President’s Corner – Home Improvement Loans

A Southern California woman has to walk away from her house, not because of the economy, her employment status, or wanting to live somewhere else. This homeowner borrowed $50,000 from a lender, not a credit union or bank, but a private company that is supposed to fund energy and water-efficient projects, such as solar panels and air conditioners. The contractor who contacted this woman led her to believe the loans were part of a government program.

“They did mention a government program and that’s when you hear ‘government’ and think it’s an awesome deal,” the homeowner said.

Except that this really isn’t a government program, per se. Even one of the primary lenders states in their salespeople guidelines, “Don’t say Hero (the lender) is a government program because it’s not.”

Many Californians, including seniors that are being specifically targeted, are in fact being told that it is a government program, which implies the government (which government are they referring to?) is somehow underwriting this program. These loans are paid back through property tax assessments. If the homeowner sells their house or refinances their first mortgage, these loans must be paid off first, creating obvious cash flow issues with many homeowners.

The Southern California homeowner who borrowed $50,000 for a new air conditioner and a paint job paid an above-market interest rate of 10% and owed $6,000 annually which she could not afford. These private lenders are not required to ensure the borrower is qualified to make the payments, nor until very recently even had to give the borrower truth-in-lending disclosures or a three-day right to cancel. Last month, the governor signed AB 2693, which was endorsed by California credit unions, which will require the same disclosures as with any loan and a three-day right to cancel with no penalty.

That only solves part of the problem. The loans are still paid through property taxes and must be paid off when the house is sold or mortgage is renegotiated. I assisted, along with other credit union executives, in lobbying the state legislature to eliminate these issues, but so far no luck. However, there is a simple resolution. Credit unions have loaned for what we have always called home improvement loans for decades at lower rates and more favorable terms. More importantly, our loans don’t adversely affect any additional loans on the property. But for this homeowner, her life will be changing, and not for the better, for being misled by an unscrupulous salesperson.

“My whole life, my children’s birthdays and just everything, my childhood,” she said, wiping away tears.

David M. Green
President/CEO
(925) 335-3802