For mortgage shoppers looking to purchase or refinance their homes through credit unions, you may have to expect tighter lending standards.
Per a recent report by the National Association of Federally-Insured Credit Unions, regulatory changes are prompting the industry to adapt tighter standards, potentially eradicating loose lending tactics that created the boost of most of the lending volume last year.
Credit Unions vs Banks
NAFCU’s 2017 Report on Credit Unions looked into five key areas: trends in credit unions, credit unions’ service to their members and the use of Federal Reserve services, legislative issues facing credit unions, and the emerging challenges that credit unions face today.
The report gathered insight and data from the NAFCU’s Federal Reserve meeting survey and the organization’s Economic & CU Monitor, CU Industry Trends Report, and a 2017 study titled Economics Benefits of the Credit Union Tax Exemption to Consumers, Businesses, and the US Economy.
Per the report, credit unions has had a considerably lower failure rate than banks. Credit unions have made only 174 failures since the Recession compared to banks’ total failure count of 520.
The report also noted the foremost challenges that credit unions face today, namely: a) consolidation which slowly erodes the number of credit unions, b) regulations, particularly Federal Reserve compliance, and c) cybersecurity which is reported to cost the industry $362,000 annually.
In terms of delinquency ratios, credit unions also performed better than banks with only 0.75 percent compared to 1.23 percent in banks and 0.94 percent in community banks. Credit unions’ annual economic contribution is also reported to a total sum of $16 billion.Need a mortgage? We can help.
Mortgage lending is where the bulk of the industry’s growth became more apparent as changes in regulations significantly impacted the performance of credit unions. In 2016 when lending standards were loosened, the industry showed a more positive performance. A stark difference is evident just a year after when the Consumer Financial Protection Bureau (CFPB) imposed a rule that provides protection to prime loans that meet the qualified mortgage standard.
As a result, many credit unions stopped originating non-qualified mortgages (40 percent) while a 2017 data revealed an addition of 17 percent more reductions.
As more credit unions adapt to changes in regulations, the future for credit union mortgage lending may become tougher than they once used to be. This presents a challenge for both credit unions and borrowers.
For starters, tightened regulations would result to a decline in origination volumes. That means they would have to take a blow in their finances. In addition, the new standards may also scare away even qualified borrowers. Fueled with some misconceptions about mortgages, many of them may back off and look for a deal elsewhere, possibly with non-prime originators whose promise of more lenient standards and faster loan processing suddenly seems like saving grace.
But is it really all for bad ends? Looking at it from another perspective, the lending standards are imposed to protect lenders from loaning money to people who can’t pay them. It protects their interests while also preventing people from taking on debt that may only damage. It also prompts borrowers to make better preparations when deciding to get a mortgage.
A good resolve, given the current state of things, is to ensure that borrowers are properly educated about the mortgage process, to let them know about their options and alternatives, and to make sure that they have the appropriate channels through which to tap into these opportunities.
Credit unions are easy portals for individuals who want to get home financing. Compared to traditional banks, CUs typically have more friendly terms and competitive interest rates for their members. While the news may have a bad ring at the outset, it is important that you talk with your local CU first to clarify any changes before you dive into anything that promises an easy way out.Click to See the Latest Mortgage Rates»