Mortgage rates are on the rise, but that’s not cooling the market. According to the National Association of Realtors, price appreciation reached into the double-digits in 70% of U.S. metro areas in the first quarter of 2022. In Cheyenne, WY, the median home price is now $500,000, and that’s having an effect on who can afford to buy.
“Many members struggle to afford the down payment required to avoid private mortgage insurance,” says Stephanie Teubner, chief executive officer of Blue Federal Credit Union ($1.7B, Cheyenne, WY).
That’s why Blue is launching a solution to help members bridge the gap to a 20% down payment. The gap will be funded by fellow members via a crowdsource model that pays savers a higher interest rate on deposits dedicated to this program and then uses those funds to provide down payment loans for borrowers. The cooperative serves members in both Wyoming and Colorado, where in addition to general challenges associated with affordability and down payments first-time homebuyers are often forced to compete with cash offers from out-of-town investors.
“We knew this was a growing challenge for our members,” Teubner says. “So, we asked what we could do as a credit union to help.”
Guiding Blue’s effort to help was the credit union’s so-called “2030 plan,” a 20-year plan with a 10-year execution that looks out 20 years to consider where growth will occur and who the credit union wants to serve. A large cross-section of employees throughout the organization formed three independent teams to tackle strategic initiatives categorized as My Life, My Money, and My Community. The My Community team considered innovative solutions to down payment challenges as part of a broader push to create more opportunities for housing affordability.
“We were so excited by this idea as it went back to the original philosophy of credit unions people depositing their money so others could borrow,” Teubner says.
After initial research showed members were interested in participating in a crowdsourced down-payment solution, Blue vetted the idea, conducted more focus groups to fine-tune it, and created a new product that is currently in the pilot stage. Simply put, members invest in a special five-year certificate whose funds are specifically committed to help offset the down payment for members. Blue pays a higher yield on the certificate.
For the homebuyer, the mortgage underwriting follows the conventional process and covers 80% of the home’s value. However, fellow members’ willingness to crowdsource on the certificate side means homebuyers obtain the 20% needed for a down payment.
Crowdsourcing down payment assistance addresses one home ownership hurdle, but Blue partners with other first-time homebuyer programs to address other challenges as well, including closing costs and real estate agent commissions.
On the education side, Blue has offered homebuying programs for some time. However, the cooperative recently expanded its networking efforts to include local organizations that serve people pursuing homeownership whom the credit union might not have reached in the past.
“When we’re ready to fully launch, our hope is that these partnerships expand our outreach to those individuals who need the help,” Teubner says.
From understanding homeowner’s insurance options to explaining deductibles or how much it costs to replace a hot water heater, Blue wants to be a resource for members and non-members alike.
As far as advice for others, Teubner credits Blue’s success to its willingness to talk to people and use focus groups and surveys to understand what the needs of the community really are not just what the leadership team thinks problems are or should be. The CEO also encourages others to make connections and form partnerships with local organizations that are already doing good work in the community.
“You must be willing to put yourself out there with ideas that might or might not work,” Teubner says. “For us, it’s been an adventure. We weren’t always right on the spot, which is why asking questions of the members and non-members we’re trying to serve is key.”