Banks and Lenders Lose and Future Looks Bright for Credit Unions
The credit crunch isn’t anywhere near over. Mortgage lenders are still facing losses and trying desperately to get rid of REO (Real Estate Owned) properties as a result of foreclosures. Lending institutions are not only reluctant to grant new loans but are closing accounts and decreasing revolving credit lines. The one bright spot seems to be credit unions.
The first half of 2009 saw an increase of 7.5%, that’s right an increase, in the number of loans granted from the 7,848 credit unions in the United States. It seems credit unions are filling the lending gap left by banks and lending institutions. The average loan was $15, 048. Loans were approved for first mortgages, auto loans, student loans, second mortgages and revolving credit line or credit cards.
“Credit granting is the core of credit unions’ role. In this stressed economy, what might seem routine is in fact extraordinary performance,” said Jay Johnson, executive vice president at Callahan & Associates, a Washington, DC-based credit union firm.
Credit union members increased their savings by 8.4% for the past 12 months. That’s the largest increase for the last 10 years. As a result credit unions are the best capitalized financial institutions.
A credit union differs from a bank in several ways. When becoming a member you also become an owner. Membership qualifications vary from credit union to credit union. The members vote on the board of directors who are responsible for general operations. The vote is based on one vote per member regardless of the amount of savings the member has. While credit unions vary in size most of them are smaller than banks. The average credit union in the United States has $93 million in assets while the average bank has $1.5 billion in assets. Credit unions are “not for profit” organizations. That means they must earn enough to cover all their expenses, including salaries of their executives, but any surplus is returned to the members through lower lending rates or increased savings interest rates. Banks are for profit institutions, or at least that’s their intent.
While there may be restrictions on how much, or when, a new member can qualify for a loan, it may be a good idea to join a credit union to open up a new avenue of loan products. Previously credit unions may have had restrictions on membership based on employment. However, many credit unions now have restrictions based on geographic location, opening memberships up to more people.
Credit unions have stringent requirements for approval just as any bank or lending institution does, so don’t think you’ll have a better shot of being approved if your credit rating is borderline at best. Because they are non profit, interest rates are lower.
This increase in credit union loan approvals and member deposits maybe the signal that the economy is improving.
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