Tower Federal Credit Union in Laurel, Md., notes that the industry as a whole is already experiencing significant reductions in loan volume because of reduced refinancing. ‘Experts are predicting between a 25 percent and 50 percent decrease in loan volume in 2014. I think that will vary by lender but is not an unreasonable prediction,’ he says.
One unknown is consumer confidence. ‘Simply put,’ Stricklin says, ‘will consumers purchase homes in 2014, and will it be enough to replace a large percentage of the lost refinance volume?’
Bob Dorsa, president of the American Credit Union Mortgage Association in Las Vegas, says that's especially true for certain demographics. ‘Who's to say younger people are not going to say, 'Why would I want to own a home?'’ he says. ‘I don't know if the market is going to shrink, but the loan business will shrink. Still, families are being created and there will be a need for housing.’
Nora Caley is a Denver-based freelance writer.
