As Prepared for Delivery on December 9, 2019
Thank you very much. It’s my pleasure to join you today.
Over the last several months, I’ve had a great many opportunities to travel the country extensively and talk to people about things we’re doing at NCUA. And not just in the world of the credit union industry and financial services, but also in the communities where your members are found.
For example, just a few weeks ago, I spent some time talking with folks at the America Saves Summit in Washington D.C., about how we can boost financial literacy and financial capability so American workers and families can build more household wealth.
A few days later, I joined a panel discussion hosted by a local church in Bowie, Maryland, where we had an outstanding conversation about what we can do to nurture and support a thriving small business sector in our communities.
And of course, since I took the helm at the NCUA this past spring, I’ve traveled to more states than I can count right now, visiting credit unions, speaking to industry gatherings, and talking with policymakers and other regulators.
And what always impresses me in all of these discussions is that people don’t want to just focus on problems — they want to talk about solutions. They want to talk about what we can do help them to better to serve their members, to reach out to the underserved, to invest in their communities.
I find that both reassuring and inspiring, because it’s an outlook that’s grounded in the spirit of “people helping people,” which has been at the root of the credit union mission since the very beginning. And it’s in that same spirit that I want to talk to you today about some of the priorities that we’re focused on at the NCUA to help credit unions to find those solutions, so that you can better serve your members and communities.
And since we’re being hosted today by the Federal Home Loan Bank of Atlanta, it’s fitting that I should make home lending a central focus of my discussion, because I see that as an area where credit unions can make a big difference in helping to address some of the social and economic needs of American communities today.
Credit Unions and Mortgage Lending
As you all well know, mortgage lending wasn’t originally a priority for the credit union industry, which in its early years focused on smaller loans to members of the cooperative. But, that story has changed dramatically over the last few decades. Consider the numbers:
- A couple of decades ago, credit unions played a negligible role in mortgage markets. That’s changed rapidly: today credit unions hold more than 4 percent of outstanding mortgage debt in the United States.
- The credit union industry is originating more than $140 billion in real estate loans each year, and more than $130 billion of that total is first mortgages.
- The pace of mortgage lending in the credit union industry is also accelerating, with growth in the last five years alone of more than 30 percent.
Those are impressive numbers, but what really distinguishes credit unions is the quality of the mortgage loans they originate. Altogether, credit union mortgage lending is strong and getting stronger.
That’s more than just good business for lenders — it’s also a major benefit for American communities. Homeownership has long been understood as a key pillar of the American dream for generations of workers and families, because it can be such a reliable pathway toward building wealth over time for so many people.
Moreover, we know homeownership plays a strong role in building strong communities where people are invested in one another’s lives and futures. Communities with higher rates of homeownership are likely to have a larger tax base, higher quality public services, lower crime rates, and greater civic participation in the form of volunteer work and community service.
It’s not a silver bullet, but homeownership correlates to a great many desirable social and economic outcomes. That’s something we definitely want to encourage, and it’s a goal many of you have been working very hard to advance.
So speaking as a regulator, we have to look at these facts and ask ourselves: what can we do at the federal level to support you and to encourage that positive trend of homeownership, in a responsible and sustainable way?
The answer to that question starts with regulatory reform, which I’ve made my top priority for the agency. I’ve always said that our goal should be to build a regulatory framework that is “effective, but not excessive.”
By that, I mean that we should be working to identify rules and regulations that are outdated, duplicative, or overly burdensome, and then put those rules to the test. Can they be revised or updated, or even stricken entirely, in a way that makes sense and continues to ensure the safety and soundness of the credit union system?
I’d say that in our first eight months we’ve made some real progress in that direction. Let me give you one example, because it’s one that we expect to have a significant impact on your institutions’ mortgage lending. Just last month, we raised the appraisal threshold for residential transactions from $250,000 to $400,000. This would give credit unions more flexibility in making residential real estate loans.
When we talk about regulatory reform, it’s always with an eye toward smart, carefully considered actions. In this case, we studied market conditions, we assessed industry norms, and we consulted with stakeholders.
We noted that the threshold was last adjusted in 2002, and that with increased demand, tightening supplies of housing stock, and increasing home values, a higher threshold was warranted. We noted that other financial institutions had already implemented the higher threshold, so we wanted to achieve parity with the rest of the industry. And as always, we wanted to be sure this reform would not compromise the safety and soundness of the credit union industry.
So that’s an example of a regulatory change that hit all the targets for smart reform. And I think you’re going to find, when it goes into full effect, that it will be a boon to your mortgage lending, since it will help to reduce the costs and time needed to complete transactions.
That’s just one key example. In fact, if you go to the NCUA.gov website, you’ll find a full accounting of the regulatory changes we’ve made in 2019 over a wide range of areas — the Payday Alternative Loans II rule; second chance opportunities for people who’ve paid their debt for minor criminal offenses; a proposed delay to the risk-based capital rule; guidance on working with hemp businesses; and so forth.
We’re proud of that record, but we’re not resting on our laurels, so keep an eye out for further regulatory reforms next year.
