Credit union CEOs say they’re ready to weather headwinds in the economy

Anticipating tough economic times, the Hartford Federal Credit Union tightened its lending standards for home equity lines of credit, lowering its loan-to-value ratio from 80% to 70% for moderate-to-high risk borrowers.

Implemented about a month ago, the new approach has reduced the amount of credit available to about 30% to 40% of Hartford Federal Credit Union borrowers, according to President and CEO Ed Danek Jr.

“It doesn’t look like a recession, but sooner or later energy prices, food prices and underlying inflation, … all of that is going to ripple through the economy,” Danek said, whose credit union has $159.9 million in assets. “I’m afraid you add this to the recent aggressive actions of the (US) Fed and it could be really difficult. In any case, we are prepared for it.”

However, this relatively small adjustment to the lending standard is the only unusual action Hartford Federal has taken in response to the threat. Danek said his 17,000-member credit union‘s cautious lending practices have already prepared it for any economic turbulence that could be reasonably anticipated.

In recent interviews, executives from three of the state’s largest credit unions all predicted worsening economic conditions. Only Danek, however, said his institution had taken preventive measures. The CEOs of Connex Credit Union and Charter Oak Federal Credit Union said their institutions’ strong safeguards were up to the challenge, at least for now.

“We have to be careful,” said Brian A. Orenstein, president and CEO of Charter Oak Federal Credit Union, which has 85,000 members and $1.6 billion in assets. “As credit unions, we try to work with our members, so I really don’t see us taking any drastic measures that could harm members based on what we might anticipate. Now, if things get worse, we might have to take these steps, but we wouldn’t do it based on economists’ forecasts, we would really need to see some of our own data and some… local data from New England where delinquencies are significantly higher before we hurt members with some sort of credit cut. »

Results from the state’s 85 federally insured credit unions have yet to show signs of a significant impact from a potential downturn. In the first six months of this year, they reported net income of $14.7 million, up slightly from $13.9 million a year earlier, according to National Credit Union data. Administration (NCUA).

Their loan portfolios grew 5.2% over that period to $8 billion, while the amount of money set aside by credit unions to cover loans that could go wrong in the future actually declined to $43.5 million in the second quarter of this year from $47.8 million annually. year earlier.

Tough economic times are really when credit unions shine, said Bruce Adams, president and CEO of the Credit Union League of Connecticut. Without shareholders to appease, nonprofit co-ops are freer to adjust terms to help borrowers through tough times, Adams said.

When the onset of COVID-19 sent the economy into a short-term tailspin, credit unions allowed members to skip loan payments “left and right,” he said.

“What sets credit unions apart is their ability to continue doing business and keep their borrowers healthy during tough times,” Adams said. “We are building the resources now in order to be compassionate when it hits the fan for our members.”

Rising rate environment

Connex Credit Union President and CEO Frank Mancini said his staff will closely monitor the performance of mortgages made over the past two years, when home values ​​rose dramatically thanks, in part, to an influx of buyers from New York.

A drop could see these values ​​fall back quickly.

“We’ll be watching this pocket because the loan-to-value (ratio) might be a bit higher,” Mancini said.

Mancini said he wasn’t worried about a slowdown. Connex, with $932.7 million in assets, originated loans at a record pace over the past 18 months.

In fact, Connex’s loan portfolio grew 20% over the past year — driven by new auto and mortgage loans — to $824.6 million at the end of the third quarter, according to data from the NCUA.

Slowing demand could be good for its hardworking staff, he said.

“It might be nice for them to have a little break from the pace they’ve been at for the past few years,” Mancini said.

Mancini worries, however, that rising interest rates could stall plans to lend $30 million to low-to-middle-income families over a five-year period.

Rising interest rates have dramatically increased borrowing costs, reducing the amounts people can afford to borrow. Mancini said this climate could lead to lower home prices and sellers holding on to their properties in hopes of a better future.

Mortgage rates rose above 7% at the end of October, reaching their highest level since 2002.

“With interest rates the way they are, they’re driving down the prices that low-to-middle income people can afford to buy,” Mancini said.

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