Trump’s election victory has reawakened concerns about whether the checks and balance essential to America’s democratic institutions will hold.
I believe that credit union’s unique design for member-onwer governance offers a helpful example of the fragility of democratic oversight.
As the chasm between credit union’s original destiny and today’s performance and compliance shortcomings grows, purpose and practice may appear further and further apart in the public’s eyes.
Nowhere is this chasm greater than the failure to encourage member-owner participation in the formal annual meeting elections. Additionally, in daily communications rare are appeals to the special role of being owners versus messages common in all financial customer appeals.
Here are two recent observations on the delicate nature of democratic processes. And why credit union’s example might influence our perception of how political democracy functions.
America-An Experiment
A personal story. When I was in grammar school, our history book was titled, “The United States of America, An Experiment in Democracy.”
I froze. I got goose bumps. I was 8 years old. An experiment? I knew enough that some experiments worked, and others didn’t.
It felt like the bottom fell out. All sense of permanence left.
That day was life-changing. I have never seen this country the same since. (source: unknown)
The Transfer of Power
“The genius of democracy is its self-correcting nature. But the problem, of course, is if the person (or persons) being elected into office is (are) the kind of threat that intends to disrupt this happy self-correcting logic of democracy.” ( Daniel Ziblatt, co-author of How Democracies Die)
How do these observations about national political concerns apply to credit union’s democratic model?
Richard Rohr comments: We quickly and humbly learn this lesson in contemplation: How we do anything is probably how we do everything.
Writing about the future is easy. Rarely do readers look back when events have unfolded. Moreover such forecasts often reflect, not insight or wisdom, but rather one’s own efforts to protect vested interests.
However there are some reference points which can help us think about what a credit union might do going forward into a possible disrupted regulatory future.
Today I will review what Project 2025 says about federal regulation. I could find no direct reference to credit unions although I did not review all 900 pages.
Published in 2023, President-elect Trump has denied association with the ideas presented in the document. More than 100 conservative organizations were involved in its creation. I found the brief section I cite below had over four pages of extensive reference notes.
From page 705:One of the priorities of the incoming Administration should be to restructure the outdated and cumbersome financial regulatory system in order to promote financial innovation, improve regulator efficiency, reduce regulatory costs, close regulatory gaps, eliminate regulatory arbitrage, provide clear statutory authority, consolidate regulatory agencies or reduce the size of government, and increase transparency.
Merging Functions. The new Administration should establish a more streamlined bank and supervision by supporting legislation to merge the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Federal Reserve’s non-monetary supervisory and regulatory functions.
U.S. banking law remains stuck in the 1930s regarding which functions financial companies should perform. It was never a good idea either to restrict banks to taking deposits and making loans or to prevent investment banks from taking deposits. Doing so makes markets less stable. All financial intermediaries function by pooling the financial resources of those who want to save and funneling them to others that are willing and able to pay for additional funds. This underlying principle should guide U.S. financial laws.
Policymakers should create new charters for financial firms that eliminate activity restrictions and reduce regulations in return for straightforward higher equity or risk-retention standards. Ultimately, these charters would replace government regulation with competition and market discipline, thereby lowering the risk of future financial crises and improving the ability of individuals to create wealth.
From page 706: Direct government ownership has worsened the risks that government-sponsored enterprises (GSEs) pose to the mortgage market, and stock sales and other reforms should be pursued. Treasury should take the lead in the next President’s legislative vision guided by the following principles:
Fannie Mae and Freddie Mac (both GSEs) must he wound down in an orderly manner.
The Common Securitization Platform57 should be privatized and broadly available.
Barriers to private investment must be removed to pave the way for a robust private market.
The missions of the Federal Housing Administration and the Government National Mortgage Association (“Ginnie Mae“) must he right-sized to serve a defined mission.
