Mortgage Study Shows Credit Union Members Pay Lower Interest Rates

February 2020
Mortgage Study Shows Credit Union Members Pay Lower Interest Rates

Board Action Bulletin

Share Insurance Fund Assets Grow in 2019; Equity Ratio at 1.35 Percent

ALEXANDRIA, Va. (Feb. 20, 2020) – The National Credit Union Administration Board held its second open meeting of 2020 at the agency’s headquarters today and unanimously approved two items:

  • A joint agencies’ policy statement to financial institutions on measuring credit losses under the current expected credit loss methodology and on changes in accounting standards.
  • A proposed rule to update, clarify, and simplify several provisions in the agency’s corporate credit union regulations.

The Chief Economist briefed the Board on a study of mortgage interest rates.

The Acting Chief Financial Officer briefed the Board on the performance of the National Credit Union Share Insurance Fund.

Study Shows Credit Union Members Pay Lower Interest Rates on Mortgages

According to a study by the NCUA’s Chief Economist, credit union members could save thousands of dollars on their mortgages when compared to borrowers at other financial institutions.

Analyzing 2018 Home Mortgage Disclosure Act data — the most recent available—and applying appropriate filters to remove likely errors, the study finds:

  • Mortgage loans originated by credit unions generally carried lower interest rates than mortgage loans originated by other lenders;
  • The median interest-rate spread for credit union mortgages was 9 to 14 basis points lower than for other originators;
  • The discount in rates for credit union loans generally was observed in both urban and rural areas; and
  • Statistics for three credit risk indicators — credit scores, combined loan-to-value ratios, and debt-to-income ratios — suggested that differences in mortgage rates were not likely the result of differences in credit risk.

The lower interest rates could save credit union borrowers thousands of dollars over the life of their mortgage loans, the study finds. A borrower with a $175,000 mortgage, for example, could see total principal and interest payments nearly $5,000 lower with a 14-basis-point spread.

A slide deck summary of the Chief Economist’s presentation is available online.

Share Insurance Fund Continues Positive Trends

The National Credit Union Share Insurance Fund reported a net income of $169.7 million and a net position of $16.6 billion for 2019.

The fund’s assets rose to $16.7 billion at the end of the year from $15.8 billion at the end of 2018.

As of Dec. 31, 2019, the Share Insurance Fund’s calculated equity ratio was 1.35 percent, an increase from 1.33 percent reported as of June 30, 2019. The equity ratio is calculated on an insured share base of $1.2 trillion. The equity ratio was lower than the normal operating level of 1.38 percent.

For the fourth quarter of 2019:

  • The number of CAMEL codes 4 and 5 credit unions decreased to 190 from 200 in the third quarter of 2019. Assets for these credit unions decreased 3.6 percent from the third quarter of 2019, to $10.8 billion from $11.2 billion.
  • The number of CAMEL code 3 credit unions decreased to 838 from 861 in the third quarter of 2019. Assets for these credit unions decreased 3.9 percent from the third quarter of 2019, to $41.7 billion from $43.4 billion.

There was one involuntary liquidation and one assisted merger during 2019, compared to eight credit union failures in 2018. The total amount of losses associated with failures in 2019 was $40.3 million, compared to $792.5 million the previous year.

The Acting Chief Financial Officer reported the agency’s four funds — the Share Insurance Fund, the Operating Fund, the Central Liquidity Facility and Community Development Revolving Loan Fund — each received an unmodified, or “clean,” audit opinion with no reportable conditions for 2019 from the agency’s independent auditor, KPMG LLP.

Board Approves Joint Agencies’ CECL Policy Statement

The NCUA Board approved an interagency policy statement that provides supervisory guidance to financial institutions measuring credit losses under the current expected credit loss methodology and on changes in accounting standards.

The NCUA joins the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in the statement. The agencies are issuing the policy and guidance in response to changes in generally accepted accounting principles promulgated by the Financial Accounting Standards Board.

The new policy statement will be published in the Federal Register once it is approved by all four regulators.

Proposed Rule Would Make Corporate Credit Union Regulation Changes

The NCUA would amend its corporate credit union regulations to clarify, simplify, and update certain provisions under a proposed rule approved by the Board.

The changes the proposed rule would make include:

  • Permitting a corporate credit union to make a minimal investment in a credit union service organization without that organization being classified as a corporate CUSO and subject to heightened NCUA oversight;
  • Expanding the categories of senior staff positions at member credit unions who would be eligible to serve on the corporate credit union’s board;
  • Amending the prescriptive experience and independence requirements for a corporate credit union’s enterprise risk management expert; and
  • Clarifying the treatment of an investment in a subordinated debt instrument of a natural-person credit union.

Comments on the proposed rule must be received no later than 60 days following publication in the Federal Register.

The NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

Last modified on
02/20/20