With two new lending programs, Kaua‘i Federal Credit Union is addressing hurdles to homeownership on the island.
By Christopher Williams
When Hazelmae Overturf relocated from Seattle, Washington, for a new job on the island of Kaua‘i in 2022, the credit union executive ran into one of the major problems vexing many Hawaiians: She couldn’t find affordable housing.
It took Overturf and her husband eight months to find a suitable place, settling for renting an “expensive” house from snowbirds while they vacationed on the mainland during the winter months.
Three years since, the 40-year-old native Hawaiian still hasn’t found a permanent home on Kaua‘i, one of the four most populous islands of Hawai'i. She has instead decided to move between her job on Kaua‘i and her native island of Oahu, where she still has family.
“I’m gonna join that island-hop commute probably for a few months until I find something,” Overturf jokes. Overturf, who worked for 13 years in Washington’s BECU, has also retained her home in Seattle.
The longtime credit union veteran is now the chief impact officer of Kaua‘i Federal Credit Union, the second-largest credit union on the island of Kaua‘i with $177 million in assets and 7,800 members. It’s the only credit union federally certified as a community development financial institution on the island of 74,000.
Alongside Chief Financial Officer Sajid Siddiqi, Overturf is tasked with trying to help thousands of mostly underserved residents of Kaua‘i find housing in a state where the cost of living is so high that many work two jobs in a sometimes-futile effort to stay ahead of expenses.
Indeed, her credit union members have said their most dire needs are down payment assistance and help with housing costs.
Early this year KFCU launched two housing-related initiatives that won the credit union an economic equity award from an industry organization. The credit union partnered with local agencies to launch a $25,000 down-payment assistance program and also created a cesspool-to-septic conversion loan initiative, which allowed for the building of additional housing units and for people to stay in their homes.
“We have a lot of challenges when it comes to housing and there is a lack of inventory,” Overturf says. “The prices are really expensive, and then local wages are comparatively low compared to other places with similar cost of living. We knew we had to take a multifaceted approach.”
The conversion of unused and underused buildings into affordable housing, a steadily growing trend on the mainland, has surfaced in “spots” on Kaua‘i, Overturf says. KFCU itself bought an old furniture building in 2022 for more than $10 million and is restoring it into an economic resilience center, to consolidate satellite sites into one building and to establish and expand economic programs. The center opened early last year as Kalukalu at 1624.
Aided by solid asset and capital growth, KFCU also aims to grow its commercial portfolio by leaning into financing bigger, more mature businesses. The credit union is leading a consortium of lenders in providing $10 million for the construction of a farm-to-table restaurant on the island.
“We’re in a forward trajectory,” says Siddiqi, the credit union’s CFO since 2018. “Growing the capital helps us put more money out there for the communities.”
A sunny image obscures economic insecurity
The Kaua‘i Federal Credit Union was founded in 1947, 12 years before Hawai'i became the 50th state, but it was certified as a CDFI just five years ago.
As Siddiqi sees it, he’s essentially running a startup burdened with too many expenses to be truly efficient. Through member deposits, deposits through impact investments and wholesale borrowing, he sees KFCU ramping up to $200 million in early 2025, giving it the scale to produce products and, importantly, income.
“We do not have positive income,” Siddiqi says, citing a startup’s need for human and physical resources that create pressure on income.
The credit union is currently searching for a new president and chief executive officer after Monica Belz left in June for personal and family reasons. Leading the search is Executive Vice President Sean Kaley, who was named interim president and CEO. Belz recruited Overturf to KFCU as director of community impact. She became CIO just last June.
In many ways, Hawai'i has earned its reputation as a sun-surf tourist paradise. Yet most of the bronze-chiseled lifeguards on the beaches can’t afford to buy a house there; the median price of a house on Kaua‘i, for example, is $1.6 million. Just 20% of the households on the so-called Garden Isle can afford that, forcing many native Hawaiians to abandon the islands, according to Overturf.
Many residents are living on credit cards with debt-to-income ratio stretched to damaging levels, battering credit scores and constraining financial prospects. More than half of Kaua‘i residents qualify as ALICE – or asset-limited, income-constrained, employed households — Overturf notes.
“A lot of people think it’s all rainbows and sunshine, and it is,” says Overturf. “But there’s also a lot of difficulty in just managing day-to-day life here.” Much of her job is to help “demystify the stereotype” people have of Hawai'i, she adds.
In KFCU’s most recent annual report, the treasurer noted that 2023 was a “tough year” for Hawai'i. Along with the rest of the nation, the state battled the lingering effects of Covid-19 and high interest rates while also suffering wildfires on Maui that killed more than 100 people and made parts of the state a “fire zone,” notes Overturf.
Despite the economic headwinds, KFCU ended 2023 on solid financial footing, capitalized well over the regulatory limits and with double-digit growth in assets and loans.