(End Quote)
The text also states that Congress should repeal titles of the Dodd-Frank Act that created the Financial Stability Oversight Council (FSOC), a federal government organization which identifies risks, promotes market discipline and responds to emerging threats. Project 2025 defines the FSOC as a “super-regulator tasked with identifying so-called systemically important financial institutions and singling them out for especially stringent regulation.”
A Learning Event: The S&L Dissolution
In the late 1970’s the S&L industry held the largest deposit market share in California, much larger than banking competitors. This was before deregulation. Most depository firms were limited to operating in a single state or in some cases, a single location (Illinois).
Today S&L’s no longer exist as a separate industry even though 555 savings institutions with $1.2 trillion in assets still operated at June 2024. All deposits are FDIC insured. Of the total institutions, 241 are supervised by the OCC, 276 by the FDIC and 37 by the Federal Reserve. While state and federal chartered institutions still function, the system is under federal direction.
While there are many reasons for the loss of the S&L’s as a separate, independent financial segment, the dominant factor was that many of the causes were self-inflicted. These included a loss of special purpose, rapid multistate expansion through acquisitions, and balance sheets weighed down with fixed rate mortgages in a deregulated deposit funding environment after 1981.
After the mid 1990’s, there was no separate FSLIC insurance fund, no Federal Home Loan Bank Board to oversee the industry, and the FHLB liquidity system survived by serving all real estate lenders including credit unions. In most states the mutual charter exists as an anachronism, with no new charters being issued. At the state level supervision is provided by a single banking/financial institutions department.
While external financial events did contribute to the industry’s collapse, competitors did survive and thrive, especially credit unions. At the February 1982 GAC in D.C., CUNA President Jim Williams told new NCUA Chairman Callahan there was only one topic on credit union’s minds: survival.
Together credit unions and NCUA embraced deregulation and the changes in structure and oversight the new environment would require. Hunkering down , protecting existing ways and asking for more funding to address problems was not the approach.
Whether the new administration will be as disruptive of federal regulators as indicated in campaign rhetoric, remains to be seen. The lessons from an earlier era can be helpful: remember who you are and build on what brought success to this point in time.
Many of the factors in the S&L demise were self-initiated with leadership failures. Cooperative success in navigating external changes was accomplished though enhanced collaborative efforts between credit unions and their regulators. not each trying to go their own separate ways.
Every day credit unions cause miracles to happen for members. You and I may not always see it from the recipient’s point of view. It may seem like just another transaction. But these events are miracles for persons often in extended circumstances and feeling without options or hope.
Following is a miracle story. It may seem small in the overall scheme of things, but it is everything to this member’s family.
Being Treated “Like a Human”
(Used with permission)
This story is about Corey who was assisted by our Financial Coach Ashley, who works at the Wilmington Member Center. While working the lobby on a busy Monday, Ashley met with Corey who had come into to talk about a car loan.
When they started talking about the loan details, Corey told Ashley that he was not even sure if this would be possible. He stated they had some life altering changes a while back and their credit took a major turn for the worse. He was not in desperate need of a new vehicle, but he wanted to try. Corey had been working on their family’s credit for a while and wanted to see where they stood.
Ashley encouraged the member, and after pulling his credit report she took a deep dive. The report showed his credit score of 536. (Note: this is a “below average” credit rating; the average American consumer has a 714 score.)
She recognized that Corey was hesitant to even talk about the credit score and that it was weighing on his mind.
She explained that if we have a reason “Why” behind what happened, that can give us the full picture. We are aware that “life happens.” She asked him to clarify what life changing circumstance occurred. Let us just say the member and their spouse were put though something we hope no one will ever have to go through.
While typing up her notes, Corey asked if she was putting the details of what happened in the loan file. Ashley realized that Corey had just re-lived a traumatic event in his life.
When they were finished with the application, Corey got up, shook Ashley’s hand and said thank you. Ashley replied, “No problem, it is what we are here for.” The member responded with, “No, thank you for treating me like a HUMAN.” Corey stated he had been to several banks and was just given a hard no. Without asking questions, without seeming like they care, they just saw a terrible credit score and not a person and valued member.
