Investors of loan capital, including commercial and philanthropic lenders, continue second-generation model of investing in Ways to Work at the national level. However, the new model now provides the opportunity for smaller, local financial institutions to become investors.
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.
To access a powerful financial services and data warehouse system, WtW has contracted with Metavante Corporation, a nationally recognized
financial technology software and services provider. Metavante partially subsidized the system’s development and is discounting the system’s ongoing operational costs.
WtW is using Harland Financial Solutions' Laser Pro, a standard loan documentation package for the US lending industry, to generate all loan agreements. Laser Pro can provide loan documents for a large range of loans and ensures that WtW is compliant with consumer credit laws in all 50 states.
Host Agencies will still guarantee client loans, but do not need to maintain 100 percent cash collateral deposits at a local lending bank. Agencies remain responsible for their program offices’ local lending operations including program marketing, application processing, underwriting, loan closing, delinquency collections, and default risk management.
Agencies will have reduced data management requirements and will receive increased risk management support from the National office. WtW continues to underwrite host agencies to assess their financial strength and their ability to repay WtW National if multiple borrowers default on their loans.
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.
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