Municipal Employees Credit Union, ($1.2B, Baltimore, MD) with the help of Habitat for Humanity, has been offering no-interest loans to riskier lenders in deteriorated parts of Baltimore for more than eight years to try and rebuild the community.
“The justification for this investment was very simple — this was our mission," says Gary Martin, senior vice president and chief lending officer at MECU. The credit union’s mission is in part to provide financial services to people with modest means and those who don’t have a bank. “These people we are helping were either existing MECU members or were potential members, and we were helping to increase home ownership in Baltimore City. Our Board wholeheartedly supported our effort and commended our CEO for initiating the partnership.”
The credit union serviced 62 loans through its partnership with Habitat for Humanity in Sandtown, Md. and the Chesapeake Bay area. With several thousand abandoned or boarded-up houses in the West Baltimore community, Sandtown was an appropriate place for MECU to start working with Habitat for Humanity. The non-profit and the credit union saw the need to rehab houses to draw homeowners and businesses to the area.
The partnership aims to help residents who can’t afford the cost involved in financing a home, or who don’t have the credit or background to get a loan. For its part, MECU provides the individual loans, while Habitat for Humanity provides the qualified borrowers and covers the cost of the interest on the loan up-front. MECU underwrites the loans according to secondary housing market standards. So far, the loans have been performing well.
“It’s a real buy-in for the individual,” Martin says. “They put all that time and effort into their home.”
Credit unions that want to start similar programs must be aware that there are several challenges. To ensure these loans perform well, develop a strong relationship with the Habitat organization that allows for two-way communication, Martin says. Set realistic expectations for their participation, both before the loan is made and after.
Credit unions can help the Habitat organization prepare the potential homeowner before making application for the loan. The Habitat must prequalify the potential homeowner to be sure they have the means to service the obligation. Their credit must be acceptable, so some effort will be required by the homebuyer to take care of any outstanding credit issues. Each participant needs to take part in a robust education program before purchasing the home to ensure their long-term success.
“The continued success of the program and itsparticipants requires an ongoing relationship between the homeowner and the Habitat organization,” Martin says. “Continued coaching from the Habitat organization after the homeowner moves in helps the new homeowner to stay on track even during challenging times. There must be a plan inplace to address the unlikely event of a default.”
Since the homes are in Baltimore and the borrowers are first-time homebuyers, MECU offers specials. Borrowers working with the Habitat for Humanity partnership receive the cooperative financial institution’s current rate with a 25-basis point discount. Having an interest-free loan that the individual pays back monthly gives these people an opportunity to remedy their poor credit scores and reports. “It really gives them a jumpstart to be successful financially as they move through the process,” Martin says.
MECU’s 271 employees participate in one community service event per year. The outreach activity is part of the employee’s review process — an aspect they are rated on. Credit union employees participate in the building about once a month and the homes usually take about a year to complete.
Not only are the homeowners working along Habitat for Humanity volunteers and credit union employees, but they do receive that financial literacy and counseling along the way. If individuals start to slip on payments, a member of Habitat for Humanity comes to counsel and help them get back on track. Instead of having a collector come to their door, they see a person they have a relationship with, which really makes a difference, Martin says.
The credit union has been focused on community outreach for roughly 15 years. President and CEO, Bert Hash, came to the credit union after spending more than two decades in the banking industry, part of which he worked on community outreach and reinvestment activities. Hash, who had a longtime relationship with Sandtown Habitat, was an integral part of forging the partnership.
“There is a constant element of outreach that exists here at MECU,” says Doug Hinkle, assistant vice president of facilities at MECU. “Outreach manifests itself in so many different ways here.”
While the credit union services loans and helps build Habitat for Humanity houses throughout the year, it also takes part in Blitz Week. Blitz Week is a week-long push to build homes in Sandtown. The credit union sends around 45 employees to rehab homes in various Sandtown locations all day for three days. During one of the workdays, MECU provides lunches for all the volunteers, usually between 200 and 300 people.
“People don’t do it because it’s on their evaluations,” says Natalie Woomer, vice president of accounting for MECU. “People found out how satisfying it was to see the joy that we were bringing and how much people really needed help.”
Author Bailey Reutzel and multimedia producer Melissa Forsyth hit the road in August for a weeklong Cooperative Trek. They traveled from Washington, DC, to Portland, ME, stopping along the way at 11 credit unions and learning first-hand about successful strategies to share with our readers. Follow the 2012 Cooperative Trek on CreditUnions.com as we release stories from the road throughout the fall of 2012.