January 2017 - The World's Local Bank

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TH E M R EP O RT | 45 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Credit Union Growth Hits New Heights in Q3 First mortgage originations was a main source of growth for credit unions over the year and particularly in the third quarter. C redit unions experienced phenomenal growth in 2016, and particularly in the third quarter, sur - passing 106.2 million members and $1 trillion in deposits during Q 3, according to the National Associa- tion of Credit Unions (NCUA). The delinquency rate for fixed real estate at federally insured credit unions was down by 12 basis points over the year in Q 3, from 65 points to 53 points, ac- cording to the NCUA. The overall delinquency rate was 77 basis points, an over-the-year decline of 1 basis point. First mortgage originations were a major driver of balance sheet growth for credit unions in Q 3, ac - cording to analysis from Callahan & Associates. With an increase of 9.2 percent over the last 12 months, first mortgage balances ranked second behind only auto loan balances (13.8 percent) in Q 3. "By almost any measure, America's credit unions as a whole continue to grow," NCUA Board Chairman Rick Metsger said. "Rising credit union mem - bership has boosted deposits, and loans have continued to grow at a double-digit pace. At the same time, the overall delinquency rate has held steady, and the shift away from long-term investments has continued. Despite these positive trends, federally insured credit unions must guard against risks on the horizon like rising in - terest rates and regional economic downturns, particularly in energy- producing states." The growth experienced by credit unions has created a greater demand for outsourcing mortgage origination services, according to Altavera Mortgage Services. Altavera reported that demand for its outsourcing services was 30 percent higher in Q 3 compared to last year, primarily due to increased compliance costs and higher mortgage origination vol - umes. The CUNA Mutual Group reported in September that first mortgage originations at credit unions grew by 3.3 percent and home equity loans and second mortgage originations grew by 20 percent over the year in the first half of 2016, according to Altavera. "Reports early this year indi - cated that the credit union market was experiencing atypical growth, and our own observations confirm it," said Altavera Chief Operating Officer Debora Aydelotte. "By almost any measure, America's credit unions as a whole continue to grow." —Rick Metsger, Board Chairman, NCUA The Search for the 'Missing' Mortgage Loans Cautious lending has blocked 1.1 million loans from the market in 2016. I f the same lending stan- dards had been in place in 2015 that were in effect in 2001, mortgage lenders would have made 1.1 million more loans than they did last year, according to new analysis from Urban Institute's Housing Finance Policy Center (HFPC). In fact, lenders made 6.3 million fewer mortgage loans from 2009 to 2015 than they would have if "reasonable" lending standards had been in place, according to the HFPC. This number of "missing loans" in 2015 corresponds with a decline in the number of annual mortgage loans made—from 4.6 million in 2001 down to 3.5 million in 2015, the HFPC reported. According to the Urban Institute, the reasons for the tight credit box include overlays, which are restric - tions lenders put in place out of concern that they will have to repurchase the loan if it defaults; increased costs to service loans that are delinquent; and concerns lenders have over potential litiga - tion for loans that are imperfect. "While the tight credit box persists to the frustration of bor- rowers, lenders, and policymakers, there has been modest progress," wrote Laurie Goodman, Jun Zhu, and Bing Bai, the authors of the report. They also stated, "(Federal Housing Finance Agency) has tak - en many steps to address overlays, and the FHA (Federal Housing Administration) has taken some, but far fewer, steps. Nevertheless, this latest figure supports the urgency of continuing regulatory and other reforms that will make mortgages more accessible to all creditworthy borrowers." The lending standards in place since 2008 have mostly affected borrowers with less-than-perfect credit. In the 14-year period from 2001 to 2015, the number of borrowers approved for a new mortgage loan with FICO scores higher than 700 declined by only 1.4 percent (2.35 million to 2.32 mil - lion). By comparison, the number of new-purchase borrowers with FICO scores between 660 and 700 dropped by 20 percent (861,000 down to 686,000) and the number of new-purchase borrowers with FICO scores below 660 dropped off by 65 percent (1.43 million down to 503,000), HFPC reported. Had the same lending stan - dards from 2001 been in place in 2015, HFPC estimates the 660 to 700 and the sub-660 borrowers would have experienced the same 1.4 percent decline that the bor - rowers with scores higher than 700 experienced. The authors estimate that with 2001 standards in 2015, lenders would have made 911,000 more loans to the sub-660 bucket and 163,000 more loans to the 660-700 bucket, hence the 1.1 million "missing" loans. "These missing loans don't just mean 1.1 million families are deprived of sharing in the critical wealth-building opportunity of homeownership," the authors wrote. "Fewer home sales also mean fewer construction jobs and lower sales of consumer goods that homebuyers purchase when they move into their new resi - dence. Ultimately, this loss slows the entire U.S. economy."

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