Innovative CUs Draw Up New Lending Approaches

Successful lenders are proactive and creative—and they don’t think ‘risk’ is a four-letter word.

December 27, 2012
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CUNA Strategic Services alliance provider: Fynanz
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Rehab mortgages

Abandoned and foreclosed homes are scattered through the neighborhoods served by $960 million asset Advantis Credit Union in Portland, Ore. Most mortgage products exclude homes in poor condition, but there’s potential for new owners to build equity by renovating these homes.

Enter the Advantis Rehab Mortgage, which helps current and potential members buy and renovate run-down properties that would otherwise be ineligible for funding. Homeowners can borrow 90% of the anticipated “improved value” at the time of purchase, with mortgages capped at $418,000 per property.

Darin Walding, the credit union’s real estate loan manager, says Portland has a tight real estate market for homes in move-in condition because homeowners avoid selling when values are down. That means people seeking value look for “a bad home in a good neighborhood.”

“That’s where this product comes in,” Walding says. “You can look at the market and the foreclosures and get a good deal.”

The learning curve for the program was steep as the credit union figured out how to appraise properties’ potential, administer the loan during the three- to six-month renovation period, and reach potential buyers.

The Rehab Mortgage is modeled after the Federal Housing Administration 203k mortgage—the agency’s primary program for the rehabilitation and repair of single-family properties.

Advantis works with a contractor who reviews the properties and their renovation plans.

Eleven loans have been made so far, but Walding expects applications to double each year now that the community-chartered credit union is marketing the program directly to realtors and the community to reach nonmembers.

This program helps the credit union make inroads with realtors, Walding says. “Realtors want to know what makes a lender different.”


It’s also “socially responsible lending” that allows the credit union to make concrete improvements to the community where members live and work. There have been no charge-offs or delinquencies since the program began in 2009.

“These homeowners are way more attached to their homes than the typical homeowner,” Walding says. “They went through a project making it just what they wanted, turning a house into a home.”

Dealer connections

After pulling back during the recession, 1st United Services Credit Union, Pleasanton, Calif., decided to rebuild its indirect auto lending program based on stronger dealer relationships, says Tosha Y. Eagles-Williams, chief operating officer for the $808 million asset, community chartered credit union.

That approach has taken 1st United Services from $700,000 a month in indirect auto loans at the beginning of 2012 to more than $3.5 million during October 2012. The credit union set a goal of $5 million in monthly indirect loans for 2013 and $10 million per month in 2014.

Eagles-Williams attributes this growth to six steps 1st United Services took to improve its indirect lending program:

“Establishing relationships with the dealership staff was the most critical thing we did,” Eagles-Williams says. “They know they can pick up the phone and talk to the person who made the decision on the loan.”

She notes that offering food to dealers nourishes relationships, as dealers’ employees love to receive treats at the dealership and meals at special sales.

The credit union’s efforts were honored with a 2012 Best Practices Award from CU Direct Corp.

Branches have also played a role in 1st United Services’ lending success. Members apply for loans by entering a “Member Concierge” office equipped with a video camera and computer that links them to loan processors.

“We thought some of our members would be a little leery of this, but the ability to see who they’re talking to makes them really enjoy it,” Eagles-Williams says.

In most cases, members get a loan decision before they end the conversation.

The credit union allows members to sign some documents electronically, which improves efficiencies and allows 1st United Services to review more loans.

In August 2012, for example, the credit union handled 626 loan applications, compared with 195 applications in August 2009.

Lending innovators emphasize the importance of designing products that manage risk while starting new conversations with borrowers.

As Coastal Federal’s Ross notes, it’s easier to start those conversations when innovative products address a genuine need. “That’s what we need to get these products sold right out of the chute.”

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