Credit unions are increasing their participation in the mortgage origination market at a faster rate than other financial institutions more than five years after the depths of the financial crisis, according to a new report from TransUnion.
In the first quarter of 2015, credit unions accounted for 11% of all mortgage originations, up from 7% in the first quarter of 2013. That 11% figure marked the highest such level since 2010.
TransUnion's study, which also included a survey of 90 credit union executives, indicated that almost six-out-of-ten respondents said that the number of mortgage originations provided to their members had increased over the past two years.
"In the last year alone, it appears significantly more credit union executives are seeing growth in this area. Credit unions are becoming bigger players in the mortgage loan market, something that may serve them well in the future as the housing market continues to recover," said Nidhi Verma, director of research and consulting in TransUnion's financial services business unit.
However, TransUnion noted, the overall number of mortgage originations had declined "substantially across the board" in the last few years, while that decline had been "less dramatic" for credit unions.
Indeed, between 2012 and 2014, credit union mortgage originations dropped by 24%, compared to 48% for the rest of the mortgage market. Moreover, the recovery from that drop has been stronger for CUs, as well: between the first quarter of 2014 and first quarter of 2015, such originations have jumped by 35%, compared to just 15% for the rest of the market.
Verma told Credit Union Journal that a constellation of factors help to explain the outperformance of credit unions with respect to mortgage originations. "We are seeing a move from refinancing to purchases, amidst an environment of low interest rates," she said. "Credit unions have also promoted their products better to a new class of customers like first-time buyers and Millennials."
In addition, in the non-prime mortgage origination space, credit unions experienced 25% growth in first quarter of 2015 while the rest of the industry grew at only a 4% clip.
"As the U.S. economy continues to recover, non-prime mortgage originations are growing for both credit unions and the rest of the industry," said Verma. "Historically, credit unions have seen lower delinquency rates than the rest of the industry, and their focus on membership expansion makes them well-positioned to take advantage of this growth."
But mortgages aren't the only bright spot for credit unions.
TransUnion's survey also revealed credit union executives are looking at auto loans as the most promising segment of the market for this year. Almost one-half (48%) of respondents picked auto loans as the No. 1 target for growth over the next 12 months (up from 46% a year ago).
"Auto loans have proven to be one of the key growth opportunities for credit union executives in the past and should continue to do so in the future," said Verma. "Auto loans are especially appealing because of the high demand for both new and used vehicles, as well as continued low delinquency rates."
Between first quarter 2014 and first quarter 2015, credit unions witnessed a 7.4% increase in newly-issued auto loans, versus only a 2.1% upward edge by the rest of the industry.
As an example of how credit unions exercise a more conservative underwriting protocol, subprime comprised only 12.5% of all new loan originations in the first quarter of 2015 for credit unions - about one-half the 25% figure for other financial institutions
"Credit unions continue to be relatively conservative compared to the rest of the industry," said Verma. "Credit union delinquency rates are half the rate of the rest of the industry, which is a reflection of how credit unions manage risk distribution in this market."
Separately, TransUnion also found that the average durations of auto loans are lengthening. Consider that in the first quarter of 2010, about one-third (32%) of auto loans originated by credit unions had durations of more than 60 months. By the first quarter of 2015, the figure had jumped to 47%
According to the aforementioned survey of credit union executives, about 39% of respondents said that more than half of their auto loan originations are now of 60 months or greater in length.
"These data points clearly show that greater loan lengths are one of the drivers of growth in the auto market," added Verma. "In the current low interest rate environment, longer loan durations allow consumers to buy new or used cars with lower monthly payments that fit within their budget. The increase in loan durations shows lenders are meeting those consumer needs."
David Brydun, vice president of consumer lending at Baxter Credit Union, a $2.2-billion institution based in Vernon Hills, Ill., said that while the average durations are up, car prices have also increased. But, once again, with low interest rates, the cumulate effect is that more consumers are able to make the monthly payments for more cars.
Stephanie Zuleger, vice president/chief lending officer at Y-12 Credit Union, an $838-million institution based in Oak Ridge, Tenn., commented that credit unions have generally recovered from the financial crisis better than other financial institutions because they stuck with their members through the worst times, thereby building up loyalty to the credit unions.