By Ray Birch
WILLISTON, Vt.—New England FCU has introduced a unique new mortgage program that seeks to overcome the biggest hurdle facing many homebuyers, particularly low-income buyers: the lack of down payment.
The $1.9-billion NEFCU has launched a three-year, $6 million campaign to address the affordable housing crisis in Vermont. The NEFCU initiative includes three separate programs. The first, in partnership with the Vermont Housing Finance Agency, in which it devotes $3 million to affordable homeownership and multi-family rental projects. The second, with Champlain Housing Trust (CHT), commits $3 million to advance BIPOC homeownership.
The third is NEFCU’s own Home Ownership Made Easier (HOME) program to help first-time homebuyers struggling with affordability.
“It's something that we actually developed in 2017,” explained Greg Hahr, chief lending officer at NEFCU, which is currently seeking to merge with the $900-million Vermont FCU to create what would be by far the largest credit union in the Green Mountain State. “We have had a commitment towards affordable housing for some time. We designed what we called our home ownership made easier program.”
Hahr pointed to the down payment obstacle young and low-income borrowers face.
“This often prevents people from becoming homeowners—not being able to save for the down payment, and making the monthly payment affordable,” Hahr said. “What the program does is provide a second mortgage to create the 20% down payment. We do a 97% (loan-to-value) first mortgage and then a 3% second mortgage.”
Debt Forgiven
The second mortgage is priced at 0%.
“At the end of 20 years the debt for the second mortgage is forgiven,” said Hahr. “Essentially, this enables the borrower to get in the house without their own down payment.”
Hahr pointed out in cases where the loan is for more than 80% LTV, mortgage insurance is typically required.
“And this can be costly and could amount to hundreds of dollars monthly payments,” said Hahr. “So, what we do is we pay for that mortgage insurance. We've taken a pool of money and we set it aside to put toward mortgage insurance and towards the down payment to help these members get in their homes.”
Program Restarted
The program has been restarted this year after pausing due to the pandemic. During 2019-20, the initiative helped 170 members become first-time homebuyers.
“We just recently reintroduced it and we made some program modifications, including lowering credit scores a bit,” said Hahr.
Hahr said HOME loans are being made today, with more than 60 in the pipeline, adding the program’s run may be open-ended.
“For now, we've committed to the program through the end of 2022, and we have not limited the amount of money we will put towards that,” he said.
About Community Involvement
Hahr said HOME is foremost a community involvement program.
“We know how important home ownership is. It can lead to generational wealth or even solid financial security,” he said. “We want to be able to help as many people as we can this year, and we estimate that will be at least a couple hundred.”
While HOME is not a losing proposition for the credit union, it is intended to be a member giveback, Hahr explained.
“We are putting these loans into portfolio,” said Hahr. “The first mortgage does have a yield, but it's at market rate. What we are trying to do is take some of the success we are having with our strong first mortgage program, as well as our home equity program, and give some of that back to the membership. HOME is not about us trying to make money, it’s about making an impact in our communities.”
Referrals Drive Traffic
In partnering with the Vermont Housing Finance Agency and Champlain Housing Trust, NEFCU receives referrals from the organizations for HOME candidates.
“We've got a good partnership working with them,” Hahr said. “We believe that the vision and goals and values they have are similar to ours.”
Hahr noted housing shortages aren’t unique to metropolitan areas—there is a lack of inventory in the largely rural Vermont.
“It has become somewhat of a crisis,” Hahr said, adding local governments are providing housing incentives to bring people into the state. “Vermont has struggled with population growth for quite a while, and trying to bring people in has been an issue, with it being difficult to find affordable housing. Many of Vermont’s most populous areas have a distinct shortage of housing for first-time homebuyers.”
The housing shortage in populous areas is pushing new homebuyers into more rural sections of the state, leading to longer commutes to work and more costs overall, Hahr added.