PHILADELPHIA—A community revitalization program in the City of Brotherly Love is connecting potential homebuyers to financial institutions, and some credit unions are among those reaping the benefits.
Philadelphia Home Buy Now (PHBN) is a municipal-funded, employer-assisted home-buying program, with the city matching employer contributions (through loans or grants) up to $4,000.
Launched in 2004 by the city's Urban Affairs Coalition, PHBN is focused on making Philadelphia-based businesses more desirable to people living in the suburbs or elsewhere outside of the city. The program assists employers in recruiting and retaining employees by helping them become homeowners, while also increasing demand for housing within Philadelphia city limits.
PHBN was essentially dormant between 2009 and 2011 due to the impact of the housing crisis and economic downturn, according to program manager Christopher Waters.
"The one thing Philadelphia had—and every statistic will tell you this—is that the housing market in Philadelphia was not as bad as other places, and was quick to stabilize and quicker to turn around," said Waters.
He added that economic upheaval within the city and a shaky funding from the state also contributed to the hiatus. But since PHBN returned in 2011, "the program, along with the housing market in Philadelphia, has been growing steadily."
Philadelphia Home Buy Now has resulted in $77 million in home sales during the past decade, with $1.2 million in PHBN grants being matched by $1.9 million in employer funds. More than half of that $77 million ($47 million) has come since the program restarted in 2011.
Franklin Mint FCU and Philadelphia Credit Union are currently participating in the program.
"You can actually see just from our program the stabilization of not only the market in Philadelphia, but more importantly the expansion of our program," Waters said.
For example, Franklin Mint became a preferred lender for Drexel University in June 2012.
"Drexel University has a catchment area in the neighborhood known as Mantua and West Powelton, and they're trying to see if faculty and professional staff want to move into those areas," said Marty Burke, vice president of mortgage development at the $857 million credit union. "Drexel will be offering those employees a soft $15,000 second mortgage, which gets recorded in second lien position behind the first mortgage lender, and then PHBN comes in for those same folks and gives them $4,000 to reduce the amount of money needed for closing."
Though some properties in that neighborhood can still be found for as low as $125,000 or $150,000, said Burke, most buyers are purchasing renovated homes that cost between $175,000 and $200,000 and using Fannie and Freddie for a conventional mortgage.
The $15,000 from Drexel, said Burke, "is used to increase their equity position, and it lowers their loan-to-value ratio, which will enable that member to remove the private mortgage insurance sooner rather than later." The $4,000 from PHBN appears as a credit on the settlement sheet and reduces the amount of money the buyer needs to bring to closing.
The underwriting process is not dramatically different with these loans, according to Burke, though Drexel has to provide the credit union with the $15,000 promissory note signed by the borrower, and loans must also meet secondary market criteria.
Franklin Mint FCU markets the product in-branch and through its position as the university's official financial wellness provider. FMFCU reps attend all official enrollments, table days and home-ownership fairs at the university. The program also has a presence on Drexel's website.
'Extremely Friendly' Competition
When prospective buyers are interested in the program, each applicant spends 90 minutes meeting with three different potential lenders, including Franklin Mint and other entities such as brokers or big banks like Wells Fargo. Burke called the competition "extremely friendly."
Franklin Mint has closed four loans with PHBN in the last two years, with another two set to close by year-end.
"Some of the folks end up coming to me and don't end up buying in that catchment area because they prefer to live in another area," said Burke. He added that "although [four loans in two years] doesn't sound like much, they've only closed about 35 or 36 homes in that program since its inception.
Despite the low number of closings, Burke said PHBN has been a good experience for the credit union, and all of the loans have "performed perfectly." He said he believes it could be a good fit for other credit unions—just not other credit unions affiliated with Drexel.
"I wouldn't recommend other credit unions to get into this program here, but maybe other credit unions that want to try other Philadelphia related campuses," such as Temple University, La Salle University or the University of Pennsylvania. "It just seems that Drexel has quite a bit of providers to begin with; you're talking less than 40 units in however long that' program's been around. You don't need five or six lenders or real estate agents."
Because the loans are all made in accordance with Fannie and Freddie, there is no cap, said Burke.
"These loans work, and as long as they work well, we'll continue to grant them."