The credit union borrowed 3% of its asset base at the time — slightly more than $8.0 million — to improve its net worth ratio, which had fallen to 7.19% by fourth quarter 2009. This allowed it to make real estate loans to “members who weren’t able to qualify for a loan,” Thomas says.
The term of the investment, which it received in September 2010, is eight years. However, the credit union is unable to keep the entire amount on its balance sheet as capital for the entire term. Each year after the first three, the credit union must treat $1.6 million, or 20%, of the total investment as liability on its balance sheet rather than capital. During the term, Treasury charges Fairfax County FCU 2.0% interest on the total balance and requires the credit union to pay back the complete capital injection by 2018. As of fourth quarter 2014, the credit union held $4.8 million of the initial $8 million investment as capital.
Money For Today; Planning For Tomorrow
Fairfax County FCU received its CDFI certification, in part, because of its focus on serving the county's Hispanic population. According to U.S. Census data, Hispanics comprised 15.6% of the county’s population in 2010. According to Thomas, they comprise 20% of the credit union’s membership.
You have to use supplemental capital for the benefit of both the balance sheet and the membership, not just to get over a hump.
Thomas saw firsthand the issues this population faced. At the time, the futures of mortgage enterprises Fannie Mae and Freddie Mac were uncertain. If they did continue to exist, it was unclear what considerations they would require on a mortgage loan for a secondary sale.
On the other end of the spectrum, both well-meaning and unscrupulous lenders were devising convoluted loan programs to accommodate borrowers who didn’t otherwise qualified for a mortgage, Thomas says.
With the additional capital, the credit union has served its members — specifically its Hispanic members or those with blemished credit — through affordable fixed-rate and adjustable-rate mortgages as well as other programs.
“We made the programs we had work,” Thomas says. “We were already a low-income credit union, and this was a way to help people through a horrible financial environment.”
Since the first quarter of 2010, before Fairfax County Federal Credit Union received capital from Treasury, the credit union has increased its total real estate portfolio by 73.2%. During this five-year period, first mortgages increased 63.0%, expanding from $34.1 million in 2010 to $55.7 million today.
Just as important, the credit union’s loan-to-share ratio has increased from 64.2% as of first quarter 2010 to 75.3% as of first quarter 2015. Additionally, it’s net worth ratio has topped 10% since the credit union received capital assistance in September 2010.
For Fairfax County FCU, success means not only helping members during the recession but also continuing that help. Using supplemental capital wisely, Thomas says, involves a long-term approach.
“This is money to invest in the membership and not in a short-term program,” he says. “You have to use it for the benefit of both the balance sheet and the membership, not just to get over a hump.”
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