La Crosse, WI, is the largest city located along the Badger State’s western border. It is the home to three institutions of higher learning, and both Forbes and Entrepreneur magazines have named it among the best places for business and careers.
Unfortunately, it’s also a city that is aging and in need of an economic and structural facelift.
That’s why organizations, such as the non-profit La Crosse Promise, are stepping in to transform the city. For example, La Crosse Promise offers families who build, buy, or renovate a home valued at least $150,000 in one of four La Crosse neighborhoods with a college scholarship worth up to $50,000 for students attending a school in Wisconsin.
CU QUICK FACTS
HQ: Onalaska, WI
Data as of 12.31.16
12-MO SHARE GROWTH: 8.0%
12-MO LOAN GROWTH: 12.6%
The neighborhoods — Powell, Poage, Hamilton, and Washburn — are older areas with low housing availability and little pride of ownership among the residents, says Dennis Herricks, vice president of real estate services at Altra Federal Credit Union ($1.3B, Onalaska, WI).
“Most older homes have been converted into apartments,” Herricks says. “And the people who do own don’t provide as much care as they should.”
With the understanding that owning a home can be expensive, La Crosse Promise connects perspective borrowers to a loan consortium of 11 financial institutions, including Altra, for their financing needs.
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According to Herricks, this consortium of local lenders formed roughly three years ago. Each institution pledged up to $1 million to create a pool of money to cover housing costs in a city where the average home or condo value in 2015 was $130,000. To remove the spirit of competition, the banks and credit unions in the consortium abide by rules established to best serve borrowers.
Additionally, the lenders agree to keep the mortgages originated through the consortium on their books rather than sell them to the secondary market.
Other perks include waiving mortgage insurance. Altra is comfortable underwriting a loan with a loan-to-value (LTV) as high as 90 to 95% without charging mortgage insurance. Loans sold on the secondary market, however, require mortgage insurance when LTV exceeds 80%.
“Not charging mortgage insurance represents a significant savings to a borrower,” Herricks says. “That could be worth up to $100 a month depending on their credit score.”
The credit union is willing to take on the extra risk inherent in a high LTV mortgage because making higher education more affordable and rebuilding dilapidated areas is good for the community.
“The builder and financial institution don’t make as much money as they would on a home outside of this area, but we’re willing to help the city improve these neighborhoods,” Herricks says.
Despite not needing to meet secondary market standards, Herricks says the credit union underwrites mortgages that come through La Crosse Promise the same as a traditional mortgage. In fact, the only real difference between the two are that those that come through the program are tied to a long-term economic benefit.
“Borrowers know what they are doing,” Herricks says. “They know the benefit, and they’re committed to it.”
The finanical institutions in the consortium don't market its participation in La Crosse Promise. Instead, local realtors or builders steer borrowers toward the program and, from there, borrowers may choose their own lender. Altra has closed two loans from the program— the first for $161,000 and the second for $158,000. According to Herricks, both loans went to two-child families, and each child is eligible to receive up to $25,000 in continuing education expense if they attend a Wisconsin-based school.
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As for lessons learned, Herricks stresses patience when working with a program like this. It took many years for La Crosse to develop into the city it has become, and it will take many more for it to develop into the city its residents want it to be.
But thanks to the credit unions and community banks in the loan consortium, borrowers are slowly rebuilding downtown.
“There’s no quick fix,” Herricks says. “It takes effort. It takes time. It takes work. And it takes dedication to a cause.”