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Filene Study: Mortgage Writing Increases CU Performance
MADISON, Wis. (11/20/13)--Credit unions that make more mortgage loans will be, on average, more profitable and grow more quickly, according to new research from the Filene Research Institute.
 
Filene states that credit unions hold a quarter of their assets in residential mortgages, and its report charts mortgage trends from the past three decades, revealing that these loans have "persistent positive effects on credit union performance."
 
The paper, Mortgages and Credit Union Performance: 1980-2011, documents how much the share of credit union assets held in mortgages rose in recent decades and estimates the size of the connections between mortgage share and credit union performance.
 
Findings from the study include:
  • Credit unions' direct holdings of mortgages grew rapidly over the past three decades, from only $3 billion in 1980 to $236 billion at the end of 2011. During that time, those holdings averaged 14% annual growth.
  • Mortgage holdings grew especially, at about 22% annually, during the 1980s. After the 1980s and until the financial crisis, growth slowed to 11%. From 2008 through 2011, nationally, credit unions still added mortgages at a 4% annual growth rate.
  • Credit unions' mortgage share rose fairly steadily from 5% in 1980 to 24% in 2011. On average, declines in mortgage share were rare and small, and occurred only when either macroeconomic or real estate conditions deteriorated considerably, as in the early 1980s and the early 1990s, and since the onset of the financial crisis.
  • As the number of smaller credit unions decreased and remaining credit unions grew in size, the percentage of all credit unions that held any mortgages rose from 17% in 1980 to 61% in 2011. By 2011, credit unions that held no mortgages accounted for only 3% of all credit union assets.
  • Averaged over the past three decades, individual credit unions that had more of their assets in mortgages had slightly higher returns on assets (ROAs) and higher inflation- adjusted asset growth.
  • On average, from 1980 to 2011, credit unions that boosted their mortgage share by 10% raised their ROAs by one basis point, they had higher costs as noninterest expenses per assets rose by nine basis points, and their inflation-adjusted assets grew nearly 1percentage point faster.
  • The effects of mortgage share on credit union performance were larger more recently. Beginning in 2000, instead of the average one basis point boost to ROAs that we estimated for the entire 1980-2011 period, a 10% increase in mortgage share raised ROAs by an estimated six basis points.
To download the study use the link.

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