Trend Monitor

Trend Monitor: 1Q 2024 Credit Union Performance and its Impact on the Industry

This month, Servicing Solutions attended Callahan & Associates’ quarterly Trendwatch webinar, a comprehensive overview of current economic conditions, consumer behaviors, and credit union performance. The information covered is proven to be crucial for members across the industry, including lenders and loan servicing providers. These sessions offer insights into market dynamics, potential risks, and strategic opportunities, providing a holistic analysis of current trends and their impact. We took a closer look at some of the key themes that were covered and what they mean for those involved.

Market Conditions

The Federal Reserve System’s dual mandate aims for price stability and maximum sustainable employment. Progress in achieving the 2% Consumer Price Inflation (CPI) target has stalled closer to 4%, and unemployment rates are slowly rising, signaling potential economic instability. Despite this, overall consumer health appears robust, with locked-in fixed-rate mortgages averaging below the current rate of 7.36% at 3.78% for many borrowers, aiding debt management. Delinquencies are surging, particularly among subprime borrowers, with 30 Day+ auto delinquency rates for that credit tier above those during the recession in 2008. 30 Day+ credit card delinquency rates are also at a 10-year high, indicating imminent challenges in loan recovery.

Implications for Loan Servicing Providers

      1. Risk Management: Rising delinquencies, especially among subprime borrowers, necessitate robust risk assessment and mitigation strategies. Implementing advanced predictive analytics can help identify and manage high-risk accounts proactively.
      2. Economic Sensitivity: Loan servicing providers should be aware of economic indicators such as employment rates and inflation, which directly impact consumers’ ability to meet loan obligations. Responding to these trends, loan servicing providers must adapt strategies that emphasize consumer experience and flexible solutions for borrowers.

Credit Union Performance and Lending Trends

There has been modest growth in asset and loan volume compared to previous years, with shares and investments showing similar performance. Share growth is driven primarily by larger credit unions and higher interest rate share certificates. Loan originations, however, have declined by 15% since last year, maintaining a notable trend since 2022, with market shares in auto and mortgage loans also decreasing since last quarter.

Implications for Loan Servicing Providers

      1. Adaptation to Market Shifts: The decline in loan originations suggests a need for loan servicing providers to diversify their coverage and explore new opportunities. Providers are expanding into markets with increased demand, such as commercial loans, which have grown by nearly 20% year-over-year.
      2. Call for Innovation: With the growth in certificates and share balances, loan servicing providers should enhance customer engagement by offering competitive rates and personalized financial products that align with consumer preferences. Servicing Solutions is expanding our breadth of coverage in the industry by offering Embedded Servicing as a Service (ESaaS) as a means of properly equipping our partners with the necessary resources to adapt to evolving circumstances.

Balance Sheet Trends

Credit unions are reporting significant fluctuations in managed deposits and loans, driven by pandemic stimulus funds and subsequent utilization for loan growth. Credit unions were flooded by this influx in early 2021 but these rates have returned to pre-pandemic numbers since then. Investments have remained stable, maintaining liquidity despite cash inflows and outflows.

Implications for Lenders

      1. Liquidity Management: The ability to manage liquidity effectively is crucial, especially in fluctuating economic conditions. Loan servicing providers should ensure they have adequate liquidity to meet borrower demands and operational needs.
      2. Strategic Investments: Maintaining a balanced portfolio can help mitigate risks associated with market volatility. Investing in stable, high-yield assets can enhance financial stability.

 

Like many other similar analyses, Trendwatch provides valuable insights into the economic environment, consumer behavior, and credit union performance. Members of the industry can leverage this information to enhance risk management, adapt to market shifts, engage with communities, optimize revenue, and maintain financial stability. Join Servicing Solutions in remaining informed and proactively navigate the challenges and opportunities presented each quarter.