WASHINGTON — With other financial institutions pulling back on lending, many analysts have been stressing this is an opportunity for CUs to gain marketshare. But is it possible that in the rush to gain share credit unions have made loans that other lenders rejected for good reason?
Bill Hampel, CUNA's chief economist, said that's unlikely.
"If a borrower has been to five places and then turned down, and then goes to a credit union, it's not going to be a good loan," Hampel explained. "The credit union marketshare [increase] is not that they've been getting turned down. It's that a lot of other lenders are just not in the market right now."
Hampel noted that while everyone has been hurt by the economy the past two years, other lenders have been stung worse than CUs, adding that caution must remain the mantra. "One of the notions of a credit crunch is when people with good credit can't get loans," Hampel said. "Credit unions have to be careful."
Hampel acknoweldged that some prospective borrowers credit unions are getting are from those who see CUs as a last resort. "I suspect those are getting turned down," Hampel said. "If [credit unions are] using their normal underwriting standards - and I'm suspecting they are - and are seeing an increase in demands for loans, I don't think there's a dark side in that sense."
NAFCU president Fred Becker agreed, suggesting the majority of credit unions are actually tightening their standards for auto loans, mortgages, and other loans. "I know a lot of credit unions who wrote second mortgages even if they didn't write the first mortgages, and they don't any more," he said, as an example. "We track delinquency rates, charge-off rates, bankruptcies, etc., and compare this against banks. We look so much better than the banking industry, and our quality of loans is so much better than the banking industry."
Mortgages are one of the top loans credit unions are gaining marketshare with, Hampel said.
"The number of institutions that exist in mortgages has decreased. And more people come to credit unions, on their own and through Realtors, because credit unions have more money to lend," he said. "And there is no implications that these loans were risky."
Becker said that credit unions are picking up marketshare on mortgages as a result of the "industry going away. I think that is what is occurring. I don't think credit unions are being less conservative than the past. In fact, they're being more so."
Dave Colby, CUNA Mutual Group chief economist, concurs. "The recent surge in marketshare is because the crazies have left the street," he said. "Most credit unions have tightened up their standards. They're not getting the cast-offs. Credit unions are doing their homework. With fewer lenders out there, more people are coming to credit unions. I am not concerned at all. Credit unions-we're not quick to change. We don't change our underwriting standards when everyone is loosening theirs."
With an average yield of 6.29% on loans, compared to an average yield of 2.79% on investments, "right now, loans are still the way for credit unions to go," Colby reminded.
NAFCU's Becker pointed to a related issue. "The banks got all this TARP money and chose not to use it for lending," he said. "And as a result of that vacuum, credit unions can pick up marketshare." And these loans are not bad loans, Becker stressed.
To prevent problems with any loan, risk management is critical, Colby stressed. "The faster you can get to a [delinquent] borrower is better for both the borrower and the credit union," he said. "Most credit unions have probably accelerated that time between one missed payment and the time between member contact."
When it comes to credit cards and commercial loans, "it's the same story there," Hampel said, noting that just like mortgages and other loans, there are fewer financial institutions seeking to make credit card or commercial loans, so it's not so much a matter of being a last resort as it is about being the only resort.
"How many credit card solicitations have you gotten this past year compared to three or four years ago?" he asked.
When it comes to credit cards, Colby said the "others aren't being particularly aggressive, and are lowering their credit limits. Chances are they're not getting the volume they were once used to. I guess I'm not concerned about that, either."
As for commercial loans, Colby noted that credit unions still represent just 5.3% of that market. "I do think more people will be going to credit unions. I'm not sure what credit unions will be doing. There may not be an opportunity there."