Rescue Refinance: Double Bottom Line Results for Wisconsin’s CoVantage Credit Union
by Pablo DeFilippi, National Federation of CDCU
CoVantage Credit Union recently received a $1.5 million grant from the U.S. Community Development Financial Institutions Fund to extend its Rescue Refinance program, the only credit union in Wisconsin to receive the grant. Executive Vice President Paul Grinde spearheaded the grant effort, and believes that similar programs should be on the horizon for credit unions across the country.
Recognizing a need
The early years of the recession hit the members of Wisconsin’s CoVantage Credit Union hard.
“Up here in northern Wisconsin, a lot of our area is rural,” Grinde explained. “We have a number of Native American communities, as well as a Southeast Asian community. Many folks are self-employed. Because CoVantage has been able to offer innovative programs, and has made an effort to reach out to the underserved, our credit union has become a major player.”
Grinde began noticing the steady trickle of foreclosures several years ago and decided the credit union, with roughly $1 billion in assets, should develop a plan to slow the drip before it became a flood.
“A lot of local families were struggling,” he said. “People had lost their jobs or were battling illnesses and were behind on their mortgages.”
Perhaps most unsettling, Grinde added, was the realization that the mortgage companies weren’t responding to the calls for help from people desperate to make good on their payments.
“They were following through on foreclosure proceedings for people who had already sorted out their situations.”
Grinde and his team developed a product to save its members from foreclosure. The Rescue Refinance program offers homeowners an opportunity to borrow up to 90 percent of the value of their property on an adjustable rate mortgage, with a fixed rate for the first 10 years. This initial program has kept 11 families in their homes.
“One thing that was hard – there are a lot of sad stories out there,” he said. “There were days when both the member and the staff member were crying. Unfortunately, we weren’t able to help everyone. We had to ask ourselves, ‘What factors contributed to the person being in the situation they are in, and do they have a reasonable plan for future repayment?’”
Last year, CoVantage Credit Union applied for CDFI certification with the help of the National Federation of Community Development Credit Unions. Grinde then applied for, and was awarded, a $1.5 million CDFI grant to expand the Rescue Refinance program. In addition to the grant, the CoVantage Board of Directors authorized an additional $8.5 million in loan funding – making a total of $10 million available to help residents struggling with mortgage debt.
“For some people,” he said, “90 percent wasn’t enough. We couldn’t have done it without the help of the Federation.” With the grant funding, CoVantage created an expanded
program – dubbed “Rescue Refinance Plus” – which allows borrowers to obtain a second mortgage to be repaid at a later date. Using this extra source of funding, borrowers could finance the amount between the first and second mortgage, at 110 percent loan-to-value. The refinance could be used to pay existing first and second mortgages, including any past-due property taxes, judgments or other refinancing. The grant enables CoVantage to offer Rescue Refinance Plus loans with no payment due or interest charged on the second mortgage as long as the home is owner-occupied.
Grinde said the grant makes the original Rescue Refinance program available to individuals who previously might not have qualified. To date, the program has kept a total of 79 families in their homes with a lending total of $8.4 million CoVantage dollars. More than half of these, 48 of the loans benefited from the grant, receiving a total of $1,116,000 grant funds.
The combined programs have had a profound impact throughout the charter area and the success stories keep pouring in. One member lost his job in 2008, but was hired again soon after at only half of what he had been earning. The member was upside down in a mortgage, was able to keep up the payment but had a debt ratio of 65 percent of gross income. It was only a matter of time before he defaulted. The member utilized both the original Rescue Refinance program and the Plus program, and his debt ratio shrank to 53 percent.
Another couple was behind on half of one mortgage payment, but also had significant credit card debt and medical bills. One spouse, a stay-at-home mother for several years, recently landed a job. The two programs allowed them to restructure their debts into a payment affordable with her new job. Their only other options were bankruptcy or foreclosure.
“Our members are our most important asset,” Grinde said. “We developed Rescue Refinance to help them, and it has.”
Lessons learned
Grinde believes CoVantage’s success with the Rescue Refinance program could be replicated by credit unions across the country.
“I think that other credit unions should take a close look at this program,” he said, adding that it has strengthened CoVantage in addition to helping the community. “There’s no question that it will mean more business for us down the road. Fifty percent of these loans were extended to people who were not members of the credit union, and many of those people are now bringing other business here.”
Another layer of people who contacted CoVantage about the program actually qualified for regular loans.
“That was something we didn’t expect,” Grinde said.
One thing that worked particularly well, Grinde said, was a series of informational meetings across the county promoting the program.
“We did a bit of a meet and greet in each of our markets,” he said. “Loan officers were available to discuss options with attendees after the meeting to start the process.”
Grinde said there were 10 meetings scheduled, but for the first one only two people showed up.
“We questioned whether we should continue, but we decided to go ahead,” he said. “The rest of the meetings were very well attended. It’s been incredibly worthwhile.”
