Mortgage Lending may Provide Opportunity in Economic Downturn Advised in 2008-09 CU E-Scan Top 10 Insights List

June 2, 2008

FOR IMMEDIATE RELEASE
Contact: Katye Long
CUNA Communications; (608) 231-4038
klong@cuna.coop

MADISON, Wis. - While the mortgage market continues to show signs of weakness, credit union mortgage lending has increased as members have come to refinance the “toxic” mortgages they received from other lenders. As loan growth slows in the coming years, mortgages and other loan products that are more insulated from economic downturn should be the focus of credit union lending, advises CUNA’s 2008/2009 Credit Union Environmental Scan (E-Scan).

Lending and the economy topped this year’s list of Top 10 E-Scan Insights, which identifies the key trends and challenges affecting credit unions in the coming years. The E-Scan is credit unions’ premier source of issues and trends affecting the financial services industry and is used to prepare for strategic planning sessions, budgeting, product development, and new initiatives.

The top insights, as identified by E-Scan analysts, are:

1. Economy – The economy will continue to present challenges for credit unions as it recovers from a mild but longer-than-normal recession. Negative trends are likely in the coming year, including rising delinquency and loan losses, falling net-worth ratios and net income, and a weak labor market.
2. Housing – To address problems in the U.S. housing market, the government must adopt regulatory changes that protect borrowers and maintain a competitive industry, as well as bring back market discipline and transparency.
3. Lending – Credit union loan growth will slow to 5 percent in 2008 and 6 percent in 2009; loan delinquency rates will rise, especially in areas with the biggest housing price corrections. To ensure future loan growth, it’s essential that credit unions do a better job of building relationships with Generations X and Y and look for opportunities in business, student, and mortgage lending.
4. Earnings – Credit union return on assets (ROA) is expected to fall to 0.53 percent in 2008 as deteriorating credit quality and slower loan growth reduce earnings to the lowest level since 1980. Credit union capital-to-asset ratios are expected to decline from a record high in 2007. Most credit unions have built strong capital cushions over the past decade and should let that cushion protect their credit unions during this temporary decline in net income.
5. Membership growth – Membership growth was 1.7 percent in 2007, but if you factor out new members who enter fields of membership through the indirect lending channel, membership growth rates appear to be on the decline. More than half (53%) of credit union CEOs say superior service is their most successful strategy for attracting new members and improving the bottom line.
6. Competition – Credit unions are part of a mature industry whose numbers are shrinking as an aging business model constricts new growth opportunities. Large retail banks and other competitors have immense resources that are far beyond the reach of most credit unions unless they innovate and collaborate.
7. Collaboration – When surveyed informally, two-thirds of CEOs of large credit unions identified collaboration among credit unions as critical or very important. Credit unions will be well-positioned for the future if they leverage their members’ loyalty and their reputation as consumer advocates and look to their rich cooperative heritage and opportunities for collaboration to reduce costs and to subsidize the price tag of innovation.
8. Regulation – Although focusing on lending, credit unions’ analysis of all types of third-party vendors before contracting with them and during the life of the contract will be a high priority for NCUA examiners in 2008 and beyond.
9. Legislation – The Treasury Department’s plan to overhaul the financial regulatory system would call for the creation of a “prudential financial regulator” and a new type of charter that would consolidate the national bank, federal savings association, and federal credit union charters. Opposed to the plan, CUNA received assurances from House Financial Services Committee Chairman Barney Frank (D-Mass.) that any proposal to do away with credit unions “will go nowhere.”
10. Technology – Financial institutions will increase their technology spending at a slower pace than previous years. Credit unions are committing the greatest percentage of their technology budgets to software needs (26%), followed by hardware (23%), data/voice communication (14%), and online banking (11%).

In addition to the top 10 insights, the E-Scan analysis is divided into key issue areas: competition and collaboration, demographics; economics; marketing; lending; technology; products and services; payment systems; human resources; and legislation and regulation. Additionally, the E-Scan covers more than 50 important credit union topics and 125 strategic implications for planning.

The E-Scan is available in three formats - report, PowerPoint presentation, and DVD - for use in planning, presentations, and discussions. The PowerPoint presentation contains more than 100 slides that can be mixed and matched to meet specific needs. The 30-minute video provides a concise overview of the report.

New this year is the E-Scan Strategic Planning Kit to help guide credit unions through a step-by-step strategic planning process to achieve actionable short- and long-term goals. In addition to the planning guide and accompanying resources, the kit also includes the DVD and 12 copies of the E-Scan report.

For more information or to order CUNA’s 2008/2009 Credit Union Environmental Scan resources, visit advice.cuna.org and click on “Reports,” then “Strategic Research,” or call (800) 356-8010, press 3, and ask for stock number 28100 (report), 28102P (PowerPoint), 28101 (DVD), or 28301K (strategic planning kit).

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With its network of affiliated state credit union leagues, Credit Union National Association (CUNA) serves 90 percent of America's 8,500 credit unions, which are owned by more than 90 million consumer members. Credit unions are not-for-profit cooperatives providing affordable financial services to people from all walks of life. For more information, visit www.cuna.org.

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