Garnet Capital Advisors Blog

EXCERPT:  Some consumer loan products are slowing significantly among credit unions, while mortgages continue to remain a strong segment. Overall, credit union loan balances have gone back to their relatively weak pre-pandemic growth rates.

Loan growth among credit unions has reverted back to rates seen before the COVID-19 pandemic struck, but first mortgages now mark the biggest growth area on the books.

According to a recent Credit Union National Association (CUNA) report, credit union loan balances have resumed to the somewhat weak pre-pandemic growth rates.

Offsetting these weaker rates, however, are first mortgages, which comprise the only major sector keeping portfolio growth up. First mortgage portfolios increased 12.3 percent to $509.4 billion as of August 31, 2020, after lows of between 7 percent to 9 percent increases over January and February. From March to July, those increases jumped from 11 percent to almost 14 percent.  

According to CoreLogic’s most recent Home Price Index, single-family home prices were 5.6 percent higher this past August compared to last year and 1 percent higher from the month before.

Thanks in large part to historically low mortgage rates, home purchasing activity remains strong. At the same time, housing inventory is unable to keep up with demand. In August, housing supply plummeted 17 percent year-over-year, driving prices up.  

Certain Consumer Loan Products Showing Signs of Slowing

At this same time last year, credit cards and unsecured personal loans showed strong growth rates. Consumer loans like these are traditionally the most profitable area for credit unions, prompting them to seek other options to supplement their loan portfolios.

As per CUNA's Credit Union Monthly Estimates report, total portfolios were $1.18 trillion as of the end of August, an increase of 6.6 percent from the same month in 2019. From August 2018 to August 2019, total loans rose 6.4 percent but then dipped to 6.1 percent for November. By March 2020 - just before the pandemic hit full force - total loans increased to a high of 6.9 percent.

Despite the World Health Organization's (WHO) announcement of the coronavirus pandemic by mid-March, overall portfolio growth only slowed a little.

Personal loans and credit cards were grouped together in a category dubbed "unsecured loans" in the CUNA report, which showed a balance of just over $113 billion by the end of August 2020, a 2.3 percent increase from the year before.

The biggest change for credit unions has been the steep decline in personal loans and a downward descent in auto lending. Total car loans increased just 2.5 percent from August 2019 to August 2020, compared to an increase of 8.8 percent during the same time period the year before.

Last year, personal loan portfolios among credit unions were increasing nearly 9 percent, while credit card growth held steady at 7 percent. But by the time the second quarter of 2020 started, growth of personal loans dropped less than 3 percent, while credit cards sank almost 6 percent.

Purchasing Memberized Loans Can Help Boost Credit Unions' Portfolio Strength

Loan growth among credit unions in the most profitable area - short term, high-quality consumer loans - has slowed dramatically. That said, credit unions can supplement their organic production by buying memberized loans and participations, and Garnet Capital has available portfolios for purchase.

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