Recognizing and Confronting the Challenges
And we need to be creative, because the reality is that there are some clear challenges to homeownership that need to be addressed. While the housing market remains strong, we do need to recognize the potential headwinds we may need to contend with, both in the housing sector and in the broader economy.
From the broadest perspective, one of those challenges could be the potential for an economic downturn. We’re not seeing the signs of that right now, and it’s something none of us like to talk about. But we’ve all been around long enough to know that these cycles are real, and they can have a real effect on your business, so we’re carefully watching all the indicators so we can act accordingly when the time comes.
For credit unions, liquidity risk is another real issue, as always. We’ve been keeping a close eye on some of the financial pressures credit unions are experiencing. Credit unions overall have enjoyed solid share growth, which is a reflection of your commitment to providing members with high-quality services and financial products. Loan growth over the last several years has been very strong, also reflecting the value of credit unions to consumers, and has consistently outpaced share growth.
However, these trends can create liquidity risk for some institutions, so we will need to continue to monitor this. Also, low-interest rates and a flat yield curve continue to put pressure on financial institution earnings.
So as always, we need you to avoid the temptation to take potentially undue risk, such as credit risk, to offset the impact of low interest rates on your earnings. Please make sure your lending and investing approaches reflect a carefully considered plan that looks at the long-term net benefits to capital, earnings, and member service.
There are also some potential challenges on the consumer side of the equation, such as some of the impacts from the last financial crisis. That crisis was rooted, at least in part, in mortgage lending practices that were — and let’s speak plainly — unsustainable and irresponsible.
Many lenders and the mortgage market suffered damage to their reputations, with the practices that led up to the 2008 crisis. And while things have improved greatly over the last decade, there’s still work to be done to rebuild trust and confidence.
That may be particularly true among younger generations who came of age during the crisis and afterward. We’ve seen a reported slowdown in the rate of homeownership by younger consumers.
Some recent studies suggest Americans of the millennial generation are purchasing homes at a slower rate than preceding generations. In 2015, the rate of homeownership for younger buyers, from early-20s to mid-30s, was 37 percent. That’s significantly lower than earlier generations when they were at a comparable age.
And I’m sure many of you have seen some of the recent reporting about the “silver tsunami” of Baby Boomers looking to sell their properties, and the concern that there will be a shortage of willing buyers among the rising generations. We can’t afford to dismiss these concerns or be blind to them, or to simply hope that “it’ll all work out.”
There are a number of factors that may be holding back younger consumers. We could point to the burden of student loan debt, delayed family formation, and uncertainty about future earnings prospects. It also could be that this trend is a temporary aberration, and as these younger consumers progress along the career path and start to form their own families, they’ll embrace homeownership at higher rates. Still, it’s something to watch closely, and to seek ways to address the issue where appropriate.
And the situation is made more difficult by the limited supply of affordable housing in many parts of the country, which is another area of significant concern. Again, this may be in the process of correcting itself, but it’s another challenge we should watch closely. These trends all could be challenges to the American tradition of homeownership, at least in the short term.
However, as I mentioned at the beginning of my remarks, our focus should be on solutions. Regulatory reform will be one of those solutions. But your institutions have a strong role to play as well. I believe credit unions are poised to turn these challenges into opportunities. And that’s because one of this industry’s great advantages has always been the focus on building relationships with your members and your communities. If we’re talking about building a system of sustainable homeownership, those relationships are vital.
So what I hope you’ll take from this, as you look to build out your mortgage lending portfolios and to make homeowners of more of your members, is that we want to work with you and support you in that mission. We expect at all times you’ll comply with your regulatory responsibilities, to ensure the safety and soundness of your institutions. As I noted, our goal is to create a regulatory framework that makes that work for you.
But it’s not a one-way street; communication is vital. We need to hear from you, so let us know what we can do to make the regulatory system work more effectively so that you can respond to these challenges appropriately.
At the beginning of my talk, I mentioned my travels around the country, and the countless conversations I’ve had with credit union leaders, members, and others.
One thing that comes through very clearly in all of these encounters is that so many people throughout this country still have a strong faith in the American dream. Whether it’s achieving financial security for yourself and your loved ones through saving and investing; embracing the promise of entrepreneurship; or making that down payment on your first home, people haven’t given up on their belief in what’s possible in this country.
Honestly, that outlook doesn’t always seem to be reflected in the media coverage of the economy, does it? But the reality is, there’s a tremendous amount of optimism and hope out there, even in a lot of underserved communities. The question is, how do we tap that energy and channel that optimism to give those communities the help they need? What more can we do to help people to help themselves and their communities?
Credit unions have a key role to play in addressing these challenges. In fact, let’s go further: I would argue that credit unions, given their historical mission, have an obligation to help in addressing these challenges. Because the reality is that, no one is better placed than your local institutions to respond to the needs of your members and the needs of your communities. Moreover, it’s simply good business to ensure that the next generation is moving forward into the economy and becoming homeowners, savers, shareholders and small business owners.
But most of all, we know that it’s the right thing to do, which makes it well worth doing. I look forward to working with you toward that goal, and I thank you once again for having me today.