The next step was for Ashely to review the details and give the full picture of the situation to the underwriter. The next day Ashley learned the loan was approved. She was so excited to call Corey and share the great news. When Corey came into the member center for the loan closing, he gave Ashley a big hug and thanked her repeatedly. Ashley is now working on a share secured credit card to help him improve his credit even more!!
To quote Ashley, “This is one of the most genuine interactions I have ever had with a member. I will most definitely be their person at the credit union going forward!! Even when we learned a tough “why” as to what happened, we were able to serve with the best possible solution. “
This story represents the hope we provide through our caring financial partner-employees. I love that Ashley recognized bad things happen to good people. Congrats and thank you Ashley for demonstrating why we exist!
Some Financial Context
This midwestern credit union serves a market that largely lives paycheck to paycheck. In other parts of the CEO’s staff update, he reported on the increase in charge-offs this year:
For the year, we have expensed $52.3MM for credit losses which is $16.6MM more than we budgeted for the year and $26.8MM more than in the same period of 2023. Credit loss expense remains one of our primary concerns for the short and longer term. It is the #1 reason we are missing our net income target in 2024.
Even with this drag on financial results, the credit union reported loan growth of 8.3% and share growth of 8.8% or almost three times the national average at September 2024. ROA is .80% and networth 10.9%.
Most importantly, this increase in defaults did not stop employees from doing the right thing for members, especially those in financial difficulty.
Taking care of members, even those on the financial margins, is good business. And that’s how cooperatives make real miracles happen in people’s lives every day.
As consumer focused financial providers, changes in local employment patterns can have a profound impact on members’ and their credit union’s financial outlook.
Credit unions have always walked toward members and communities in difficulty, not away. The importance of a local credit union option is especially critical for those living in areas of slower growth and/or lower paying job opportunities. Now a study has tried to identify those cities whose economies trail national averages.
In the FDIC’s Second Quarter report, there is an article U.S. Industrial Transition and Its Effect on Metro Areas and Community Banks (pgs 45-74).
The study covers fifty years from 1970-2019 in the shifting employment patterns from higher paying industrial occupations, such as manufacturing, to an economy based on service industry and technology.
The study uses Metropolitan Statistical areas (MSA’s) and developed a “transition score” for ranking the areas showing those most impacted by the decline in higher-paying to lower-paying employment.
Of the country’s 387 MSA’s (cities over 50,000) those with higher transition scores had slower economic growth, were mostly smaller in population, and located in the Northeast and Upper Midwest. The two study tables below show the MSA’s with the highest employment transition scores along with the change in total employment over the past fifty years.
Of the 54 MSA’s in states with the highest number transition scores, Pennsylvania led the states with ten.
(note: for highlighted MSA’s above the study presents analysis of each showing why they reported high population growth)
Additional tables and graphs illustrate both the distribution of the highest scores and the lower impact scores among the largest MSA’s which tend to have a more diversified industrial employment base (table 3 page 55).
As one would surmise, MSA’s with high employment transition scores had slower income growth than the nation as a whole. (chart 4, pg 57)
In the four metro areas with the highest scores above, there were a number of other negative economic factors in addition to the erosion of manufacturing. These included total employment and population declines, slower per capital and GDP growth versus national averages, natural disasters and a lack of amenities such as universities and favorable weather.
Impact on Community Bank Performance
The report’s final pages analyze the performance of banks whose headquarters were in one of the 54 MSA’s with the highest transition scores, that is communities impacted by the greatest change in employment patterns. Following are some of their conclusions.
While overall performance is generally lower, these banks performed better than other community institutions in periods of high economic stress. In terms of structure, consolidation occurred as in the industry at large, such that only 31% of high transition communities were left with a local institution by 2019. New charters were less frequent in these MSA’s. But bank failure rates were lower.
