Partners in lending

Community connections lead to creative loan solutions that enhance members' lives.

May 26, 2023

Partnering with community organizations and agencies can enable credit unions to tailor loans to their members and address challenges unique to their communities, lenders say.

“If we’re not serving members’ needs, we won’t be successful,” says Carlos Miramontez, senior vice president of mortgage lending at $2.4 billion asset Orange County’s Credit Union in Santa Ana, Calif. “My advice for credit unions is to identify the membership they’re serving: What are their needs? How are their needs different than the average population in your community? Make sure you have the products and services that match those needs.”

Orange County’s has found success and addressed a key community need with a mortgage program that expands access to affordable housing.

The lack of affordable housing has led to a homeownership crisis in California, which is short about 3 million housing units, according to Miramontez. To erase that deficit and account for population growth, every municipality is required to come up with a housing plan.

The housing deficit gave city officials the same vested interest as Orange County’s, where 80% of members are low- and moderate-income borrowers.

“It’s great when external partners have an aligned mission,” Miramontez says. “It’s an ecosystem. We all have to work together to make a dent in the housing shortage.

“Helping members purchase their first home enhances their financial lives,” he continues. “We’re looking to expand homeownership as much as we possibly can.”

Toward that aim, the credit union prioritizes finding new affordable housing options, leading to insights about community land trusts. These nonprofit, community-based organizations exist to ensure community stewardship of land.

Carlos Miramontez

‘It’s about learning who we serve and what their needs are, then trying to fill any gaps we have with our products.’

Carlos Miramontez

The trusts are limited to lower-income people, and there are limits on how much home prices can rise, Miramontez explains.

“It’s tied to the area’s median income as opposed to housing prices,” he says. “That’s how the community land trust keeps homes affordable at the onset. Buyers get a big discount on the sale price, but they also have limitations on how they can sell those homes in the future.”

A community land trust began building affordable, multifamily homes in Southern California in 2021. The condominiums, valued between $750,000 and $850,000, sold for $450,000 to $550,000 due to a subsidy the land trust provided.

All 68 homes were sold to preapproved individuals, who were required to be first-time homebuyers, earn no more than 120% of the area’s median income, and undergo homeownership education from NeighborWorks Orange County.

The credit union used its community connections to become one of three preferred lenders for the first-time homebuyer project, joining a large national lender and a community bank.

The initial goal was to finance 50% of the project. But Orange County’s financed 70% of the project’s first phase, which started in January 2022, and 80% of phase two, which started in May 2022.

“That was a behemoth goal. We did much better than we ever dreamed,” Miramontez says, noting that Orange County’s service-centric approach stood out. “We set up a hotline so those calls would go to mortgage loan consultants familiar with the product. It went so well that the agents started referring consumers to our credit union.”

While financing finished in June 2022, Orange County’s has maintained a relationship with the community land trust, which is establishing another affordable housing development.

The credit union also offers low (3%) and no down payment mortgages. This improves affordability and provides an opportunity to consult members.

“It creates interest,” Miramontez says. “People say, ‘Oh, I can buy a home with no money down? Let me call the credit union and find out more.’ After we go over their options, many decide to have some down payment. We identify the best financial structure for them based on what they’re looking to purchase, when they’re ready to purchase, and what assets they can use for a down payment.”

NEXT: Clean energy financing

Clean energy financing

SPIRE Credit Union in Falcon Heights, Minn., became one of the nation’s first credit unions to launch Property Assessment Clean Energy (PACE) financing, which makes solar system and energy-saving investments affordable for commercial building owners.

The PACE program began in 2010 when Minnesota gave cities and counties the authorization to place voluntary assessments on commercial properties to cover the cost of solar and energy efficiency projects.

The program started at SPIRE in 2016, when the credit union connected with the St. Paul Port Authority, a local economic development agency and PACE administrator in Minnesota. The Port Authority sought a lending partner, and SPIRE wanted more lending opportunities. Although PACE financing was a foreign concept to the $2 billion asset credit union at the time, SPIRE started researching to see if it fit with their goal of supporting their communities.

“We were trying to get our heads around how to do this,” says SPIRE Chief Lending and Product Officer Cliff Wantz. “When you’re a building owner with a regular loan, you sign as the owner and also sign a personal guarantee. PACE loans are made to the real estate and there’s no personal guarantee, which is an attractive feature to PACE but not typical to SPIRE real estate loans.

“The loan is on the building, and it’s secured by a property tax assessment that doesn’t exceed 20% of the property value,” he continues. “The owner pays the assessment to the county through semiannual real estate tax installments, the county forwards the payment to the Port Authority, and the Port Authority transfers the payment to SPIRE.”

Cliff Wantz

‘It’s a win for the property owner, it’s a win for the environment, and it’s a win for the community.’

Cliff Wantz

Still, the lack of control was unusual to SPIRE. So, while Minnesota legislation allowed the PACE lending structure, the credit union’s lenders worked from scratch to develop a program.

“There were significant challenges on how to do a loan when you lack control managing it. But ultimately you have such a solid repayment structure because you have a tax assessment on the building,” Wantz says. “No matter what happens with that building, at some point somebody’s going to pay those taxes. With a PACE tax assessment, you’re eventually going to be brought current and have a solid repayment source.”

Wantz says most PACE financing stems from nonbank national lenders. One hurdle preventing more credit unions from getting involved is that credit unions can only do commercial loan terms for up to 15 years, while Wantz says national lenders often do PACE loans with 20-year terms. Therefore, credit unions must find a niche, which SPIRE did with 10-year fully amortized loans on relatively small projects.

SPIRE invested heavily into building its PACE program, which earned the credit union a Best in Show Award at the 2022 CUNA Lending Council Conference. There’s flexibility in the credit union’s program, with projects ranging from $30,000 to $2.5 million.

“Most of what we do is solar,” says Matt Meyers, SPIRE PACE lender and senior commercial credit analyst. “We also see it for LED lighting, HVAC, windows, insulation, roofing, and building envelope work. Anything with an energy efficiency built into the project and a payback of 20 years or less has an opportunity to quality for PACE.”

From the consumer perspective, PACE lending allows commercial building owners to finance 100% of their project costs. In Minnesota, PACE is structured so the first payment isn’t due until the building’s next tax assessment round.

According to the St. Paul Port Authority, MinnPACE funds about $50 million in energy-savings investments annually. SPIRE’s PACE financing is equivalent to the energy production required to power 714 homes in one year, and an energy savings equivalent to the annual carbon dioxide emission reduction of 11.5 million miles driven by a car.

Building owners saved more than $700,000 in annual energy costs based on the PACE projects that SPIRE has funded.

“Our core mission is simple: improve lives,” Wantz says. “This program improves the lives of our business owners, who get utility savings. It improves the lives of the community through cleaner air and better energy stability. It’s a win for us, it’s a win for the property owner, it’s a win for the environment, and it’s a win for the community.

“It’s not necessarily about whether the program is profitable,” he continues. “We’re generating nice revenue off of it, but we talk to our teams about how we’re helping businesses save money, do good for the environment, and see the impact this work is having.”