Known as the Home Run program, the offering places members in a home with a two-year lease before transitioning into a purchase.
Tara Smith, VP of retail at the 52,000-member, $517-million Memphis-based Orion FCU, explained that the program arose out of a commercial loan that represented some 40 residential properties in all that was in delinquency and on its way to foreclosure. The foreclosures didn't happen, but the CU had already developed the rent-to-own concept and has since transitioned it to apply to various properties that it repossesses.
"When you have a foreclosure or a repossession, you get about 50 cents on the dollar when it goes to auction or to short sale, so we tried to give back to the community while not completely taking a loss," said Smith.
Smith said that when OFCU began the Home Run program two years ago it had six to 10 homes, though only two have been used for the program so far.
At any given time, Orion has about a half dozen homes to which it has taken title, but Smith said that it's not quite as simple as just turning the homes over to renters. Some homes sell quickly once they're foreclosed upon, while others may not be suitable for renters, either due to the home's condition or the neighborhood where it's located.
"We took the homes that we had that were pretty much turnkey ready, put them on our Internet site and advertised them as part of the Home Run program," she said.
Applicants must go through a rigorous pre-screening process, including applying for the house, being approved for the mortgage, and take a half-day course (developed by the credit union) with a focus on finances and budgeting.
Homes are risk-priced based at current market rates, and both buyers so far have received rates below 5% on a 15-year term. "If they rent on time for two consecutive years with no issues, we'll write that mortgage for them and keep the mortgage for them here at the credit union and write it for a 15-year term," said Smith.
Because the homes are foreclosures, Orion FCU prices the properties at 70% of appraised value, with rent based on a hypothetical principal and insurance payment, including escrow. All rent payments go toward the down payment on the home. Participants must have direct deposit at Orion FCU and rent is required to come out of that account.
Due to limited inventory, OFU only advertises the program on its website, rather than a full-blown campaign. Participants are required to have renters' insurance (and then homeowners' insurance), and during the rental phase OFCU covers the property taxes and any major expenses (generally anything above $1,000). Orion FCU considers itself the owner of the home, not the landlord, so the renter is responsible for upkeep and maintenance of the property, just as they will be once the sale is completed.
"We didn't think that it was for somebody that had to rebuild their credit, but maybe just someone young that didn't have a down payment," said Smith. "It could be somebody young and out of college-we thought maybe single moms or dads with kids. Whatever the situation was, we just wanted to help them get back into a home to stabilize the community."