By Ray Birch
WESTERLY, R.I.– While home prices have jumped “dramatically” here, average credit scores are also high, and Westerly Community CU has responded with a 1% downpayment first-time homebuyer mortgage that is also aimed at boosting relationships with younger members.
The new fixed-rate mortgage program, called Welcome Home, also waives private mortgage insurance and points.
“The main area we serve is called South County, and it's the lower half of Rhode Island,” said Robert Boucher, vice president of lending at WCCU. “Housing prices have jumped dramatically in this area over the past two-plus years, and we're trying to help first-time buyers to be get into a home. Dropping the downpayment to 1%, that's the least we could go. You can't go any lower than that for a downpayment.”
WCCU’s standard 30-year fixed rate mortgage was priced at 7% in September, with the first-time buyer’s product priced 50 basis points higher.
Boucher said Westerly Community understands the difficulty many buyers face in owning a home in South County.
‘A Risk We Could Take’
“We looked at this as a way to help people get into a house in this area,” he said. “Rhode Island is very lucky in that we have close to full employment. Credit scores are tremendously high. We, along with most of the other credit unions in our region, have extremely low delinquencies. We felt it was a risk we could take.”
The $477-million Westerly CCU evaluated the data, especially the high credit scores and low delinquencies in the region, and determined it can afford to offer the product.
“The loan carries a minimum credit score of 720. And there are other controls on it to make sure that we're not taking undue risk,” Boucher noted.
Robert Boucher
First Loan Yet to Close
The credit union began to offer Welcome Home in August.
Westerly reserved $5 million for the program.
“Hopefully, we'll be able to get that in the first year,” Boucher said.
Westerly Community has borrowed $5 million from the Federal Home Loan bank and set it aside to help make the program possible.
“We've previously done a couple of first-time home equities with a low rate where we've borrowed against it, but nothing like this for first-time buyers. So, this is new territory for us,” said Boucher, adding that WCCU has not increased its loan loss reserves in anticipation of any anticipated issues resulting from the Welcome Home program.
Alone in Its Market
Boucher said no other financial institution its market is taking similar steps to assist first-time buyers in getting a home in a very tough market.
“No one else is offering anything like it,” he said. “The only real competition is from lenders that are partnering with Rhode Island Housing, where the Rhode Island Housing guarantees a portion of the mortgage.”
Boucher reminded the CU expects to attract young buyers, but that won’t be the entire demographic the program reaches.
“Obviously, it has to be a first-time home buyer. By first time that just means somebody who hasn't owned a home in the past two years,” Boucher explained. “It doesn't necessarily mean somebody that just graduated from college or is just starting out on their first job. But, of course, it could well be that demographic. We do expect to get some people who have been out of the homeownership market for a while.”
Bidders Are Lined Up
Boucher added that rising rates and the resulting effects on home affordability impacted the decision to introduce Welcome Home.
“We have talked with our Realtor partners, and every time a house goes on sale there's 10 to 15 people bidding for the same home,” he explained. “We've probably seen in the past five years the values in South County doubling. Also, there are a lot of affluent people here who are paying cash on homes, which is also driving up home prices.”
Similar to most of the U.S., the inventory of available homes for sale in is low, with many current homeowners, even those who would like to move, not willing to give up their 3% mortgages for rates that are currently double that.
“Plus, Rhode Island is a very mature market, so, we don’t have a lot of new construction. It’s also a small state, and not a lot of land to begin with,” he said.
Too Early to Tell
Boucher said it is too early to gauge member reaction.
“I can tell you the Realtors are saying it's something they're finding attractive. This is more about creating new relationships and cementing exiting ones,” he said.
Boucher said if demand remains strong for Welcome Home, Westerly may continue the program.