In the highest transition scored MSA’s, banks had weaker branch and deposit growth, slower overall financial activity including pretax ROA.
The reason for these banks better performance during the two periods of economic crisis, was that their balance sheets contained more single family residential loans and lower exposure to commercial and industrial loans than institutions located in a less impacted MSA’s.
The Takeaways for Credit Unions
Credit unions are no strangers to changing employment patterns in their market areas. Many were originally chartered with employer based FOM’s. The deregulation of the early 1980’s allowed both state and federal charters to diversify their member base and seek other growth options.
The banks that were most resilient during these employment transitions focused more on first mortgage lending and less on commercial. Credit unions are almost exclusively consumer and real estate focused lenders. Even when an industry or local employer closes, the members tend to stay local. And need their credit union more than ever.
The study shows the external context matters in overall performance. It shows the obvious–that slower economic growth tends to correlate with lower financial performance. It also reinforces the critical and crucial role locally-focused financial firms have in these community transitions.
There is a cyclical pattern in much economic change. A high growth area becomes crowded, expensive, and loses appeal versus communities with lower home prices and more stable institutions. The role of credit unions as local economic actors is vital in both communities.
Many commentators suggest the latest election outcomes were driven by voters’ dissatisfaction with their economic situation, especially inflation.
Credit unions have the chance to take the lead in giving these members a hand up.
As other firms may rush to the high growth market attractions, the study shows that sustainability in times of deep transition is not only possible, but critical to the bringing the time closer when good fortunes return.
As the new administration’s post election appointments and policy directions are implemented, the credit union system is on a stable foundation.
There are still latent issues of vital importance, most of which the NCUA board has adeptly avoided. But the macro-financials reported in Callahan’s 3rd Quarter Trend Watch overview yesterday are strong and heading in the right direction. This is the link to the 72 slide deck. The full recording is available here.
Some observations I noted:
Improving liquidity: In Alloya Corporate’s economic summary they presented their balance sheet trends to show the industry’s improving liquidity position as demonstrated by the growth in members’ deposit balances.
For all natural person credit unions, total borrowings have fallen and are now only 5.2% of assets, loan and share growth are in even balance, and the market value in underwater investments has recovered another $9 billion in value. Liquidity is coming back.
Slow Growth
The overall theme for this quarterly update was balance sheet growth much less than the industry’s CAGR over the past 20 years. The September 2024, 12-month share increase was 3.2% versus 6.3% over the past two decades. For loans, the latest 2.59% growth is less than half the 20 year average of 7%.
An interesting statistic about the 2.5% in additional members is analysis showing credit unions with organic growth grew faster than those institutions relying on third party loan originations, a common means of adding members.
The upside of this modest growth was that the various measures of total capital and net worth(10.8%) have all increased versus one year earlier.
Takeaways In a Changing Administration
The credit union system was financially strong before the election. Nothing has altered this fact. A change in regulatory leadership is coming. Questions credit unions might consider as this political turnover occurs might be:
How will this change affect your members’ lives? Will the direct governmental assistance of the COVD era and programs such as student loan forgiveness end?
How will reliance on market outcomes affect lending opportunities such as climate related projects or electronic vehicle sales?
Will the new normal in the Fed’s overnight rate settle in an expected range of 2.5-3.0%–or will fiscal policy drive a higher or lower level?
With a more market-oriented administration, will the unique role of credit unions be sustained, or will the industry just be seen as another option in an ever expanding lineup of fintech, bitcoin and other financial providers.
In a future blog I will explore issues of regulatory policy and present a case study of a prior time of major change in administration.
The Good News
The good news for credit unions at this moment of national policy changeover is that they are in a sound position to deliver for members on all of their traditional service options.
They can continue to help members who feel vulnerable or overlooked. And maybe they can bring to those struggling with inflation or even bigger goals such as buying a home, even more responsive financial solutions in the four years ahead.
