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CU Industry Continues to be Challenged, Catalyst Strategic Solutions Chief Strategist Says
Friday, August 8, 2014 6:35 AM

The industry continues to be challenged not only as to volatility in member loan demand but also with having to compete in a low rate environment, according to Brian Turner, director and chief strategist with Catalyst Strategic Solutions.

“Competitive five-year vehicle loan rates can be as low as 1.50 percent, which is only 60bps over U.S. treasury rates – not a lot for taking on any related credit risk,” notes Turner. “However, the 2.74 percent national average rate is 184bps over U.S. treasury rates and about 100bps over MBS yields with comparable durations – a higher relative value for the credit union. Unfortunately, even with annualized car sales surmounting 17-million units, its highest level in years, credit unions continue to struggle to increase their market share for financing.”

Turner points out that mortgage loan demand has fallen about 35 percent in 2014 with the portion of refinancing application falling dramatically. Still, for those seeking purchase financing, spreads continue to be very affordable for the borrower and sustainable for the lender. The average fixed rate for 15 and 30 year mortgages is 3.27 percent and 4.14 percent, respectively.

“For credit unions, these rates continue to be priced about 150 to 175bps spreads to US treasuries,” adds Turner. “With the prevailing yield curve, that provides a marginal spread to average savings rates of about 315 to 400bps.”