Credit union fixes up foreclosed properties

Aug. 09, 2013 @ 04:37 PM

Just around the corner from where several freshly painted, renovated duplexes sit with neat grass lawns and gravel driveways on Hibiscus Street in Durham, there are several homes with boarded up windows and doors and aging front porches.

There are neighborhoods being “bombarded” with deteriorating properties, said Mark Twisdale, executive vice president for administrative services for the Raleigh-based State Employees' Credit Union and the executive director of the SECU Foundation.
Twisdale said that’s one reason why officials with the not-for-profit credit union have launched a program to allow for the renovation of properties that it has taken ownership of after foreclosing on the former property owner’s home loan so that they can be rented and potentially eventually sold.
“We have decided to take the properties, make them safe, energy efficient, and put them back on the market so that people living in those areas will have safe, affordable places to live, and they will be attractive,” he said. “It’s not putting a piece of property back on the market that’s going to deteriorate that’s going to hurt the value of surrounding areas.”
The duplexes on Hibiscus Street were built in the 1960s, Twisdale said, and were bought by investors that had purchased them to rent, but they couldn’t rent or maintain them. State Employees’ Credit Union took ownership after foreclosing on home loans that were in default.
The Hibiscus properties are several of about 14 in the same general area of Durham that credit union officials plan to renovate and rent out. Credit union officials have set up a for-profit property management subsidiary called SECU*Real Estate specifically to handle that business.
They’ve also signed a pledge with Durham city officials to show support for rehabilitating foreclosed properties in distressed neighborhoods and to “set a new standard” in responsible care of lender-owned properties.
Durham is the first city where the credit union has started the program, but Mark Coburn, senior vice president of lending development for the credit union, said the officials with the credit union plan to repeat it in other parts of the state. He said they’ve been working on the effort for about a year.
Twisdale said SECU*Real Estate will look to hold on to some properties for a long time, but will look to sell others after their value increases.
He said it’s “much easier” just to put the homes on the market to try to sell them, he said, but credit union officials are looking to prevent further deterioration of the properties and to keep below-value sales from hurting the rest of the neighborhood.
“It’s easier to move it and get it off our books,” he said. “That’s not the right thing to do. The right thing is to fix it up rehabilitate it, and leave the area better than we found it.”

Although the number of foreclosures increased for the credit union as a result of the recession, Twisdale said the program is not a result of the impacts of the downturn.
“It’s not just a recession item. It is something we feel like we need to do,” he said.
However, the rate of foreclosures among outstanding mortgage loans for the overall Durham-Chapel Hill area increased in the last several years.
And Coburn said the credit union does have more foreclosed properties in its possession than it did prior to the recession.
Prior to 2007, Coburn said the credit union had 75 to 100 properties at any one time that it acquired following foreclosure. He said that number is now up to about 300. However, he also said the credit union is a “big mortgage lender” and its foreclosures are substantially less than other financial institutions’.
“We have over 100,000 mortgage loans in our portfolio – the percentage is still very small,” he said.
Twisdale said the credit union doesn’t make a lot of speculative mortgage loans. Most of the loans they make are for the borrowers’ primary residence. He also said that the credit union has a fairly stable employment base.
State Employees’ Credit Union is the nation’s second largest credit union by assets, at $26.7 billion, and by members, at $1.8 million, according to information from the National Credit Union Administration.
“We do not make a lot of speculative type of mortgage loans, so it is their primary residence,” Twisdale said.
Wanona Satcher project manager with the City’s of Durham’s Neighborhood Improvement Services Innovation Center, said the credit union is the only financial institution that’s at the table for the foreclosed property rehabilitation effort, but she said they hope to attract other lenders.
“The goal is to make this not only a citywide effort but replicable in other cities and towns in the state,” she said in an email, adding that the properties can have a “major impact” on taxpayers and the overall quality of life in the city.
Rick Hester, assistant director of Durham’s Neighborhood Improvement Services department, said the department officials probably run across three or four lender-owned properties per month.
“Really they are a mess,” he said, describing one case where a home had the copper wiring stolen out of the home.
Peter Skillern, executive director of the nonprofit agency Reinvestment Partners, said in some cases, a financial institution can start a foreclosure and not finish it. He said the property is in effect abandoned by both the borrower and the bank, and can become blighted. He said that’s why the credit union’s program is unique.
“They’re taking the worst of the properties (and saying) ‘we’re going to invest in them to bring the neighborhoods back,” he said.