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The latest ANALYTICS Or ig i nat ion On the Up and Up The FHFA's monthly rate index rose in January, another sign that recovery is on the way. F ederally insured credit unions brought in record-high earnings last year, the National Credit Union Administration (NCUA) reported. NCUA reported earnings of $8.5 billion across the industry in 2012, the highest annual figure ever posted. Earnings last year were 36.1 percent higher from the $6.3 billion reported in 2011. According to the administration, the rise in earnings came largely from reductions in loan loss reserves, "a positive sign of improving economic conditions." Meanwhile, the industry's return on average assets ratio—a measure of industry earnings— stayed constant at 86 basis points in last year's fourth quarter. Membership in federal credit unions also grew, jumping from 91.8 million at the end of 2011 to 93.8 million at the end of 2012, an increase of 2.2 percent. The number of federally insured credit unions fell by 275 as the industry consolidated, closing the year at 6,819. At the end of the fourth quarter, federal credit unions had an estimated $597.7 billion in outstanding loans, an increase of $6.6 billion (or just more than 1.1 percent) quarter-over-quarter and $26.3 billion (or 4.6 percent) for the year. Lending for first mortgage loans increased 1.2 percent during the quarter and 5.7 percent for the year, reaching $246.3 billion. Credit unions' total assets grew by $8.8 billion in the fourth quarter and $60 billion for all of 2012 to end the year at a little more than $1 trillion, NCUA reported. At the same time, industry net worth rose to $106.7 billion, up $2.2 billion for the quarter and $8.4 billion for the year. Net worth ratio, a measure of capital strength, was 10.44 percent, up 13 basis points quarter-over-quarter and 23 basis points year-over-year. As far as performance goes, NCUA noted growth was most robust in credit unions with assets of $250 million or more. This group—comprising 751 credit unions—showed the largest gains in almost every category, including membership, net worth, market share, loans, and assets. While smaller credit unions tended to have higher net worth, they showed slower growth; credit unions with assets under $10 million had a loss of overall membership and sluggish loan growth compared with those with assets greater than $250 million. "The composition of the credit union industry is changing, which presents challenges," said Debbie Matz, NCUA board chairman. "Small credit unions are important to their members and their local economies. It's our job to monitor their health and, to the extent possible, find ways to keep them sustainable." While Matz added that "[t]here are many reasons to be optimistic about the credit union industry's future," she warned that fixed-rate mortgages make up a large share of assets as a result of today's low interest rates and "could pose a long-term risk for the industry." The M Report | 59 se c on da r y m a r k e t Nationwide, credit unions are seeing record numbers in terms of earnings and membership. a na ly t ic s Credit Unions Continue to Rise in Popularity Among Consumers s e r v ic i ng A ccording to the Federal Housing Finance Agency (FHFA), the National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders—used as an index in some adjustable-rate mortgage (ARM) contracts—was 3.35 percent based on loans closed in January, up 6 basis points from the previous month. The contract rate on the composite of all mortgage loans (fixed- and adjustable-rate) was 3.34 percent, up from 3.28 percent in December. The effective interest rate, which reflects the amortization of initial fees and charges, was 3.46 percent, up from 3.42 percent. FHFA's monthly rate index is calculated from its Monthly Interest Rate Survey of purchasemoney mortgages. The results reflect loans closed during the January 25–31 period. Typically the interest rate is determined 30 to 45 days before the loan is closed, meaning January's reported rates depict market conditions prevailing in mid- to late-December. The report contains no data on ARMs due to insufficient sample size. Initial fees and charges were 0.95 percent of the loan balance in January, down 20 basis points from December, FHFA reported. Twenty-six percent of the purchase-money mortgage loans originated in January were "no-point' mortgages, up from 11 percent in December. The average term was a bit shorter: 27.1 years, down 0.3 years from December. Meanwhile, the average loanto-price ratio in January was 76.4 percent, up 0.1 percent from the prior month. The average loan amount in January was $254,700, down $19,400 from December.