“What Happens Here Stays Here.” So goes the Las Vegas tourism tagline; however, credit unions in regions across the country might see the value in borrowing a strategy or two from one local institution.
Nevada is as synonymous with gaming as it is reliant upon the industry to drive its economy. According to the 2010 U.S. Census, more than half of the state’s residents — 1.9 million out of 2.7 million — live in the Las Vegas metropolitan area, which is also where the majority of its large casino employers are located, according to data from the Nevada Department of Employment, Training, and Rehabilitation. When the financial downturn hit between 2007 and 2008, tightening belts around the country had a double impact on Sin City. A decline in tourism led to a decline in gaming revenue, which forced casinos to cut spending — i.e., lay off workers — to remain profitable.
CU QUICK FACTS
ONE NEVADA CREDIT UNION
data as of 12.31.13
HQ: Las Vegas, NV
12-MO SHARE GROWTH: 4.57%
12-MO LOAN GROWTH: -9.80%
“It was rough,” says Kim Westover, vice president of mortgage lending at One Nevada Credit Union ($698.6M, Las Vegas, NV). “To compound high unemployment, we also had underemployment. A lot of casinos put workers on short hours. If they didn’t lose their job, they lost a lot of income — sometimes both husband and wife.”
Identify A Need
Nevada was a leader in national home foreclosures during the worst part of the recession. Despite increasing inventory and declining prices, the state’s population couldn’t afford homeownership. In fourth quarter 2008, One Nevada held more than $387 million in real estate loans; as of fourth quarter 2013, that number had fallen nearly 50% to $183 million, according to Peer-to-Peer analytics from Callahan & Associates.
“We saw a need for people that had situations that were beyond their control,” Westover says. “We wanted to benefit the community.”
To help members break through the housing stagnation and put them back in homes, One Nevada introduced its New Start Mortgage program in February 2014. The loan is geared specifically to individuals who have a past bankruptcy, foreclosure, short sale, or modification. It offers a 30-year amortization with a five-year balloon at an interest rate of 6%. By comparison, the rate on the credit union’s 30-year fixed rate loan hovers around 4.5%. Borrowers must qualify for credit union membership, and their bankruptcy, foreclosure, short sale, or modification must be finalized. There are no seasoning requirements, but there are parameters to help alleviate risk. For example, the maximum loan-to-value ratio is 70% and the maximum debt-to-income ratio is 43%. In addition, borrowers must have a FICO score of 580 or higher and must be able to make a 30% down payment — the credit union allows gifts of equity. Finally, the maximum loan amount is set at $200,000, a reasonable limit to purchase or refinance a primary residence in the Las Vegas area.
“We’re not trying to refinance million dollar homes here,” Westover says.
According to Westover, several private lenders offer similar programs with interest rates that range from 8% to 13%, however, One Nevada refuses to go that high just for the sake of collecting interest.
“We’re not going to make a lot of money on it, but we’re not interested in making 10% mortgage loans,” he says.
Everyone Can Benefit From A New Start
Borrowers dealing with bankruptcies, foreclosures, short sales, and modifications have to navigate various legal waiting periods before they are eligible for an FHA loan, generally within five years of the incident. New Start Mortgage is a program for members who are in that borrower purgatory, and once they become eligible for an FHA loan, One Nevada will reach out to the borrower and give them the opportunity to refinance into a lower rate.
“It’s a bridge loan,” Westover says. “It helps people who’ve been in some traumatic situations. It’s exactly what it says, it gives them a new start.”
As a way to combat poor financial management and higher risk, the credit union requires New Start Mortgage borrowers to complete a three-hour homeowner counseling class offered online and in branches. The class covers a spectrum of topics having to do with homeownership, such as purchasing and credit requirements, budgeting, and responsibilities associated with owning a home.
“When your fridge breaks down, the landlord doesn’t fix it,” Westover says. “You’re taking on a huge responsibility, and you’ve got to make sure your priorities are in line.”
Westover estimates One Nevada will add three to four New Start Mortgages a month to its balance sheet — it currently has six on the books. The credit union has allotted $5 million to the program and will re-evaluate it when those funds run out. The largest loans to date have been in the mid-$100,000 range. If that continues, as Westover believes it will, that $5 million will last a few years.
One Nevada realizes it picks up members who are solely joining the credit union because of the mortgage product, but it considers any community awareness an added benefit of the New Start Mortgage. From there, it adds to the conversation through its social media, TV, radio, and even billboard advertising.
“Our credit union has great products, we’re pretty diverse,” Westover says. “The mortgage [program] gives us an opportunity to introduce people to our other products.”