Ways To Work Program Summary

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The overarching aim of Ways to Work is to reconnect our clients and their families with the hope and growth embodied in “The American Dream”. For too many people, economic challenges and financial realities have dashed any hope of significantly improving their lot in life or that of their children. Ways to Work is designed and operated to restore that hope.

Everyone participating in the application process is provided an opportunity to realistically assess where they are today, in straight-forward financial terms, and where they could be in just a couple of years. The cornerstone of this phase is the development of a monthly family budget.

Our clients are also provided financial literacy training to help them to better understand the world we live in and the economic impact of their decisions. Because nearly all of our clients have severely damaged credit, much focus is given to credit repair strategies and techniques.

The real work of Ways to Work, however, begins with origination of the loan. For two years our clients are held accountable for their loan commitments. They are expected to make all of their payments, in full and on time. If they run into difficulties, they are expected to work proactively and honestly with their loan officer. If they don’t, their loan will be called and their car repossessed. This is a very rare occurrence since Ways to Work borrowers understand the value of the vehicle associated with their loans.

Ways to Work provides significant assistance to make our clients successful, but all within the context of the financial real world. The primary goal of the program is that our borrowers function successfully on their own after their experience with Ways to Work comes to an end.

Components

The WtW program model integrates three major components within an innovative and holistic solution that addresses multiple needs of low-income families to help them move out of their cycle of poverty and dependence towards greater financial stability. The combination of (1) affordable credit with real-world expectations for repayment, (2) a high-touch approach, and (3) financial literacy education generates intermediate outcomes - reliable auto transportation, improved financial skills, repaired credit and asset building.

As clients leverage their increased transportation capacity and financial skills, they are shown to stabilize their existing jobs or access better paying jobs, increase their income, improve care for their children, and begin working with mainstream financial institutions. Together, these outcomes allow families to begin moving towards self-sufficiency and an overall better quality of life.

Affordable Real World Credit

The WtW program model is centered on an affordable loan that allows working poor families to keep or obtain better employment or education. Loans are demand-driven and largely applied towards used car purchases, with occasional use for other expenditures such as auto repair or vehicle refinance. The acquisition of an automobile increases program participants’ job security by cutting down on lateness and absenteeism, and helping them move forward in their careers by giving them access to better paying jobs. The cars also help struggling families to stabilize their lives and transport their children to child care, school, and doctor appointments. The WtW base auto loan’s eight percent interest rate makes it a much more affordable alternative to predatory and subprime lenders who typically offer lending rates of 25 to 50 percent. Consequently, clients save $750 to more than $2,000 in interest expense over a $4,000, two-year loan.

A fundamental characteristic of the lending service is to closely simulate the real world that clients will encounter after their WtW loan, albeit in a supportive environment. Thus, WtW maintains a realistic but affordable interest rate and real world expectations for full and on-time payments.

This approach better prepares WtW clients to access mainstream financial markets over time and promotes long-term self sufficiency while supporting WtW’s own financial sustainability. When necessary, program offices employ a set of collections procedures including calling clients and mailing payment reminders, renegotiating loan terms, providing incentives for repayment, and occasionally repossessing cars in the case of loan default.

High Touch Approach

While affordable credit in itself addresses a fundamental unmet need in many communities, a high-touch approach in providing the loan is critical to client success in the context their challenging life circumstances. Although they are employed and financially able to make payments, Ways to Work clients typically live in a roller coaster-like state with a very high probability of negative occurrences, and frequently deal with job issues, health care problems, housing challenges, etc.

At any point in time, approximately 20% of clients are in a state of loan delinquency. Furthermore, nearly all clients fall into some level of delinquency at some point during their 24-month loan term. WtW’s high-touch approach helps participants to weather short-term crises, change habits, improve the ability to repay their loans successfully, and consequently build greater financial capacity throughout their lives.

Financial Education

As a requirement of loan approval, loan counselors guide every loan client through financial literacy education to improve the fundamental financial management skills critical to becoming creditworthy and financially self-sufficient. Education delivery includes formal classroom sessions run by either loan counselors or local financial institution partners as well as ongoing informal education by loan counselors in one-on-one sessions throughout the application process and term of the loan.

