According to a 2012 report from the EARN Research Institute, nearly 57 million low- and middle-income Americans qualify for grant-based matched savings accounts — a specialized financial product that funnels matched funds for qualifying deposits from a variety of public and private sources.
These funds can influence whether the nation’s most economically vulnerable individuals achieve various life goals and improve their future outlook. However, because a low number of organizations offer these programs, only 0.2% of qualified applicants nationally benefit from this assistance.
CU QUICK FACTS
Hudson Valley FCU
HQ: Poughkeepsie, NY
Data as of 09.30.14
12-MO SHARE GROWTH: 3.83%
12-MO LOAN GROWTH: 12.24%
Credit unions can and do play a crucial role in increasing awareness about the available funds in their community, particularly when programs overlap with their own goals.
A Spark Of Life From The Housing Market
Located in Poughkeepsie, NY, approximately 80 miles north of New York City, the $4.0 billion Hudson Valley Federal Credit Union and it’s more than 290,000 members have been largely insulated from the highs and lows that have hit other markets throughout the past decade. Yet even here, a combination of economic, job, and financial education challenges have locked many residents out of owning their own home.
“Buying a home and starting a 401(k) are probably the two biggest financial decisions you make in your lifetime,” says Vincent Aurigemma, the credit union’s loan origination manager. “Unfortunately, we see a lot of potential first-time homebuyers in our area who have a hard time saving enough for a down payment.”
For more than half a decade, HVFCU has worked to dismantle this economic barrier through its First Home Club, a savings account for potential homebuyers that provides a $4 match for every $1 deposited over a 10-to-24 month period, up to a $7,500 post-match ceiling.
There’s evidence that buyers who go through this program have a lower risk of delinquency than they might otherwise.
Despite the product’s long track record, its popularity has only recently picked up thanks in part to the growing purchase market.
“In 2012, we were enrolling about 10 people a year in this program,” says Cathy Kantrowitz, the credit union’s real estate loan operations manager. “Now, we’re enrolling about 10 a month.”
Help To The Right Hands
The funds for HVFCU’s First Home Club come from the Federal Home Loan Bank of New York. To qualify, potential borrowers must be a first-time homebuyer — someone who either has not owned a home in the past three years or did so with a spouse and has since become a single parent or a displaced homemaker — and they must earn less than 80% of the median monthly income for the area.
“I conduct approximately eight homebuyer seminars a year,” Aurigemma says. “This program is a part of those discussions, especially when a member is not quite ready financially to take the next step.”
In these scenarios, HVFCU refers members to one of several county-level credit counseling agencies. The agency verifies the member’s qualifications for the program, helps them establish what they can afford to save each month, and provides six hours of financial education sessions. The financial education includes a discussion about the second lien that is placed on any home purchased through the program.
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“This recapture component, which is set on a sliding scale over a five-year period, is a way to dissuade people from misusing those funds,” says Aurigemma regarding the second lien. “The offering was designed to help buyers looking for their long-term home, not someone who is going to save for 10 months, get the $7,500, and then sell the house next year.”
After a member completes the qualification activities, the credit counseling agencies can refer approved individuals back to the credit union to open their First Home Club accounts. If the agency refers a non-member, they can become one at this time.
“There is really no cost to us to offer this benefit, and there’s evidence that buyers who go through this program have a lower risk of delinquency than they might otherwise,” Kantrowitz says.
In addition to the extra money in matched funds, the process of setting aside a specific minimum deposit every month benefits First Home Club savers by establishing a sort of trial run for homeownership, Aurigemma explains.
“Once someone buys a home, those behaviors translate into things like making their mortgage payment every month and establishing a cushion for unexpected expenses,” he says.
Those are positive lessons for the many borrowers that make the transition into homeownership. The majority of HVFCU’s program participants reach their savings goals, and approximately 65% complete a home purchase.And although there is no requirement to do so, those who choose Hudson Valley for their mortgage earn an additional $500 discount off of their closing costs.
“To take someone who came in thinking they had no shot at homeownership and within a year be able to hand them the keys to a home where their kids are going to grow up, that’s a satisfying feeling for us,” Aurigemma says.