Below is an email from a Ukrainian journalism startup. It debuted just three months before the February 2022 Russian invasion.
Journalism and freedom are interlinked. Free speech is the first amendment to the Constitution in the Bill of Rights in America. Without this foundation, the rest of the “freedoms” in the amendments would be difficult to defend.
These Ukrainian founders are young, believe in their country’s future, and communicate in English in all their articles and videos to reach a broad, international audience. Their team is committed to a country where democracy and independence are the purpose of their enterprise.
As American policy towards Ukraine’s future is under review, it is vital we listen and learn from those whose lives are on the line, daily.
This third anniversary letter from the editor-in-chief describes their efforts and hope. It is ironic that their founding anniversary is on the same day as our Veterans Day. However this living example reminds us again of the costs and commitment freedom requires in any country yearning for government by the people.
This is Olga Rudenko, editor-in-chief of the Kyiv Independent, and I was never supposed to send you this email.
Because there was never supposed to be a Kyiv Independent.
As you might have guessed, today is our birthday, and I’m getting sentimental.
I’m writing to you from our office in the heart of Kyiv, Ukraine, where we are having an especially murky morning. In all fairness, it could have been much worse: For a moment it looked like Russia was going to attack Ukraine with a barrage of missiles, but then its planes turned back. Whether it was a training exercise or intimidation, it sure did a good job waking us up. What a way to start our birthday, right?
I locked myself up in a small conference room, away from the noises of our newsroom, to draft this note to you. I wanted to take a moment out of this hectic day to be alone with you, our readers and supporters, to share my thoughts and gratitude.
The Kyiv Independent is three years old today. It might not seem like a big deal. The New York Times is 173 years old. Le Monde is 80. Der Spiegel — 77. The Guardian is 203. What’s three years compared to that?
For us, every day of these three years was hard-won.
Nothing about how the Kyiv Independent started was normal. When you imagine yourself launching a new venture, you must imagine months of careful planning, pitching to investors, putting together a team, and picking out a location for an office.
Well, we had four days. You read that right.
Three years ago, we were fired from a newspaper for standing up to censorship attempts. It was gutting. We were a bunch of young journalists, standing up against a rich owner who thought that he showed us how the world runs — and who runs it.
Fortunately, we were young and rebellious enough to not accept it. Four days later, we announced that we were launching our own newspaper. We will show them, we thought. We will show them that you can do independent journalism, and not bow to anyone.
There was one tiny inconvenience. We had no money. This grand idea of doing independent English-language journalism from Ukraine had very good chances of crashing when it met with reality.
And then… you showed up. Our readers. Thousands of you have chosen to support our work — you made it all possible.
When the full-scale invasion hit, just three months after we started the Kyiv Independent, you were there for us. And we showed up for you, too — we became your window into Ukraine as it has been fighting for its existence.
I’m going to be very honest with you: It is getting harder. I did some math today: The Kyiv Independent has spent 90% of its short lifetime living through a full-scale war.
And I now understand that, for all its shock and turbulence, the first year of it was the easiest. We were getting a lot of praise back then, people often calling us “brave” for staying and reporting for Ukraine. I think there is more courage in what we do today: persevering, doing our job day after day, with no clear end in sight.
Because just like three years ago, we know this is the right thing to do — and we’re willing to beat the odds, again.
It’s you who make it all possible. We now have a community of 12,000 members supporting our work. Today, on our birthday, we are starting a campaign to get 1,000 new members in the next month.
Here’s why we need it: It’s not just a nice number. It would grow our community by 8%, meaning we can hire more people, like journalists who bring you the news, defense reporters who help you make sense of the war, or videographers who produce documentaries about Russian war crimes.
That means that, as we are facing 2025 and the uncertainties it will bring, we will be stronger, more resilient, and will be able to continue bringing you reliable journalism from Ukraine, whatever may come.
Thank you for being a supporter of the Kyiv Independent.
