Bringing Down The House (Barriers)

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When Caryl Stewart first approached state banking officials in early 1988, she was told it would be a "piece of cake'' to get her community development credit union approved.

"(State officials) said the feds usually come in and rubber stamp it,'' she recalled.

That same year, the savings & loan crisis hit.

"The feds weren't rubber stamping anything,'' she said. "Instead, they gave us a whole new set of regulations to qualify.''

Determined to fulfill its mission-provide affordable housing and other financial support to low-income families-the organization that initiated the would-be credit union's formation pressed on.

"This ecumenical group had long done a lot of social programs, but basically came to the conclusion that it needed access to capital to continue,'' she said.

In 1989, Vermont Development Credit Union, with $12 million in pledged assets, got the National Credit Union Administration's OK, at the same time the agency's own strict rules that would force the closure of 30 other credit unions over the next few years. Stewart said VDCU was the last CU to receive a federal charter for five years.

Always A Goal

With the economy in a state of flux, VDCU knew mortgage lending was not an option at the time, so it set its sights on making money and planning for the future.

"We couldn't begin immediately doing mortgage lending, but it never stopped being our goal,'' Stewart said.

In 1993, the Credit Union Foundation presented VDCU with a grant that allowed it to purchase a computer and hire an employee to take some time to develop the housing program without pressure of having to make money right away, Stewart said.

Fourteen years after it was chartered, VDCU has $22 million in assets, a creative selection of products and services and an impressive track record.

"Nobody in their right mind thought you could lend to low-income people and succeed,'' Stewart said. "People think this is a hopeless population so why even try.''

Of the 526 mortgage loans made since 1993, only four have gone bad. This year, Vermont Development Credit Union is on target to provide more than 130 families with mortgages.

VDCU recently joined forces with Fannie Mae, Banknorth Vermont and the Ford Foundation to increase the number of product offers and expand offices to give more Vermont families convenient access.

Admittedly, getting Fannie Mae on board took a lot of effort, including two years worth of applications.

"When we joined the Federal Home Loan Bank, they sent a team to help us fill out humongous applications,'' Stewart said.

With Fannie Mae, however, she said the credit union was on its own.

"This is a very complicated, major organization that is set up to deal with the middle class,'' Stewart said. "When you deal with them, they just assume you are a multi-billion dollar institution. We only had $12 million, which was way off their charts.''

Since the two joined efforts in 2002, Stewart said, Fannie Mae has set up offices throughout the state and country and designed "boutique-type products'' to serve the specific needs of borrowers. For example, she said, they have one for teachers, another for police officers, and another for the disabled.

Stewart said that opened the door for VDCU to serve more people with impaired credit.

"We now have a program called timely payment awards,'' she said. "It allows us to make loans to people who underwriters say are a good risk but don't pass muster.''

Those who qualify pay higher than market interest rates for a specified period of time. With a good payment track record, the interest is then reduced to market rate.

Throughout the years, VDCU has developed several creative products and services of its own.

Stewart made it clear that VDCU does not just hand out mortgage loans to anyone who applies. For the majority, she said, the mortgage loan is third, fourth, or even fifth on the list of loans they will get from the CU. It starts with counseling-based lending, she explained.

"We base our lending practices on an efficiency model that says you've got to be motivated,'' she said. "If you have a factor about your life that disqualifies you for a home at the outset, it usually takes awhile to correct that. That just means we work with a family for two or three years pre-mortgage.''

In the meantime, the CU provides members with other options, such as personal loans to pay their taxes.

One very popular loan at VDCU is the "tracker loan," designed to get a member on track to purchase a mortgage loan. When a member makes his loan payments, a portion goes into a savings account that belongs to the member once the loan is paid off.

"They establish positive credit with us and we can see if they can keep their end by paying the loan,'' Stewart said. "At the end, they have an asset. It's our basic credit-building loan.''

Stewart said Vermont Development started offering loans through Vermont's state financial housing agency, which is geared toward first-time homebuyers with modest income. But, because it carries requirements that exclude some of VDCU's target audience, Stewart said, VDCU created its own adjustable rate portfolio for people "we were absolutely certain about.'' She said the CU agreed to put a cap on the interest rate so members could handle any increase.

Since then, the credit union has developed a fixed-rate mortgage for people who have all the signs of good risk, but still don't qualify for loans on the secondary market.

Not Giving Up On Some Borrowers

The CU's latest effort is to assist people who live or want to live in manufactured housing (mobile homes).

"This type of housing is not well received by the secondary market at all,'' Stewart said. "It's so rigid that we can't make our people qualify.''

Instead of giving up on them, she said, staff stepped in to help. "We began to get to know many of these folks who live in these mobile home parks,'' she noted. "Most of them are in very disadvantaged situations. The parks they live in tend to be uniformly low-income and badly managed.''

She said in order to make progress there, "we've learned that we have to look way beyond the mortgage.''

That sometimes means providing small personal loans to help them pay bills and make home improvements, Stewart said.

"Our goal has always been to take hold of an underserved population,'' she said. "It's never plain and simple."

Stewart said it makes her feel good knowing that VDCU's work is impacting agencies that don't typically service low-income families.

"What we are doing successfully is bringing in major resources that have always served the middle class down to low-income people,'' she said. "In a sense, we are changing how the system works. And that's really what has to happen to reach this low-income population that can't be reached by banks.''

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