FORT MEYERS, Fla. — Saddled with numerous foreclosed properties and vacant homes in this state, credit unions and the NCUA are turning to rent-to-own programs to generate revenue and help move the non-performing assets off their books.
One such program, called Fresh Start, is headed by the Chang Group here to not only help financials generate income on otherwise losing properties, but to also remove the burden of maintenance and upkeep. From the borrowers' perspective, Fresh Start helps individuals rebuild their credit and savings to qualify to purchase the home at the end of the lease. The NCUA is running its own lease-to-own program.
"It's a social solution to a really huge housing crisis," explained Jacqueline Chang, president of the Chang Group. "Clearly lenders need to dispose of the property, but they can't readily do that when the majority of potential borrowers can't qualify for a mortgage. We needed to come up with a way for lenders and borrowers to work this out."
Chang said her organization is working with more than 20 credit unions, including Suncoast Schools FCU in Tampa, Fla., and Solano First FCU, in Fairfield, Calif., to rent and potentially sell the Florida homes (see related story). Only two of the CUs involved with Fresh Start are based in the Sunshine State.
Fresh Start contracts range from 12 to 18 months, on average, and have two components that help consumers rebuild their credit in a part of the country where many borrowers' credit has been damaged, if not destroyed. The Chang Group, which consists of an asset management company, a leasing company, and a real estate firm, works with Payment Reporting Builds Credit to count renters' monthly lease and utility payments toward their credit rating.
Savings Component
There is also a strong savings component with Fresh Start that places a significant portion of the rent payment aside in a savings account, usually at a local bank not involved in the lease, to be used at the end of the contract for the down-payment, explained Jack Lee, manager with the Chang Group. On a lease payment of $1,100 a month, $500 might go to the savings account, he estimated.
"This is still a great deal for the financial institution," Lee said. "Just think about the costs to retain a vacant home. The taxes and insurance are probably $300 a month. Then you add the cost to maintain the home-maybe between $200-$300 a month."
Taxes and insurance are the renters' responsibility, which keeps the monthly lease payment very close to what the mortgage payment would be. But that's by design, and to benefit the borrower, Lee contends. "This way renters are not shocked when they go to apply for a mortgage. If you had budgeted $600 a month for rent for the next 18 months, and then you applied for your mortgage and find your payments are $1,100, you won't have a chance. We have worked very hard to make this program a win for the borrower and the financial."
Renters have to do some of the heavy lifting. Outside of structural repairs, maintenance is their responsibility. Chang said that having a stake in the home motivates consumers to keep the property in good shape.
Even with the program just three months old, Chang said "communities are beginning to pop up again in areas that used to be empty homes with birds in the yards. It's remarkable, and that may help to maintain home values." No homes, as yet, have been sold through Fresh Start.
The Chang Group, which manages numerous properties for financials, inspects homes once a month. The company drives by houses that are occupied, but lets tenants know that once a quarter they'll stop by for a look inside. If tenants skip out on the lease, or leave the home damaged, the financial keeps the money the tenet has set aside for the down-payment. If tenants can secure financing, they are allowed to end the lease and purchase the home at any time. They do not have to finance the mortgage from the lender who owns the house.
Fresh Start is attracting a lot of interest, both from consumers and from credit unions, according to Chang. The program's first two months drew almost 100 applications, and Chang said she talks with credit unions every day about Fresh Start.
"We hope to eventually process 80 to 90 applications a month," Chang said. "Right now we have 200 homes available from banks and credit unions."
The Chang Group's asset management company receives 10% of the collected rent per month, and its real estate firm collects a 6% commission when a home sells.
Fresh Start is currently offered in Lee County. In April, the Chang Group plans to expand to Sarasota, St. Petersburg, and Miami, Fla. "Our goal is to offer the service outside of Florida in the coming months," Chang said.
The much-publicized Norlarco Credit Union collapse has the NCUA holding many vacant homes in Lehigh Acres and Cape Coral, Fla. Chang said her firm has been working with the NCUA to rent some of those properties.
NCUA Denies Any Relationship
However, when Credit Union Journal asked the NCUA about its involvement with Fresh Start, John McKechnie, director of public and congressional affairs, said NCUA "does not directly participate in Fresh Start. But we have a somewhat similar program. The NCUA program has a maximum two-year initial lease term at the end of which the borrower has an option to buy the house. A portion of the individual's payment during the lease term is applied as a credit toward the price of the house."
The program is managed through NCUA's Asset Management and Assistance Center, McKechnie explained.
According to numbers supplied by the NCUA to Credit Union Journal, through mid-February of 2009, NCUA had paid $909,855 for taxes and insurance on foreclosed properties it owns in Florida as a result of the Fort Collins, Colo.-based Norlarco CU failure.
