MILWAUKIE, Ore.-Advantis Credit Union says its Rehabilitation Mortgage Program is helping to revitalize the communities it serves, boosting its bottom line, and increasing exposure of the $1-billion CU and its mortgage department.
Darin Walding, real estate loan manager, told Credit Union Journal Advantis developed the program in response to a "glut" of foreclosed or abandoned houses in the Portland metro area. These houses typically became magnets for squatters, drug use and other crimes, driving down neighborhood property values.
The Rehabilitation Mortgage Program gives people the chance to purchase one of these distressed properties and obtain funds to complete much-needed repairs and upgrades, Walding said.
"The current market condition is coming off a heavy supply of foreclosed properties," he noted. "Realtors tell us there is a shortage of turnkey homes, because people who have nice homes are staying put. The majority of the supply is bank-owned properties that people often stop taking care of, or they have been vacated for a while and people have come in and trashed the place."
According to Walding, the program represents a "unique opportunity" for people to make changes or install upgrades. "They can buy a property that is in less-than-desirable condition and fix it up. I think people get connected to their homes when they get to make it what they want."
Special Appraisals
The key to making the program work is determining the value of the property. Advantis said the process begins with a short online application process, then the CU's mortgage consultants meet with borrowers to create a renovation plan and budget. The property will be appraised in both "as is" and "after improved" condition. Advantis will loan up to 90% of the "after approved" value.
Eligible improvements and projects range from minor to major remodels. Advantis said some loans include changes that improve the appearance and modernize the home, while others include reconditioning plumbing, room additions, improving roofing, decks and landscape enhancements.
"We made an agreement with our appraisal management company," Walding said. "For a fee, the company gives us both values. Instead of the usual six comps, we get nine to 12 to help fully establish the value. It is a dual reconciliation that includes the as-is value of today with the subject-to-projected value, which appears in the narrative comments toward the back of the report."
The concept is similar to buying a new construction house that is only dirt, Walding noted. In the latter case, the lender gets an appraisal based on blueprints and plans and comes up with a value for what the house will be worth, subject to a final inspection confirming the builder built it according to the plans.
"We do an appraisal update to verify that the repairs were done and the value is the same," he said. "The dual appraisal drives up our closing costs, but people can't get this loan anywhere else, so for a couple hundred dollars extra it is worth it. Plus we are doing something extraordinary."
Soft Launch
The Rehabilitation Mortgage Program kicked off with little fanfare in 2008, Walding recalled.
"Once we got a few under our belt and got our loan officers experienced, we have pushed the marketing a lot more the last year and a half."
Advantis has closed approximately one dozen of the loans, with eight of those last year. Walding said word of the program has led to more interest, and the CU has started to market it beyond just its membership to the Realtor community.
"Members might not necessarily have been looking for a foreclosure," he said. "There is very little competition for these types of loans, which gives us a unique marketing niche. Realtors typically offload foreclosed houses to investors for cash, and those buyers are looking to pay only 50 cents on the dollar, so Realtors would rather work with us to find a buyer who wants to live there."
Walding expects the program to expand in 2013 as more awareness builds. He said Advantis has been offering seminars in Realtors' offices, "which helps build brand awareness of our organization and our mortgage department."
These are profitable loans, Walding noted. Advantis charges a 1% origination fee because the CU "has to work a lot harder" to get these loans done.
"We are only charging to recoup our work, not get a big profit," he declared.
The borrowers are reaping an equity gain, Walding continued, noting if they put 10% down on the sales price, after improvements they end up with 15% on the final price.
"This makes it a less-risky loan for us, and it is good for the homeowner and the community, so everyone wins in