Many times on national holidays, Veterans Day or other civic events, I have heard these words of thanks. But the people who should also be recognized are those whose duty was on the home front. They too served, often out of immediate contact, coping with life in a foreign county and very much reliant on their own initiative.
When we arrived in Japan in April of 1970 the Navy put us up in local Japanese hotel, outside the Yokosuka Navy Base. I was the new Supply officer on the USS Windham County (LST 1170) homeported there.
Three days later, after restocking the ship, I was gone for a four month deployment. Our initial role was a joint U.S. Navy-South Korean amphibious exercise off the coast of Korea, called Operation Golden Dragon. Then on to transporting marines from Okinawa to their firing-training range near Mount Fuji and back. And then further south to the Philippines and Vietnam. With a cruising speed of about 7 knots, we spent a lot of time on the water.
My life was structured on the ship. My wife, Mary Ann, had to find housing, buy a car, learn to shop in local Japanese stores and take care of Lara, and then Alix. We would exchange letters often arriving days or weeks after being written-sometimes in stacks of five or more at a time.
Mail call was the only contact we had when deployed. No telephone, no Internet, no live connections. The wives were not supposed to know where we were, what we were doing or when we would be back to home port.
Mary Ann took our two girls to play on the beach in Hayama. The seaside town is where the Emperor’s summer palace is located. For the first 15 months we lived there “on the economy” in a Japanese family’s compound. Even after we moved into base housing, Mary Ann would take our two girls back to the beach and meet with our Japanese friends.
That’s Mt Fuji in the background hovering like a cloud.
So when people express appreciation today to those who wore a uniform, it is vital that we honor those who also served on active duty by their side for just as long and with equal devotion.
A critical strategic advantage for most credit unions is location, a place members can see and access as necessary. A local office serves a different and broader role than just convenience. While telephone or virtual web access are necessary, they are not the same as a unique presence.
A credit union office serves notice to the community that the credit union is theirs. Members not only have interaction with employees but also with each other. Many credit unions use signage and participation in events to reinforce being part of the community. Local emloyeess and directors provide real time market knowledge that are impossible to acquire in other delivery channels.
Following are two examples of service experiences, one remote and one in person. Both involve a member trying to resolve an issue.
A Remote Service Experience
Even before I read your article on Credit Union 1, I have been preparing to leave for another credit union. The credit union has become just a computer Bot. Call member service and it takes 15 minutes to get around the automated phone responder “LUNA”. You can repeatedly ask for a member service rep but she always has another set of buttons for you to press. I’m not against automation and use it often to transact much of my personal business. But when you need to talk to a person that is not an option.
Recently the credit card company they use overcharged me. I called CU1. Immediately they put the transaction on hold and referred the problem to the Credit Card Bank. After filling out several reports to file with the card bank and months (June to October) of waiting for them to remove the charges I was notified that they were going to go ahead and put the charge on my credit card as they did originally.
Contacting CU1, they gave me instructions on how to deal with my credit card bank and the airlines to maybe solve the issue. We’re talking about $775 and no help from the credit union. And I do not like the card processor. More electronics and fewer personal assistance.
I know this sounds like someone from the past not being up to date with what is going on in the present; but really I make many of my daily transaction payments with my Apple watch; having connected voice over internet protocol for my home phone service; and many more. I do like the speed and direct processing that the new electronics offer, but it can’t replace a person for everything.
Remote Islands, Microsites and Personal Service
Tongass FCU, Ketchikan, AK serves Southeast Alaska with locations in a region of islands (the Alexander Archipelago) and the Tongass National Forest. No roads connect these islands!
At September 30, 2024, the credit union reported $228 million in assets from 13,710 members served by 13 branches and 85 employees.
CEO Helen Mickel has worked at this 61-year old credit union for 22 years. For the credit union the distance to the nearest branch often requires a small plane or ferry.
