Credit Unions Adapt to Housing Trends

David Yancey doesn’t have a big income, but he’s committed to living in the core of New Orleans, La., where housing prices are high.

At 31, after six years of paying rent and with income between $40,000 and $60,000 a year as a coffee trader, Yancey bought his first home in February. He paid $525,000 for a recently renovated, 2,600-square-foot, two-story house in the Central City neighborhood two blocks off St. Charles Avenue.

He managed to stay within biking distance of work and friends with his parents’ help on a 20% down payment, and plans to rent part of the house.

Who got the loan? Not a credit union.

“It never crossed my mind,” he said. “I’m not very familiar with them, and I don’t have any friends who have gone through credit unions for the loan.”

That wasn’t the case with Erik Reks, now 30, who moved from Boston, Mass., to New Orleans in 2017. Reks wanted to work with a credit union. He had been a member of Harvard Employees Credit Union, and recalled feeling it treated him well with a car loan.

“I liked the idea of credit unions. I like the independence that they have being non-profits,” Reks said.

Reks makes about $100,000 to $125,000 a year working remotely for a tech company in the Boston area. He needed a fixer-upper, and found a 2,040-square-foot duplex in Central City. He paid $206,000 and financed $64,000 more for repairs last year.

Who got the loan? Again, not a credit union.

Knowing he would be financing the purchase of a house that would need major repairs, Reks had visited a small credit union in New Orleans for a construction loan.

He said he got the sense that he would have to “go through a bunch of paperwork” with the credit union, perhaps keeping him from closing on a deal. So instead, his real estate agent put him in touch with a mortgage broker.

He got a 5:1 ARM construction loan through Home Bank that closed last June, and moved into the smaller unit. When his contractors completed renovations on the other unit in November, Reks refinanced, closing on a 30-year mortgage at a fixed rate of about 4.3% through SunTrust Bank of Atlanta, Ga.

He got a $270,000 mortgage with no money down. Like Yancey, Reks plans to cover part of his mortgage with rental income.

Buying a home is financially impossible for most people in the nation’s largest cities, but the hurdles are also high in cities like New Orleans, Denver, Colo., and Raleigh, N.C.

Buyers are trying innovative ways to make it work with the help of lenders that are comfortable working to qualify buyers based on rental income, or can provide construction loans to buy a fixer-upper.

To be helpful, lenders have to have an institutional capacity to handle the complexity. The worst fear of a buyer is that the perfect house will slip away merely because they can’t make an offer fast enough.

Vince Salinas, vice president of home loans at Patelco Credit Union in Pleasanton, Calif. ($6.6 billion in assets, 345,671 members), said tactics that are growing in popularity by those who want to buy a home in San Francisco or Oakland, Calif., include:

• Meeting income qualifications by pooling income to share a home as an extended family;
• Qualifying through expected rental income; and
• Buying a property using fractional ownership, or tenant-in-common, lending.

Adapting warehouses and other commercial structures for dwellings is becoming more common because housing is in short supply, and cities are zoning more areas for residential use.

“You might not be able to afford a four-story building in San Francisco that can be turned into lofts, but maybe you can if you have four partners go in on it,” he said. “People are being more creative about where they live, so they don’t have to have that commute.”

The affinity for city living was not invented by millennials. In part, it’s a wake of a trend begun by disaffected suburban youth of the 1960s who began moving into run-down houses in urban centers in the 1970s.

In past decades, an older couple might stay in the larger suburban home where they raised their kids until they went into a nursing home. Now many are choosing to downsize early and move to the place their parents fled: Downtown.

So the baby boomers (ages 55 to 73) who helped start the trend are now meeting millennials (ages 23 to 38) in urban house hunting.

That’s true in Raleigh, where people young and old alike are flocking to vintage downtown neighborhoods where restaurants, shops and parks are within easy walking distance.

Popular in-town neighborhoods include Oakwood, Mordecai and Five Points. A 1,300-square-foot bungalow in Oakwood with two bedrooms and one bath can sell for about $350,000. That might be cheap in northern California, but it’s called real money in the Carolinas.

Coastal Federal Credit Union in Raleigh ($3.2 billion in assets, 257,090 members) has developed loans that try to help young people starting out in their careers. Many have salaries that are too high to qualify for first-time homebuyer assistance, but can’t scrape together enough cash for a down payment, Wendy S. Dawson, vice president of mortgage lending, said.

“They are cash-poor high earners with a lot of debts,” Dawson said.

Dawson sees part of Coastal’s job as helping to give those millennials a better chance of getting their offer accepted on a home when they’re competing with their more affluent elders.

“We’ll get the boomers and the millennials getting into a bidding war, going after the same property,” she said. “The problem is that the boomer is cash strong, and doesn’t care what the property appraises for. The boomers are always going to win.”

Coastal offers HomeReady Mortgages through Fannie Mae to low- and moderate-income families. These require only a 3% down payment, and borrowers can use the income of roommates or extended family to qualify.

Coastal’s own First-Time Home Buyers Mortgage allows borrowers to pay a low or no down payment. It has no income limits.

Coastal also offers construction-to-permanent loans. The buyer might pay $275,000 to $300,000 for a two-bedroom, one bath house, and borrow enough to cover the house’s price plus $75,000 to $100,000 to add a second bath, a third bedroom and a deck.

But credit unions can’t help millennials if millennials don’t know credit unions can help them.

“I don’t think we’ve done a good job as lenders of getting the word out there,” Dawson said. “We need to do a better job of letting them know about these programs.”

Tansley Stearns is a credit union marketing veteran with 20 years’ experience in the movement. “In most credit unions, marketing is the red-headed stepchild. Everyone thinks we’re a cost center.”

She joined Canvas Credit Union in Denver ($2.4 billion in assets, 240,471 members) in March 2018 as its chief people and strategy officer. When she walked into to her first budget meeting, she was loaded for bear.

“I went in with my 10-page thesis on why we needed what we needed to do, and our CFO, Colleen (Knoll), looked up at me and said, ‘Well, yeah. We do invest in marketing here.’ I literally burst out laughing because my experiences had been very different,” Stearns said.

Among other things, Super Bowl viewers in the Denver metro area had the chance to see a 30-second television commercial produced in-house promoting its new 100% Home Mortgage. Canvas’ 30-second spot ran four times during and after the game, each time reaching about 415,000 viewers in the target 25-to-54 age group in Denver metro area.

In the week that began with the Super Bowl, the mortgage page on Canvas’ website got 2,924 visits – a 12-fold increase from the previous week. Overall web visits increased 23% to 219,321.

“We’re very smart about our media buys,” Stearns said. “We were able to make that decision very close to game day, and got it at a very affordable rate.”

Chad Shane, Canvas’ SVP/chief lending officer, said the ads reflect a shift by Canvas. In the past, it primarily helped first-time homebuyers through the Fannie Mae program for low- to moderate-income households – loans that Canvas would sell. Now it is providing more of its 100% Home Mortgage – loans it keeps in its portfolio.

“That’s one of the great advantages credit unions have that are in the mortgage business and have a big enough portfolio: Having that ability to portfolio and be more creative on some of your products.”

Canvas also invested in providing smoother technology, which it describes in its online text as “faster-than-a-rocket.”

“It helps people in a market that’s hot as this,” Stearns said. “Having technology that allows people to get approved more quickly – to know they can rely on us to move things along and it’s not going to be delayed – that matters to closing deals.”