How does the recent "credit crunch" effect credit unions?
Ranging from small to very large credit unions, how does the credit crunch effect the financial stability of a credit union? Also, how does it effect the overall ability of a credit union to make loans (mortgage, personal, auto, credit card)?
It depends on the type of loans the credit union is making and how they fund the loans. The current credit crunch (so far) is affecting mostly mortgages & Companies that make mortgages. So if the credit union doesn't offer mortgages, there won't be a lot of effect for now.
If the credit union does offer mortgages, it depends on the types of mortgages they make and what they do with the mortgages after they make them. If they keep the mortgages in their portfolio and don't sell the mortgages to a bank or other investor, there will also be little to no effect on the credit union.
However, if they tend to sell the loans to banks or other investors, then it depends on the types of mortgages they make. If the mortgages are mostly 'conforming' mortgages (generally: documented, good FICO score and less than $417k), then there is probably a minimal effect, as these loans can easily be sold to Fannie Mae or Freddie Mac.
If the mortgages tend to be anything other than conforming loans, then the credit union is probably caught in the same credit crunch that many other mortgage makers are caught in. Unless they have the capitalization to keep the loans on their books indefinitely, they will likely not be able to make very many of these types of mortgage loans. If they are able to make them, the interest rates on these loans will likely be significantly higher.
If the credit union realized a lot of profits on non-conforming loans, then it may affect their ability to make other types of loans, as they won't have as much money to lend back out. Otherwise, the main effect will be that they won't be able to offer non-conforming mortgage loans, except at significantly higher rates.
3 Responses to “How does the recent "credit crunch" effect credit unions?”
Credit unions are not a good way to go if you want to establish good credit. Most credit unions make you take your payment out of your check automatically. So in the eyes of a potential creditor, you are not making the payments on time yourself. In answer to your question, I don't think there is really any affect given the fact they are unreliable to begin with.
Comment made on March 8th, 2009 at 5:43 pmReferences :
It depends on the type of loans the credit union is making and how they fund the loans. The current credit crunch (so far) is affecting mostly mortgages & companies that make mortgages. So if the credit union doesn't offer mortgages, there won't be a lot of effect for now.
If the credit union does offer mortgages, it depends on the types of mortgages they make and what they do with the mortgages after they make them. If they keep the mortgages in their portfolio and don't sell the mortgages to a bank or other investor, there will also be little to no effect on the credit union.
However, if they tend to sell the loans to banks or other investors, then it depends on the types of mortgages they make. If the mortgages are mostly 'conforming' mortgages (generally: documented, good FICO score and less than $417k), then there is probably a minimal effect, as these loans can easily be sold to Fannie Mae or Freddie Mac.
If the mortgages tend to be anything other than conforming loans, then the credit union is probably caught in the same credit crunch that many other mortgage makers are caught in. Unless they have the capitalization to keep the loans on their books indefinitely, they will likely not be able to make very many of these types of mortgage loans. If they are able to make them, the interest rates on these loans will likely be significantly higher.
If the credit union realized a lot of profits on non-conforming loans, then it may affect their ability to make other types of loans, as they won't have as much money to lend back out. Otherwise, the main effect will be that they won't be able to offer non-conforming mortgage loans, except at significantly higher rates.
Comment made on March 8th, 2009 at 5:49 pmReferences :
Credit Unions are fine… they were not heavily into sub-prime loans… and they sold most of their mortgages anyway, so its not their problem.
My credit union is still dying to give me loans, including a mortgage.
Comment made on March 8th, 2009 at 6:00 pmReferences :
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