It has developed Community Microsties to meet the financial needs of remote coastal villages. Microsites are built upon a relationship between TFCU and the local community. The community invests in TFCU by opening accounts and providing a free space to operate, while TFCU provides an ATM, lobby hours, and local jobs.
The future: TFCU seeks to build community-microsites and branches to promote prospering communities. We believe that a financial institution is a pillar of a community. It brings education, opportunity and financial access to the remote villages and towns of our beautiful state.
Here is a story with pictures from Helen of what this sometimes requires in practice.
A Grumpy Member
It started with a very grumpy member threatening to close her account, to one of the best visits I’ve had with a member!💯
The mail is tricky in southeast Alaska and our statement vendor is in the lower 48.
This grumpy and worried member told me over the phone she was going to pull her money out on Monday because she still hadn’t received her monthly statement for August. I told her I’d like to meet her when she comes in and asked what time she would be at the credit union.
She said she heard the weather was going to turn and maybe she wouldn’t come down after all. She uses a cane and has 45 stairs to navigate when she leaves her home.
I offered to bring her a printed statement and introduce her to our assistant branch manager, Sabrina, so she wouldn’t have to leave her house. She liked that idea.😊
When I called to make sure she was okay with us stopping by, she said, “Yes! I’ve been waiting for you!”
The Member’s Museum
What a wonderful time we had! We worked out our business problem and then got a tour.
She had a “museum” of artifacts she had dug up on beaches and old community sites all over southeast Alaska! We talked about the good old days of early Ketchikan and shared stories.
I took pictures and told her I would be posting them and she was okay with that. She has lived in her home for 80 years – her whole life. It was the “cabin” for the first house that was built by her family on the side of a mountain.⛰️🌲
Pioneer members are some of my favorites. I love it when something difficult turns into a blessing for everyone! I couldn’t have started the week off better! ❤️
In addition to consumer inflation concerns as in the price of groceries, another economic topic on voters’ minds was affordable housing. High interest rates have brought the home purchase market to almost a standstill except for the well-to-do.
The average home price in the United States in 2024 is around $420,400, a 25% increase from 2020. Home prices vary widely by location. For example, the average home price in Iowa in 2024 is $205,988, while the average in Alabama is $217,75. Even with candidate Harris’ $25,000 down payment assistance for first time buyers, many would still see the aspiration as very difficult.
Today an update on the median home price for every state as of August 2024 was published by the Visual Capitalist website. The overall median (not average) for the US was $385,000.
Credit unions have been innovators in assisting members first home purchase efforts. These changes often go outside the standard secondary market underwriting requirements as many credit unions hold non conforming loans on their balance sheet. Product initiatives include low or sometimes no down payment, waiving transaction closing costs, and structuring variable rate loans with initial lower short term fixed rates followed by variable price reviews to ease the first years of payments.
This video is an example of how Community First (WI) structured their home lending to meet a family’s unique circumstances.
FHLB grants and other forms of community assistance are sometimes available. But given the continual rise in home prices even in the current slow markets, the prospect of a higher normal level interest rates, and the lack of affordable supply in many markets, is another approach required? Housing is also a market where technology would seem to have limited potential to change the cost side of the problem.
New approaches rethink the structure of home ownership by separating the cost of land from the house built on the property. Here are two examples of this approach. The descriptions are largely from the linked websites.
Neighborhood Housing Trusts
The first example is the Community Housing Trust (CHT) based in Ithaca, NY. CHT helps people with modest incomes buy their first homes. Since 2009, all of Ithaca Neighborhood Housing Service’s (INHS) home sales have been part of the Community Housing Trust. By using a special ownership structure, It is able to keep CHT homes affordable for the first buyer, and all future buyers as well.
INHS got its start by trying a new way to reverse the decline of downtown Ithaca: fixing homes up rather than tearing them down. In the 1960s and 1970s, Ithaca faced the problems challenging urban areas across the nation: a depressed economy, deteriorating housing, and the flight of homeowners to the suburbs.
