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Diane Berthinier, Assistant Vice President of Lending for Redwood CU
Diane Berthinier, Assistant Vice President of Lending for Redwood CU

Tiny Houses Help Address Big Problem Through Partnership

In a recently published article, featured Redwood CU Assistant Vice President of Lending Diane Berthinier (headquartered in Santa Rosa, CA):

Affordable housing, or the lack thereof, has reached a crisis point in cities and states across the United States. According to the National Low Income Housing Coalition, there is a shortage of more than 7 million affordable homes for the country’s more than 10.8 million extremely low-income families.

Alarmingly, the coalition also notes, “There is no state or county where a renter working full-time at minimum wage can afford a two-bedroom apartment.”

A National Challenge Exacerbated In Local Markets
How are cooperatives, formed to serve the needs of members of modest means, addressing this growing issue? In Northern California, Redwood CU ($7.6B, Santa Rosa, CA) partners with Napa Sonoma ADU to offer financing and encourage the construction of accessory dwelling units (ADUs) to benefit those in need of housing as well as homeowners trying to make ends meet.

“We were looking for ways to help people with the housing crunch within our markets,” says Diane Berthinier, senior vice president of lending for Redwood CU.

ADUs — also known as “granny flats” — can take many different forms and have a lot of potential in counties like Napa and Sonoma, where there isn’t a lot of room for new construction or properties that haven’t already been developed by vineyards, wineries, or long-term owners.

“There are so many farmworkers and others in our area who need affordable housing,” Berthinier says. “On the flip side, you have empty nesters who are on fixed incomes. They no longer need the large home and might be struggling financially to find a way to remain on their property.”

ADUs are an increasingly popular solution for both parties. After a homeowner adds a smaller unit to their property, they might decide to rent it out or move into it themselves and rent their larger space for more money. Homeowners can convert a garage or a main bedroom suite into an independent unit or even explore prefabricated housing options for faster project completion.

If a property owner is uncomfortable with renting to an unfamiliar tenant, adult children can rent the units or older family members might use the ADUs to retain independence.

A New Loan Solution
Redwood’s ADU construction loan allows borrowers to take out loans at fixed and adjustable-rate terms with varying lengths. The credit union also offers flexibility in construction schedules and building options, promising to work within a borrower’s timeline for purchase, construction refinance, and construction-only loans.

But building a loan program to adequately serve such a niche opportunity required time and diligent research.

“We started the process in December 2020 and went back and forth to ensure we were serving the need,” Berthinier says.

The credit union officially rolled out the loan in August 2021. So far, the credit union has generated 260 inquiries and approximately 50 applications for ADUs.

The cost of building materials and supply chain issues in recent years has slowed the process for some, but Redwood is continuing to explore new opportunities. Prefabricated dwellings are another option to provide housing at a lower cost and quicker pace than traditional construction.

“We’re looking at a financing partnership with a manufacturer to help people purchase pre-fab homes,” Berthinier says.

The partnership with Napa Sonoma ADU includes a reserve fund to soften the pinch of unexpected losses, but the credit union hasn’t had to tap into any of the risk money set aside to date. For that, Redwood credits its solid handle on local market values and the forward value and forward income for ADU rentals.

Looking Forward
Redwood will continue fighting for more affordable housing options in its local market and sees a future filled with boundless opportunity in this space.

Its ADU construction loan offers financing for up to 90% of costs, and grants from housing associations such as the California Housing Finance Agency also play an important role in helping homeowners pay for up-front applications and other pre-development costs.

“We have done HELOCs to assist with the soft costs,” Berthinier says. “But when there are government or non-profit-sponsored grants available, that’s a real benefit to the homeowner.”

Although the addition of ADUs to residential properties might be a fairly new trend and a niche need for financing, credit unions have the experience and know-how to make safe, secure loans.

“It’s about being open to the program and removing barriers,” Berthinier advises. “Having multiple units on a property generally improves its value. At its core, the ADU loan is a construction or term loan.”

Member education is also important, which is why Redwood regularly hosts seminars and partnered with Napa Sonoma ADU to host a webinar on the topic.

Lastly, Berthinier advises credit unions to train their staff and coach members so everyone fully understands the borrower’s options. Using models can help individuals decide what makes sense to finance and for how much.

“Run the scenarios for members to see if this really makes sense for them,” Berthinier says. “And, provide alternatives.”

Quick Facts: Redwood CU
Redwood CU (as of Sept. 30, 2022):

  • Headquarters: Santa Rosa, CA
  • Assets: $7.6 billion
  • Members: 332,000
  • Branches: 20
  • Employees: 750
  • Net worth: 11.6 percent
  • Return on assets (ROA): 1.47 percent

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