Education & Events

Various Interest Rate Environments

By Amanda Parsons - ALM Specialist

Last week, the mortgage applications purchase index fell for the fifth week in a row, down 11.7% from the previous week.  The four-week average is down to the lowest since February.  This may have been caused by the expected November 30 expiration of the first-time homebuyer tax credit.  Although Congress extended credit through April 30, it may not help as much as legislators hope—the expected November expiration likely caused people to rush to buy homes before the deadline instead of waiting to purchase homes in 2010.

Conversely, mortgage rates are falling again and may spur some to buy homes or, at the very least, refinance.
According to the Mortgage Bankers Association report, 30-year fixed rates dropped from 4.97% the last week
in October to 4.90% the following week. As credit unions take on more mortgage loans, it is imperative to keep
in mind that rates are widely expected to increase in 2010, making fixed rate loans extremely risky.

Now is a great time to do analysis to see where your credit union stands. Asset Liability Management (ALM)
modeling can show you a detailed picture of what your credit union has on the books and what would happen
in various interest rate environments. If your credit union has the capability to model various “what-if” scenarios,
even better! What if you sell your longer fixed mortgages? What if you lower the rate on your ARMs and attract
$X amount in new originations? What if you borrow from your Corporate Credit Union for your long-term funding
needs instead of offering longer-term certificates of deposit?

If your current ALM solution doesn’t let you run “what-if” scenarios like these, please give your
Corporate Account Manager a call at 1-800-622-7494 to see how Mid-Atlantic can help.