Posted on 10/12/2006 10:18:32 AM PDT by libertarianPA
Emma "Matty" Yturralde was the exact opposite of a bank's dream borrower: A newly divorced single mom with a $13-an-hour job. Her finances were so tight, she had a tenant sleeping in her living room.
She had a car, but it was in the shop almost as often as it was on the road. The bus ride to her job at Kmart took an hour and a half. Too proud to ask for a ride home, Yturralde, now 49, said she would sometimes wait outside the store to see if a co-worker offered one.
Her life changed in 2003 with a $2,000 grant for a car and a $4,000 auto loan at 4 percent interest through a nonprofit program called Ways to Work, which enabled her to buy a 2001 Daewoo. The store where she worked closed a few months later, but she was able to drive to a new job at a store farther away.
"If I didn't get the loan at just that time, I don't know what would have happened to me," she said. "Maybe I would have lost my job, maybe I would have gone on welfare or worse."
Advocates say Ways to Work, which has underwritten $36 million in loans to 24,000 families since it began as a small program in Minnesota in 1984, is part of a new model for social service programs, one that delivers human services aimed at economic self-sufficiency. Borrowers in the program, which is in place at about 50 human services organizations in 25 states, are low-wage workers who either have poor credit or no credit. The program is targeted at getting them not just a car, but also a decent credit score and a bank account.
The nonprofit, which has grown swiftly and hopes to quadruple the number of loans it makes over the next five to six years, has a repayment rate of 90 percent. The program grew nationally with early funding from The McKnight Foundation and loan capital from Bank of America Corp.
Most of the loans are two-year loans for up to $4,000, with interest rates capped at 8 percent and monthly payments capped at $182.
Without loans through the program, its clients could pay 24 to 28 percent interest elsewhere, said Jeff Faulkner, president of Ways to Work.
"We commonly refinance loans where the APR (annual percentage rate), including fees, is 35 to 50 percent," he said.
A study Ways to Work commissioned, released Thursday, found its borrowers reported take-home pay increases averaging 41 percent, with their average annual income growing to $15,312 from $11,904. More than half the recipients said they were able to get better jobs because of their cars. Nearly four out of five parents with young children said they were able to put them into a more satisfactory daycare arrangement.
The program works like this: Local social service agencies that decide to offer it can get a support package from the national Ways to Work organization. Local agencies use money from the national program to make a collateral payments to local banks, which make the loans. The money for the collateral comes from foundation grants, Bank of America loan capital and Federal transportation funds.
Family Services of Western Pennsylvania, a Pittsburgh-based social services agency, has expanded its Ways to Work program from loans for 18 cars in 2000 to loans for 86 cars in 2005. It is now the largest Ways to Work program in the country.
Family Services' most recent annual review of the program, completed in 2005, found that 85 percent of loan recipients were able to increase their salaries and 70 percent improved their credit rating.
"In the old steel industry, jobs were along the river in the cities," said Donald H. Goughler, CEO of the agency, which is based in Pittsburgh. "Now, most of the jobs are found in the suburbs. New jobs are more accessible because of this program."
People who worked with Family Service Agency of San Mateo County in California to get the car loans say the amount of work they miss after getting a car is down 92 percent. Their transit time to work is cut by 91 percent and more than one-quarter say they have been able to attend job-related education they couldn't have reached without a car.
The local agencies that make the loans carefully vet recipients, who have to write a personal statement about their situation. The underwriting process can take anywhere from two to five weeks.
Only low-wage earners with at least one dependent child are eligible. In 2005, roughly 13,000 people received a loan application though the program. About 5,500 completed the application, but only 2,500 were approved for a loan. Of that group, about 2,000 took the loan they were approved for.
"That's clearly creaming, and it's also self-selection, but it's really important both for the program and the people we actually serve that we give the loans to people who are most likely to succeed," Faulkner said. "We don't want to make their credit worse than it already is."
Agencies insist the borrower find a roadworthy, reliable car that will last for the life of the loan. Some agencies work with local mechanics or used car dealers to find cars in the borrowers' price range. Yturralde's case worker at Family Service Agency of San Mateo County rejected all the cars she found. Her loan was within days of expiring when a local dealer called and said he had a dependable car in her price range.
Loan recipients must construct a family budget, working with a counselor who tells them whether they're eligible for food stamps or child care reimbursement and encourages them to cut out expenses such as mobile phones and cable television.
David Turner, a 36-year-old single father in Pittsburgh, said the 1997 Dodge Intrepid he bought with a Ways to Work loan from the Western Pennsylvania agency has changed what was a two-hour, three-bus journey to drop his two daughters off at school and daycare before work into a half-hour trip.
Turner, who started a new job doing remodeling work about seven months ago, said, "It's the first reliable car I've had in a long time.... I don't have to worry about huge time in travel with the girls; I'm able to get to work on time and handle my responsibilities."
Great charity.....great story.
1. It won't take finance companies long to lobby to have it shut down.
2. The best thing is that you can always sell the car and buy crack with the money.
3. You'll never get ahead loaning money to people who don't care about their credit rating.
Unfortunately, the effect of this policy is to send the message that if you really need help, go ahead and have a baby that you have no means to support, and then we'll help you. We've seen the effects of government programs with that sort of policy. Private is only better than government if it doesn't duplicate government stupidity,
True. People w/o children need to get to work as much as people with.
$13 an hour is low wage? Geez, the poverty level keeps on climbing, I guess.
You really can't blame them - they're just meeting the requirements.
Looks good to me.
That's what I was thinking. That's nearly double the minimum wage.
I (mostly) like the concept, but it's not all private charity.
"The money for the collateral comes from foundation grants, Bank of America loan capital and Federal transportation funds."
"$13 an hour is low wage?"
And at Kmart? My wife worked as a hostess/cahier at IHOP just a few months ago and was making only $7 per. The good thing was that she was only one and a half miles from work.
No kidding......that's more than I make. I manage to own a home have 3 vehicles paid for and a 14 yr. old son
If the reporter truly thinks $13.00 an hour is a low wage, it just further confirms how out of touch these people truly are. It's not J. Paul Getty wealth...but it is nearly double the minimum wage.
Credit score is THE difference........749
You know what? I missed that. Good call-out. It seems to be privately run, however - rather than by bureacracy.
BTW.....love your tag
ooops.......that was supposed to be to your post.....
love your tag
my bad
"If the reporter truly thinks $13.00 an hour is a low wage, it just further confirms how out of touch these people truly are. It's not J. Paul Getty wealth...but it is nearly double the minimum wage."
The minimum wage is $5.15 per hour. $13.00 an hour is more than 250% of the minimum wage.
It does look that way. Those loans sure beat the heck out of paying people (welfare) to be lazy.
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