Garnet Capital Advisors Blog

EXCERPT: Credit unions saw loan originations tumble over the first few months of 2019, but things have returned to roughly the same level as last year. That said, some loan types have weakened, prompting credit unions to take measures to add to their portfolios.

Credit unions need to boost their loan portfolios so they're able to weather any potential economic downturn.

After a drop in loan originations among credit unions in the first quarter of 2019, things improved in Q2 and levels are back to 2018 levels, according to a report from Washington, DC-based credit union consulting firm Callahan & Associates.

As reported in an article in Credit Union Times, credit union loan originations plummeted 5.5 percent over the first quarter of 2019 after having climbed 8.6 percent from Q2 2017 to Q2 2018. But Callahan found that the financial institutions originated $136.5 billion in loans through the spring of 2019, spanning across all loan types.

It's forecasted that the returns will be slightly higher over the second quarter from the same time last year, thanks predominantly to higher interest income. And as the U.S. economy continues to do well, credit unions continue to realize strong earnings. Consumer spending is strong, and employment is up.

In fact, it's the robust consumer spending that is key to a strong economy. The Federal Reserve's latest decision to drop 25 basis points off interest rates may also help to make loans and mortgages more affordable, which can continue to bolster loan assets for lenders.

According to the Mortgage Bankers Association (MBA), home loan applications increased 21.7 percent during the week of August 12 compared to the week before. And it forecasts Q3 and Q4 home loan originations to increase 32.4 and 17.6 percent, respectively, with nearly all advancement coming from a boost in refinancing.

Mortgage originations have recently increased for credit unions, thanks to historically low interest rates.

With mortgage interest rates on a downward trend over the past few months, many homeowners are taking advantage and are refinancing their mortgages to save money over the long haul.

Real estate originations also increased 7.6 percent, though non-real estate loan production dipped 3.2 percent.

But while consumer spending and loan originations are crucial to a strong economy, things can change on a dime. Why is this important?

Any volatility in the market can leave credit unions and lenders scrambling if their loan portfolios aren't strong. Although mortgages may have bounced back from a tumble, other loan types are still down. And with trade wars with China still looming and concerns that a no-deal Brexit is still a real possibility, business investment has retreated slightly.

But there's plenty of opportunities to make the necessary changes to loan portfolios and add sound loan assets. Garnet Capital can offer credit unions high-quality loans with attractive yields. Garnet also has piggyback seconds available to credit unions and can plug the gap of non-real estate originations with portfolios and partnerships.

Credit unions should take the time to revisit their loan portfolios to ensure the right mix of assets, especially in the case of an economic downturn.

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