Why Credit Union Loan Participations Deserve a Second Look

Credit unions seeking stronger loan growth and improved balance-sheet performance may be overlooking one of the most flexible tools available: loan participation investments.

While consumer lending remains a core business for many credit unions, institutions such as Amplify Credit Union have concentrated on residential and commercial real estate lending. This specialized approach allows the credit union to develop the expertise, systems and market relationships needed to compete effectively while offering attractive products and pricing.

Residential and commercial real estate loans now account for more than 90% of Amplify’s total lending portfolio. However, the credit union does not view growth as a strictly local effort. Through partnerships with other credit unions, loan participations provide a way to share investment opportunities and connect institutions with lending markets beyond their immediate geographic areas.

What Credit Unions Should Know About Loan Participations

Loan participation allows a credit union to invest in a portion of an existing loan without originating the loan itself. In that respect, it functions much like purchasing a Treasury security or mortgage-backed security: the investment can generate interest income while expanding access to a broader range of lending opportunities.

• No direct loan origination is required: Credit unions can invest in loans originated by another institution and add interest-generating assets to their portfolios.
• Regional institutions can reach national markets: Participation investments can help credit unions in areas with limited residential or commercial loan demand access markets with stronger borrowing activity.
• Investors can conduct detailed reviews: After submitting a letter of intent, a potential investor can typically examine collateral data, borrower information, loan terms and underwriting policies before committing funds.
• Participation may help manage interest-rate risk: Products such as hybrid adjustable-rate mortgages can offer longer-term earning assets with different risk characteristics than traditional 30-year fixed-rate mortgages.
• Smaller investments are possible: Credit unions do not necessarily need millions of dollars to enter the market. Some participation packages may be available for approximately $50,000, depending on the provider and loan type.

Most Credit Unions Still Do Not Use Loan Participations

Loan participation is not a new concept in credit union finance, but it may have received less attention during the real estate expansion of the early 2020s. Recent analysis of National Credit Union Administration call report data indicates that participation activity remains limited across the industry.

• 43.3% of credit unions reported loan participation activity in 2024.
• 44.4% of credit unions reported loan participation activity in 2025.

These figures suggest that more than half of the nation’s credit unions did not report loan participation activity during either of those years. For institutions searching for ways to increase interest income, the market may represent an underused opportunity.

Credit unions that are new to the strategy do not have to build a participation program alone. Third-party brokers can help manage sourcing and evaluation, while direct relationships with experienced credit unions may be suitable for institutions with established investment teams.

Loan Participations Are Not Limited to Large Credit Unions

A common misconception is that loan participation requires a major upfront commitment. In practice, credit unions can often begin with a smaller allocation and increase their exposure over time.

Some providers create packages worth several million dollars, particularly for commercial loans, but smaller options may also be available. For example, participation investments can be structured around packages starting at $50,000 and tailored to a credit union’s preferred mix of consumer, commercial and residential real estate loans.

This flexibility can be particularly useful when a credit union falls short of its internal production goals in a specific lending category. Participation investments may help fill portfolio gaps without requiring the institution to rapidly expand its own origination infrastructure.

Industry data also indicates that smaller credit unions may have a strong reason to consider the strategy. Approximately 21.5% of credit unions nationwide produced no residential real estate loans in 2025. For those institutions, residential mortgage participations may offer a way to add exposure to the sector without building a full mortgage lending operation.

Due Diligence Can Help Manage Participation Risk

Credit unions that do not originate residential mortgages may hesitate to enter the participation market because of concerns involving credit quality, collateral values and interest-rate exposure. However, the review process can provide investors with significant information before a transaction is completed.

Following a letter of intent, prospective investors or their independent review firms may be able to examine:

• Loan terms and conditions
• Collateral valuations
• Borrower information
• Underwriting standards and procedures
• Historical delinquency and performance data

This transparency allows an investing credit union to determine whether a proposed portfolio meets its risk tolerance, underwriting expectations and investment objectives. It also gives the institution an opportunity to use an outside due diligence provider if its internal team lacks experience with a particular loan category.

Amplify Credit Union reports a historical delinquency rate of 0.36% for the loans discussed in its participation strategy. Investors can review available portfolio information and decide whether the credit quality and underwriting process align with their own standards before purchasing an interest in the loans.

Loan Participations Can Improve Regional Lending Flexibility

Loan participation can also help credit unions address imbalances between deposits, liquidity and loan demand. NCUA quarterly data provides a useful way to compare loan-to-share ratios across states and identify markets where credit unions may have room to deploy more funds into loans.

The nationwide mean loan-to-share ratio was 68% in the first quarter referenced by the analysis. Although credit unions do not operate under a single ideal target, many industry professionals view a ratio between 80% and 90% as a potential benchmark for a balanced lending portfolio, depending on an institution’s liquidity needs, risk profile and strategic objectives.

Credit unions with lower loan-to-share ratios may be able to improve earnings by shifting a portion of their excess liquidity from lower-yielding investments or deposits into carefully selected loan participations.

States With Some of the Lowest Loan-to-Share Ratios

• Delaware: 43%
• New Jersey: 49%
• Pennsylvania: 51%
• Connecticut: 54%

These regional differences highlight how loan participations can transform a local lending challenge into a broader industry opportunity. A credit union operating in a market with modest loan demand may be able to diversify its portfolio and strengthen earnings by investing in loans originated in areas with more active residential or commercial real estate markets.

The Bottom Line for Credit Union Leaders

Loan participation offers credit unions another way to grow interest income, improve portfolio diversification and deploy excess liquidity. The strategy does not require an institution to originate every loan itself, and participation packages can be structured for both large and small investors.

With careful underwriting reviews, appropriate due diligence and a clear understanding of risk, loan participations may deserve a larger role in credit union investment and balance-sheet strategies. For institutions seeking loan growth beyond their local market, this underused tool could provide a practical path toward broader lending opportunities.

Paul Garrigues is chief financial officer at Amplify Credit Union, where he oversees financial strategy, balance-sheet management, real estate lending and loan participation activities.

Source: TheFinancialBrand.com