The greatest value of WtW’s financial literacy education is the direct application of topics and practical experience gained by taking on and paying off an actual loan in a real-world environment.

Key topics that are covered by both formal and informal education include:

Completing a household budget
Financial goal setting
Tracking expenses
Developing a spending plan
Reviewing the credit bureau report
Emphasizing the importance of saving
Local community financial / credit resources

Lending Model

WtW enables its program offices to provide affordable consumer loans via a robust lending model that facilitates the transfer of loan capital from the national level to clients in local communities. Demonstrating a commitment to innovation and continuous improvement, WtW is currently implementing a third-generation lending model to prepare for and manage future growth. This new model will help attract and deploy new investment capital and serve as a springboard for potential program enhancements.

THIRD-GENERATION MODEL - CENTRALIZED, DIRECT LENDING

WtW’s latest lending model builds upon the strengths of the second-generation model, the best practice examination in the 2006 Evaluation, modern lending industry technology, and WtW’s strengths in risk management and direct-to-consumer lending. The third-generation model involves the transition from agency-based loan pools to a central loan pool, allowing WtW to manage its lending process at the national office and lend directly to clients by originating and owning client loans.

Local Financial Institutions

Local Financial Institutions transition from a lending partner to a financial services partner. Partners retain the opportunity to provide second-generation model services including serving on loan committees, providing checking and savings accounts, financial literacy education, and follow-on loans to WtW clients. Their participation costs are reduced replacing the resource-intensive activity of originating and managing a portfolio of numerous small, short-term, unprofitable loans with lower cost savings accounts.

Financial service partners are also given the opportunity to fund the loans via low risk investments in WtW’s centralized loan pool, and receive CRA credit along with their investment rate of return. An investment in WtW affords bank investors CRA credit under both the investment and lending tests. In addition, an investment in WtW demonstrates innovation in consumer lending by offering an alternative to predatory credit for borrowers not previously served by mainstream institutions.

Third-Generation Lending Model Advantages

The features of the third-generation lending model offer significant advantages for Ways to Work National, program offices and their host agencies, investors, local financial institution partners, and clients. These benefits include:

Increased manageability. Through centralized loan portfolio management and real-time loan information, Ways to Work will gain greater control and transparency over the flow of capital and program data. Through the central lending facility, Ways to Work can also ensure more consistent credit reporting to protect the interests of borrowers throughout the network.
Greater scalability. The third-generation model eliminates the need to make agency loans and recruit local lending partners, thereby greatly streamlining the process of launching and managing new program offices.
Increased efficiencies. The eliminated need for local lending partners frees local office staff from the time-intensive requirement of continually nurturing complex local lending partnerships. Additional efficiencies include greatly streamlined data entry processes at both the local and national levels, and allowing a seamless transition from application processing to case management for clients.
Increased ability to attract, deploy, and manage CRA-eligible investment from bank partners. For national-level commercial bank investors of loan capital, the third-generation model maximizes CRA credit associated with loans by providing detailed information on exactly where capital is invested through geo-mapping.
Increased financial sustainability. The associated earned income stream will fully fund the operational cost of the loan system within about two years and begin to contribute toward program sustainability. This business platform is adaptable to potential product extensions which promise to enhance the sustainability of the local agency offices as well as the national office.
Improved risk management. The addition of real-time information on all loans in all locations allows for more effective case and risk management by providing direct access to the status of individual client loans, thereby allowing program offices to quickly take action on delinquent loans and high risk situations before they become defaults.

National Office

WtW National Office centrally originates, owns, and services loans. The national office manages the overall loan portfolio across the network, thereby supplementing the portfolio management responsibilities of the host agencies. The third-generation lending model improves efficiencies and provides cost savings opportunities for the national office and throughout the network of host agencies. In particular, it allows WtW and its offices to better manage loan losses through the greater standardization of the lending process and improved data flow.