Credit unions navigate Detroit's uneven recovery

Unemployment is down and home prices are up, but credit unions in Detroit face a rocky road as they attempt to prosper amid the city’s comeback.

Though plenty of CUs serve the wider metro area, only a handful credit unions are headquartered in the Motor City. Six years ago Detroit filed the largest municipal bankruptcy in U.S. history (with an unpaid debt of some $18 billion) but the ensuing recovery has been largely limited to downtown and still hasn’t trickled out to many neighborhoods, including many composed of low-income, underserved consumers. The city’s population has shrunk by more than half since the 1960s and many financial institutions left along with residents – including credit unions. Many CUs that once called Detroit home have moved their headquarters to the suburbs.

Detroit joblessness

According to the Michigan Credit Union League there are 32 credit union branches in the city, though just only a few CUs are based there. According to the National Credit Union Administration, between 2012 and 2017, six Detroit-based credit unions failed.

“The city’s neighborhoods are still losing people, but services are slowly coming back and the exodus has slowed,” said Hank Hubbard, president and CEO of One Detroit Credit Union, one of the few local financial institutions focused on serving the inner city. “I think we will be on the rise this year and continue into the foreseeable future.”

Data from the Bureau of Labor Statistics shows the city of Detroit’s unemployment rate has plunged from 14.0 percent in January 2015 to 9.1 percent in February 2019. Similarly, according to Realcomp, the median price for a home in the City of Detroit has increased from $14,000 in Dec. 2014 to $35,000 in Dec. 2018. While that’s an impressive jump, on an absolute basis, housing in the city is very cheap – the median price of homes in adjacent counties range from $100,000 to $300,000. Moreover, those figure are somewhat misleading in that prices in the rejuvenated downtown are far higher than in blighted neighborhoods.

Detroit home prices

“The economy of Southeast Michigan is certainly improving,” explained Charles L. Ballard, an economics professor at Michigan State University. “Michigan was hit very hard by the recession, but we have had a decent recovery.”

But Detroit’s economy presents a very mixed picture, he cautioned. “Downtown, Midtown and some neighborhoods are doing well,” he said. “But other parts of Detroit are in bad shape. After all, this is a city that peaked at nearly 2 million people, but now has fewer than 700,000. That necessarily means that there are lots of blocks with few inhabited structures, if any.”

Despite the struggles in Detroit, credit unions across the state continue to see significant growth, and more than half of Michigan's population are credit union members. Detroit's revitalization has also helped turn the city into a hub for fintech, particularly the mortgage industry.

Some of the city's housing bounce back is benefiting credit unions. Kevin O’Connor, chief financial officer of the $395 million-asset Diversified Members Credit Union in Detroit cited a mortgage application he recently saw for $90,000 for a city property that last sold for $11,000 in 2011.

Dave Sullivan, vice president of marketing at the $260 million-asset People Driven Credit Union in nearby Southfield, Mich., noted that his credit union is planning to stage more home-buyer events at its Detroit branch to help members take advantage of the rapid home appreciation in some parts of the city.

“Some condos that sold for less than $90,000 can now sell for almost $500,000 now,” Sullivan said. “There is still opportunity for a smart homebuyer in Detroit provided they do their homework and buy smart.”

Inner city pressuresd

Much of the recovery has been driven by an influx of younger people moving into the city, some of which has trickled down to credit unions. Between Dec. 2015 and Dec. 2018, Diversified Members saw membership climb from 24,531 to 25,898, while loan volumes jumped from $95.5 million to $146.7 million.

“Although we are losing are older municipal workers,” he said, “students, police, firefighters, EMS workers, students, small and local businesses are fueling this growth.”

Hank Hubbard is president and CEO of One Detroit Credit Union

Hubbard said One Detroit has also been participating in the recovery to the extent that it can as a smaller institution. “For example, we are one of two lenders supporting a city initiative to provide 0 percent home rehabilitation loans to long-time residents,” he said. “We’ve done about 250 of these loans for about $4 million. We earn administrative fees from the city rather than interest from the borrowers on these.”

These rehab loans have especially been attractive to inner-city homeowners who have few other options in making repairs to their homes, thereby reducing urban blight. Borrowers have 10 years to pay back the loans. The loans are technically funded by Bank of America through the Community Reinvestment Act, with no risk of loss to the credit union. “Those loans aren’t technically on our books, but we service them as if they were ours,” Hubbard added.

Loans issued by Detroit-area credit unions tend to follow local economic trends and the needs of their members.

DMCU’s O’Connor reported they are doing a lot of auto loan refinancing and personal loans, but are also participating in member business loans. “Real estate loans in the city proper are also picking up as well as investors are buying a lot of properties for rentals,” he added.

Hubbard, whose One Detroit focuses on the urban poor, said they don’t currently offer business loans. “There is a demand for home loans, which is something we do participate in and have seen some growth in,” he noted. “Most of our business is in smaller auto or signature loans, which are labor-intensive and costly to provide. Our constant challenge is to figure out how to increase efficiency and decision-making on these loans to make more of these loans in a sustainable manner. Most are sub-prime and high maintenance.”

Many of the city’s problems still persist though, including how to lift up struggling neighborhoods.

The city has a handful of CUs – mostly very small – serving the inner city, while One Detroit has two branches in underserved neighborhoods and Diversified Members has two branches, though the latter has no current plans to expand its branch foot print.

But Hubbard said the increase in the younger working population in Detroit is attracting the interest of larger credit unions in Michigan, some of which “have projects planned in the central business district which will make the credit union presence there much more robust.”

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Detroit bankruptcy Lending Mortgages Real estate Home prices Housing affordability Michigan
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