Rehabilitation Loans Transform Dilapidated Homes

Advantis Credit Union uses a combination of the traditional and the innovative to post double-digit loan growth in the third quarter.


With 19% loan growth year-over-year at 3Q 2012, Advantis Credit Union ($1B, Milwaukie, OR) has struck the rare balance between achieving rapid growth and maintaining institutional security.

“We take the consultative sales approach very seriously here,” says Jeff Schwarz, vice president of lending and retail sales service. “We’re looking for those cases where a product or service will really help the member and the credit union.”

Following on the heels of an impressive 90% annual growth in the consumer loan category, first mortgages are up 119% for fixed rate and 26% for adjustable rate over the same time frame, according to Callahan & Associates’ FirstLook data ─ more than making up for any slowdown in other channels. Per month, Advantis is averaging approximately $35 million in refinance activity alone.

Data as of September 30 for all U.S. Credit Unions
© Callahan & Associates |


Generated by Callahan & Associates' Peer-to-Peer Software

“With this low-rate environment practically every member who comes in could save money by refinancing,” says Darin Walding, the credit union’s real estate loan manager. “Our front-line staff has become much more proactive in asking members if they would like to talk to a loan officer.”

With a 24-person mortgage department and a growing roster of real estate agent partners, Advantis has long orbited around 10% market share for real estate in the Portland area, compared to a peer average of just 7.1%.

Annual delinquencies, bankruptcies, and charge-offs are also down by double digits across the portfolio — a testament to the credit union’s collection efforts and traditional underwriting approach.

Data as of September 30 for all U.S. Credit Unions
© Callahan & Associates |


Generated by Callahan & Associates' Peer-to-Peer Software

“Our underwriting standards are pretty high and we are selective in who we loan to,” says Schwarz. In recent years, Advantis has learned to combine the lessons of conservative lending with innovative products designed to address a broader swath of real estate needs.

The credit union offers eight mortgage products, including a piggyback mortgage — the combination of a 10/1 ARM for 80% of the home value and a second 5/1 ARM for 15% — that targets borrowers with a small down payment who want to avoid mortgage insurance as well as a jumbo mortgage. The credit union originates about a dozen of those per year. 

“These products are a small portion of our growth but also a key element,” Walding says.  “There’s an occasional need for these options and there are good members out there who are requesting them.”

The credit union’s newest loan, which it introduced in 2008, is a rehabilitation product that covers the purchase of a distressed property, or the refinance of an existing property, and the cost of repairs the owners intend to make to the home.

For owner-occupied units, the loan covers up to 90% loan-to-value for what the property will be worth after renovations, with excess above the current home value set aside to pay for the repairs. Mortgage insurance is also not required for loans that exceed 80% LTV.

“This product serves a unique need in markets where there are a large amount of foreclosures,” Walding says.  “A lot of first-time homebuyers are saying ‘I want to get a foreclosure.’ ‘I want to get a good deal.’”

The institution’s own Multnomah county leads the state in terms of foreclosure activity, with one in every 1,244 housing units receiving a foreclosure filing this October, according to RealtyTrac.

But despite high buyer demand for these units, many deals never close because the seller either refuses to do repairs or must be repeatedly coerced by the underwriter to do so, Walding says. Even if the seller does make repairs, the buyer typically has little control over the process.

“We wanted to give people the chance to buy the home, fix it up, and make it exactly the way they want,” Walding says.

Advantis currently makes 10 to 12 of these rehab loans per year, generating new levels of awareness in residential communities full of potential membership.

“Members have learned to come to us for their mortgage needs,” Walding says. “We’ve had young couples turn these foreclosed homes from absolute wrecks — with tires in the basement and frequent violations from the city — into the gems of the neighborhood.”

Lending to foreclosure-focused buyers can present a different set of challenges. Because the loan is for the post-renovation value, borrowers must meet with not only a realtor but also contractors or builders to estimate costs and gather all the necessary bids to present to the credit union before closing. On the credit union side, employees must become familiar with the nuances of this process and be able to educate the member.

 “We did require some additional loan officer training to handle this product,” Walding says.

Advantis is not actively pushing its own REOs with this product, preferring instead to let realtors and borrowers organically find the locations with the most potential for them. However, credit union owned assets are certainly an option for interested members.