Elaine L. Hogue, Community Development Officer/CRA,
American Savings Bank
With many of Hawaii's working poor teetering on the
edge of being able to make ends meet, an unpredictable challenge such
as a car breakdown, can plunge a family into crisis. In Hawaii's busiest
and most popular tourist destination--the island of Oahu, many workers
commute long distances by bus because they cannot afford to live near
As of the 2000 census, 64.9% of Oahu's population
is very low- to moderate-income. This statistic represents a considerable
number of people that may at sometime have a need for a short-term loan.
Consuelo Foundation (www.consuelo.org),
whose mission is to improve the quality of life for disadvantaged children
and families in Hawaii and the Philippines, recognized this need and began
to look for a way to deal with an issue that presented a significant problem
for many of the community's most financially vulnerable. Consuelo Foundation
also wanted to find a solution that would embrace their philosophy of
providing a "hand-up" rather than "a hand-out." The
national Ways to Work family loan program appeared to be the right solution.
Because of our strong track record of responsiveness on other projects,
Consuelo approached American Savings Bank to take part in this innovative
opportunity, and we responded with our resources to help bring the Ways
to Work family loan program to Hawaii.
The Ways to Work loan program was started by the
McKnight Foundation in 1985 in the Minneapolis-St. Paul area. Ways to
Work loans are used to help low-income parents, who cannot get traditional
loans elsewhere, pay for expenses that could interfere with their ability
to keep a job or stay in school. Loans ranging from $500 to $4,000 help
families purchase a used car, pay for car repairs, childcare, certain
housing costs and other qualified purposes. In Hawaii, borrowers repay
the loan at an affordable eight percent, which is also the program's national
limit and well below the interest rate these families with poor credit
would be charged by alternative lenders such as payday and pawnbrokers.
Borrowers must meet certain requirements, such as being a custodial parent
and Oahu resident. They must also be employed for at least 19 hours per
week for six months prior to applying for the loan or be a post-high-school
student with verifiable income.
Beginning in 1996 and with the support of the McKnight
Foundation, Ways to Work, Inc. launched the national expansion of this
effective, outcome-driven program. As of 2002, 42 member organizations
in 22 states made over 4,000 Ways to Work loans exceeding $8 million.
The national program default rate of 13.2 percent is deemed exemplary,
considering that the loans are to high -risk borrowers. 88 percent of
borrowers utilized these loans to buy used cars. Many of the borrowers
have also experienced dramatic decreases in use of public assistance.
In 2002, through Consuelo Foundation's Ways to Work
program on Oahu, American Savings Bank funded $82,375 to 33 families in
need. With a default rate of 10.1 percent the Hawaii model compares favorably
to the national experience and reflects many of the same positive outcomes.
Of these customers, 73 percent are single mothers and 20 percent are self-reported
victims of domestic violence. Preliminary outcomes show that 80 percent
of borrowers improved their credit score since receiving their loans,
50 percent of borrowers increased their income and well over 100 families
acquired money management skills through program training.
Consuelo Foundation manages the program and originates
the loans through a loan program manager, a role that combines the skills
of a banker and the attitude of a social worker. The loan program manager
helps borrowers navigate the lending process from start to finish, offering
necessary guidance along the way. Loan decisions are rendered by a committee
of local volunteers from the social service, public administration, auto
sales and banking professions with American Savings Bank providing two
Ways to Work, Inc. was established as a subsidiary
of the nonprofit Alliance for Children and Families to help member organizations
create loan programs in their communities. Ways to Work, Inc. provides
initial and ongoing technical assistance with fund-raising, program development,
program operations and customized software. As a federally certified Community
Development Financial Institution, Ways to Work, Inc. also offers low-interest
capital to start-up and existing programs. Member organizations wishing
to replicate the program are typically required to raise a minimum of
$340,000 to fund a loan pool and loan loss reserve to be held at a financial
institution, plus funds to operate the program. However, Hawaii's program
(one full year in the making) is unique.
Ways to Work provides ongoing technical assistance.
Consuelo Foundation pledged up to $90,000 of its own funds annually for
five years for program operations and $40,000 to fund a loan loss reserve.
American Savings Bank committed a grant of $100,000 to be paid out over
five years to help start up and operate the program. Additionally, to
provide Consuelo Foundation the funds for a back-up loan loss reserve,
American provided a $310,000 equity-like loan at three percent. The loan
utilizes a uniquely crafted investment agreement that consists of a 10-year
term with interest-only payments, a subordinate position on existing or
future debt obligations, no prepayment penalty, and the option of extending
the maturity date for an additional five-year term at the foundation's
discretion. Now paid in full, this complex transaction resulted in American
Savings Bank obtaining investment test credit during the relevant review
period under the CRA.
The combination of continual hands-on guidance from
Consuelo Foundation's loan program manager and Consuelo's commitment to
purchase all loans over 60 days delinquent has enabled American Savings
Bank to lend money directly to these high-risk borrowers. On our end,
we had community-minded legal and loan servicing staff that were willing
to set up special reporting and monitoring procedures to accommodate this
special needs program. As a result, borrowers who maintain a good payment
record can improve their credit score, and because the bank closes, funds,
and services the loans, we are eligible to receive lending and service
test credit under the CRA1.
This program is a win-win-win! Hawaii's credit-needy
working poor families get life-sustaining loans, Consuelo Foundation achieves
its aim of improving the lives of women and families, and we at American
Savings Bank meet our goal of being a full-service bank that is responsive
to Hawaii's community development needs both in policy and in practice.
For more information or advice on internal tools
American developed to establish the Consuelo Foundation's Ways to Work
program, contact Elaine L. Hogue.
To learn more about the national Ways to Work program, contact Kevin
P. Stewart, National Program Director, at Ways to Work, Inc., (800)
221-3726, ext. 3656; web site: www.alliance1.org.
Elaine L. Hogue
2000, Elaine Hogue has been in charge of American Savings Bank's community
development and CRA program; helping the bank build strong relationships
in needy communities throughout Hawaii. Currently, Hogue is the president
of Hawaii's CRA Association. Previously, Hogue served as the grants administrator
at the Harold K.L. Castle Foundation, as the annual giving executive at
Castle Medical Center and as a paralegal with a large real estate law
firm in downtown Honolulu. She resides in Kailua with her husband, state
Senator Bob Hogue, and their four teenage children.