Most of the homes in Ithaca’s downtown neighborhoods were more than 100 years old and owners could not get bank loans to buy new ones or didn’t have the skills or financial resources to make repairs.
In late 1976, inspired by an urban renewal program created in Pittsburgh which relied on a partnership between residents, businesses, and local government, Ithaca joined a network of successful Neighborhood Housing Services (NHS). Recognized by Congress in 1978 and known today as NeighborWorks® America, the national network of NHSs continues to recognize and nurture local solutions to local community development.
The Program’s Structure
The CHT is a “shared equity” program: the homebuyer purchases only the house and the Trust owns the land. The homeowner has a 99-year lease on the land, with a small monthly land rent. This arrangement greatly lowers the purchase price of the home. Because most CHT homes receive a special tax assessment, the property taxes can be much lower than a market rate house. INHS ensures that all CHT homes are built or renovated to be energy efficient and environmentally sustainable, another way that operating costs are kept low.
In exchange for these financial benefits, CHT homeowners agree to limit the amount of profit they can take from their homes when they are sold. CHT homes have a resale value that is capped at 2% increase per year. This allows the homeowner to build wealth in their properties, while ensuring that the home remains affordable for future owners.
The Funding
CHT homes cost on average more than $400,000 each to develop. The homes are sold for only about half that amount—between $150,000 and $210,000. INHS receives grant funds from a variety of sources to help fill the gap between development cost and selling price.
The permanent affordability of CHT homes means that the grant funds utilized to build them will benefit many lower-income households for generations to come!
The Durham Community Land Trustees
The timeline of this second example begins in 1987. The development of this North Carolina affordable housing initiative can be found here.This video, from 2017, shows a before and after look for one neighborhood built with members’ self-help.
How It Works
Similar to to Ithaca, a community land trust nonprofit organization retains land ownership, ensuring future housing affordability. Purchasers buy DCLT homes and lease the land these houses sit on for a low monthly fee for 99 years.
Owners can improve and maintain their homes.
They can leave their home to their children.
If a homeowner decides to sell, DCLT retains an option to repurchase the home to sell or rent to a future low-income resident or to assist the homeowner in identifying a new income-eligible purchaser.
The key feature: Homeowners share the equity they earn on their homes with future buyers, thus fostering long-term affordability even as surrounding neighborhood property values grow.
Credit Union’s Enhanced Role
Cooperatives are critical mortgage lenders in their local communities versus the nationwide all-comers model such as Rocket Mortgage. Many credit unions also sponsor foundations for local grants. Partnering with local housing agencies can facilitate oversight of land trusts or gain zoning support for both building and then managing the subsequent turnover with foundation land ownership.
Credit unions creative lending with on balance sheet solutions are a start to home ownership for some situations. But the broader challenge of affordability requires a collaborative effort that brings multiple resources and a different ownership design to the economics of single home ownership. A design that is partly cooperative but also combines with individual ownership responsibility.
If you are aware of credit unions participating in efforts to develop new ways of organizing home ownership and address affordability, I would welcome examples.
If one looks at the amounts of foreclosed property reported on the quarterly 5300 call reports, this suggests credit unions are already vested in home ownership turnarounds. Why not go the next step and create CUSO’s or other organizations that will restore neighborhoods and members’ ability to build financial well-being from home ownership?
November 5th’s outcome is not the end but just the next stage in our country’s political life. Regardless of the final party balance in Congress, for credit unions our work is cut out for us. We will find more ways to help members in need thus beginning to heal political divides in our communities and country.
While credit unions are rarely overtly partisan, their purpose is inherently political. The collective resources managed on our members’ behalf are intended to address member circumstances in ways for-profit market forces may overlook.
The role for the cooperative spirit has never been greater. Our mostly local focus is a critical advantage. Credit unions can again be leaders bringing light and hope to those who feel left out, or left behind, by economic events. Let’s get to work.
Dear reader,
