ALEXANDRIA, Va.–A new analysis finds credit unions on average charge mortgage rates below those of other lenders.
While the average difference in rates is slight—an average of 13 basis points—even that small difference can be substantial for borrowers over the life of a mortgage, Andy Leventis, chief economist at NCUA, told the agency’s board during its monthly meeting.
Leventis said he and his staff launched the research seeking to answer three questions:
- Are mortgage rates for credit union loans different?
- Do those differences vary in rural areas?
- Could differences in credit characteristics explain the difference?
Why launch the research at all?
“Measuring the relative attractiveness of credit union mortgage rates allows us to measure the extent to which the industry is serving members, including in underserved areas,” said Leventis. “It also allows us to better understand industry efficiency and competitiveness.”
The research used 2018 HMDA data and focused on 30-year conventional fixed rate, first-lien loans for one-unit, owner-occupied properties. It further looked at contract interest rates and rate spread (difference between mortgage APR and average prime offer rate), and it used three credit risk indicators (credit scores, combined loan-to-value ratio, and debt-to-income ratio.
The Details
Leventis said the research shows relatively similar credit attributes for loans originated by CUs vs. those originated by others. CU mortgages had slightly worse credit scores but slightly better debt-to-income ratios.
The chart below shows the findings in more detail.
Leventis did offer some caveats, including that the data evaluated a very specific loan type; by construction, smaller originators are not included in the data set, and finally, the findings are not meant to be a comprehensive statistical analysis.
“Those caveats aside, it’s fair to say the results are strongly suggestive that credit unions are serving their members, with mortgage rates that are relatively attractive,” he said. “An interest rate difference of nine to 14 points may seem small, but that can amount to significant savings…particularly for borrowers struggling to make ends meet.”
Following the presentation to the board, NCUA Chairman Rodney Hood noted it was just a couple of decades ago that credit unions played a “negligible role” in mortgage lending. Today, CUs hold more than 4% of outstanding mortgage debt in the U.S., he noted, including more than $125 billion in fixed-rate first mortgages.