Economist: Car loans to lead growth for credit unions

The top economist of a federal credit union regulator said Wednesday that there are challenges and opportunities ahead for credit unions’ loan portfolios.

John Worth, chief economist for the National Credit Union Administration, said in a video address that he expects auto loans to lead growth among all categories of credit union loans.

Auto loans were up 10.7 percent for credit unions in the second quarter of 2013 compared to the same period a year ago, he said. “That’s about twice as fast” as growth in other loan categories, Worth added.

But a steep drop-off in another loan category, mortgage refinancing, could be problematic for some credit unions, Worth said. He said mortgage refinancing volume has dropped more than 60 percent since mortgage rates began rising in early May.

“The sharp decline in mortgage refinancing will take a toll on refinancings at credit unions,” he said. “This may reign in loan growth and fee income at credit unions with a heavy re-fi focus.”

Two local credit union executives said a decline in refinancings won’t be a problem for their institutions.

Bob Thurman, president of Credit Union of America, said demand for those loans was already dropping before long-term mortgage rates began to rise in late spring.

“There was kind of a natural slowing already taking place,” said Thurman, whose institution is the second largest Kansas-chartered credit union. “The small rate movement upward did kind of turn the faucet down a little bit.”

Like Thurman, Chuck Bullock said a lot of mortgage refinancings were done by homeowners more than a year and a half ago.

As they began to decline, mortgages for house purchases began to increase, said Bullock, CEO of TECU Credit Union.

“That particular market is drying up in a hurry,” Bullock said of mortgage refinancing.

Bullock and Thurman agreed that auto lending is a leading category for their credit unions.

“Auto lending has been very good, very brisk this year,” Thurman said.

Bullock said he thinks that category is growing because consumers have slightly more confidence in the economy and they have waited longer than they normally would to replace their automobiles.

“I think there’s so much pent-up demand you’ve got folks saying it’s beyond time to do something with this rust bucket,” Bullock said.