Siddiqi notes that the credit union grew its capital base 27% by tapping secondary capital markets, going from $13 million to $16.5 million, since it became a CDFI. And they’ve been pouring that capital “right back into the community,” he says, through additional consumer and commercial lending and investments in Kalukalu at 1624. The credit union grew loans and assets by 60% during that period.
A multifaceted approach to housing in Hawai'i
Siddiqi and Overturf are using some of that capital to create products such as a down payment program in partnership with Hawaiian Community Assets, a Maui-based CDFI. Overturf says there are currently four or five families awaiting the $25,000 assistance.
The Kaua‘i Federal Credit Union’s cesspool-to-septic conversion initiative combats another big hurdle to homeownership on the island: No construction or home improvement permits are granted to properties with waste collection cesspools. There are 8,000 cesspools on Kaua‘i, and converting cesspool to septic averages $40,000, Overturf says. Among other benefits, the loans of up to $60,000 allow residents to stay in their homes.
The two initiatives, launched in April 2024, won KFCU the Racial Economic Equity Catalyst Award from Filene Research Institute, a Wisconsin-based credit union and think tank. “The long-term outcome is income generation, increased inventory, a decrease in migration and positive ecological improvements,” Overturf said last summer.
In addition, KFCU provides about $8 million in consumer and commercial loans for solar and electric vehicles.
One of the most significant moves KFCU has made in recent years was the creation of Kalukalu at 1624, which housed the Small Business Administration during the Maui fire.
Named after a native grass that is stronger when interwoven as a mat, KFCU said in a press release in February that the economic resilience center symbolizes the credit union’s intention to return Kaua‘i to “an era of abundance with nature.”
Officials are using the center to consolidate its offices and operations, house various community organizations and groups and, as detailed in the press release, effectively mobilize “action on island priorities such as affordable housing, small business innovation, climate change mitigation, and non-profit capacity building.”
Amid continuing renovation, KFCU is bearing much of the cost of the center, although two nonprofits have already signed on as tenants. “The idea is for all these nonprofits and foundations money to come in and start supporting it,” CFO Siddiqi says. “That hasn’t happened yet.”
Being resourceful, doing bigger deals
As KFCU ramps up to the $200 million level to better sustain expenses such as Kalukalu at 1624, Siddiqi is able to take on bigger financing for more mature businesses on the island. Mortgages and home equity line of credit (HELOCS) consume more than 50%, or $87 million, of the $155 million loan portfolio, according to the CFO, and the credit union lends $55 million in consumer loans, including auto, home improvement and unsecured debt consolidation.
KFCU probably has the only credit card that charges no more than 10% interest rates, Siddiqi states, explaining that it’s a “huge move a financial institution can make (to help) a family get out of the debt cycle.”
He adds, “Our super-low rate is a differentiator in the world of credit cards.”
Delinquency rates for credit cards and consumer loans including mortgages and HELOCs are just 42 basis points and 40 basis points, respectively, reflecting the credit union’s engagement with members. “We realize that overall portfolio management can be more effective with a more relationship-based credit model versus transactional,” he says.
Like many other CDFIs, the Kaua‘i Federal Credit Union looks beyond the FICO score in assessing consumer loans to its members. Its officials realize that many members live in multigenerational households and have financial support that doesn’t show up in traditional underwriting.
Commercial or small business financing stands at $10 million, but Siddiqi believes he can grow that to $25 million to $30 million as part of a $200 million organization.
KFCU mostly lends to local businesses that might, for example, provide bus services for tourists and the range of loans is from $50,000 to $3 million. “We are sophisticated enough we can cater to something like a $10 million to $15 million loan request,” Siddiqi says.
The credit union is extending $2.8 million of its own balance sheet for the $10 million USDA-backed financing for construction of the farm-to-table restaurant, the CFO says, marking its largest community-based lending initiative to date. The credit union is bringing in a network of other smaller institutions to handle the rest of the financing.
“We are resourceful enough to solve for community needs at much larger scale that what our balance sheet allows,” Siddiqi says.
While lauding the power of credit unions to empower and positively impact lives, Overturf acknowledges the industry lacks representation of various underrepresented groups.
The second-generation Filipino American is the leader of a group establishing the Hawaiian Pacific Islanders Credit Union Professionals. The effort, she says, grew out of the 2020 George Floyd protests and the anti-Asian rhetoric of the Covid-19 crisis.
Overturf, who calls herself an “unapologetically positive” credit-union lifer, says the group went through several iterations before landing on the optimistic-sounding acronym of HAPICUP.
Beyond aiming to increase representation in the professional credit union ranks, the group also works “to advocate and share information about our population and its needs so that more credit unions can hear and deepen their impact within those communities across the U.S.,” Overturf says.
This story is part of our series CDFI Futures, which explores the community development finance industry through the lenses of equity, public policy and inclusive community development. The series is developed in partnership with Next City.