How to Navigate the Changing Mortgage Market

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Coming out of the most unprecedented moments that most of us will experience, it can be difficult to look to the future with confidence. With economic conditions constantly changing during the pandemic, many credit unions are wondering how to anticipate the next trends and find opportunities to serve more members.

When it comes to mortgages during the pandemic, the market has seen an increase in purchase loans and refinances due to record interest rates. Before COVID-19, mortgage interest rates were on average 3.65% in January 2020, reported Freddie Mac. They hit their lowest level ever in the first week of 2021 at 2.656%, and climbed only modestly to 2.90% in July.

As economic conditions continue to change, what should credit unions consider?

Purchase mortgages are expected to remain strong as Millennials continue to buy homes. While CUNA Mutual Group (CMG) expects purchase mortgages to increase by more than 10% over the next year, the mortgage refinancing boom is expected to wane over the next year, refinancing operations to fall by 50% over the next 12 months.

When looking for opportunities, here are the key areas to look out for:

  • Credit unions should pay attention to the direction of monetary policy and when the Federal Reserve begins to scale back its bond buying program known as quantitative easing. Currently, the Federal Reserve purchases $ 80 billion in Treasury securities and $ 40 billion in mortgage-backed securities each month. It will begin to reduce those numbers over the next 12 months, which will push up market interest rates and slow down the housing market.
  • Expect 30-year mortgage interest rates to drop from 2.9% to 3.5% by the end of 2022, due to rising real interest rates and expectations of rising inflation.
  • With return on credit union asset ratios reaching record highs in 2021, credit unions are increasing their fixed-rate mortgage portfolios by 12% over the past year in an effort to reduce the decline in their loans. loan-to-equity ratios.
  • CMG believes home prices will likely rise at rates in the 8-10% range over the next 12 months, as strong millennial demand keeps demand strong in the face of limited supply.

One of the keys for credit unions is to develop a more creative first mortgage strategy that unleashes the full power of your portfolio to help you meet the needs of members, as well as set your credit union apart. from home buyers and real estate agents. It can also help your credit union beat expected industry averages by increasing your loan and membership growth.

Consider two examples implemented by credit unions today to stand out in their markets and offer current and potential members something beyond the same vanilla loans everyone else in the market offers.

Michigan First Mortgage, a division of Michigan First Credit Union ($ 1.4 billion, Lathrup Village, Mich.), Offers homebuyers a mortgage product called Turning Point, a unique alternative not found on most lender websites. This portfolio product is designed to provide a path to successful homeownership after a member has experienced a significant event in their life, such as illness, job loss, or divorce.

“Turning Point provides a financing opportunity for an otherwise helpless homeowner and helps build a generation’s home ownership dreams. Michigan First Mortgage Manager explained. “We believe that owning a home is a privilege, not a right, and Turning Point offers this privilege to members who want to get the job done.”

A similar story of using the power of the institution’s wallet can be found at American Eagle Financial Credit Union ($ 2.3 billion, East Hartford, Connecticut).

As Patty Mason, Vice President of Real Estate Loans and Services, described it, “We use our portfolio offerings as a key part of our money buying strategy. We offer the Community Pro program to meet the different needs of our first-time buyers up to 97% LTV. Additionally, to help our members move to more expensive housing, we offer jumbo loans up to 95% LTV, which is unique in our area. These offers also help us in our marketing efforts with local real estate agents.

These are just a few examples of developing niche programs to attract new members and referral partners. There are of course many other money-buying strategies a credit union could deploy, including a training program for first-time homebuyers and using data to quickly identify which members are currently selling their home. home or plan to prepay their loans. And the list continues.

The pandemic we are all so anxious to put behind us has changed us in many ways. What has never gone away – and will never go away – is the fact that credit unions are in a unique position to better serve the needs of their members. And those who embark on a first mortgage buying strategy aimed at prudently using the power of their portfolios will be poised for growth the remainder of this year and beyond.

Steven rick

Steve rick Director and Chief Economist CUNA Mutual Group Madison, Wisconsin.

Chris Perry

Chris Perry Vice-President – Sales, National Director of Credit Unions MGIC Milwaukee, Wisconsin.

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