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The Decks Are Stacked…In Our Favor

Meeting the Needs of the Financially Vulnerable and Pursuing Financial Stability Is Not Mutually Exclusive

A culmination of 18-months of product testing at 40 credit unions across the U.S. and Canada has resulted in 58,000 loans issued to more than 18,000 underbanked households through the work of Filene Research Institute’s incubator. Teaming up with VISA and the Ford Foundation, the Reaching Minority Households Incubator tested new financial products designed specifically for minority households.

The products are life-changing. The stories are inspiring.

Portland, OR

"But then the economy hit…"

Amy Nelson was hired by Point West Credit Union in Portland, Oregon for a specific reason: to help Point West fulfill its core value of serving the underserved, specifically to expand the array of products and services available to Portland's sizable immigrant community.

"The credit union," says Nelson, "was already well steeped in serving immigrant members," but her role as the newly hired training manager would be to "take it to a deeper level operationally." She was excited about the job of making a good thing better, and she hit the ground running. "But then," she says, "the economy hit."

It was 2007, and signs of the Great Recession had begun to appear. Housing prices were on the decline, descending toward what would be the sharpest drop in history, and foreclosures were on the rise. Lenders focused on sub-prime mortgages began to declare bankruptcy in droves, and homeowners with underwater mortgages were following suit. Household income was declining, and unemployment was rising. For Point West and for many of its members, a time of reckoning was fast approaching. "What I had been brought on board to assist with," says Nelson, "I only got to dig into for maybe 10 months before it became about making sure that the credit union would survive for the membership." For the credit union, this meant undergoing the challenging process of developing and implementing a net worth restoration plan that would chart its course through the recession.

The plan involved tightening the budget and focusing on key products and services. A particularly painful step was the need to pull back from the credit union's Individual Taxpayer Identification Number (ITIN) lending program. At a time when many of its members were experiencing economic hardship, Point West was required to take a more conservative approach to its lending and outreach. Nelson, now the CEO, puts it this way:

"To say during the recession that we were not allowed to serve our immigrant community—in part just because the ITIN lending portfolio was not understood—to not be able to help those members so they were essentially having to fend for themselves during an economic downturn, was shattering for our credit union employees."

The recession was a considerable challenge—for both Point West and its members—but it was also an opportunity for the credit union to rededicate itself to its core vision of the kind of institution it wanted to be when it emerged from the financial crisis. The credit union's mission explicitly prioritizes social equity and inclusion.

As an organization, Point West made it clear that its purpose was to provide financial empowerment to all of its members, and doing so meant actively advocating for and pursuing solutions for its non-citizen members. A reinvigorated non-citizen lending program was central to this process. Point West completed its net worth restoration plan two years ahead of schedule, and in 2014 was finally able reintroduce its ITIN lending program.

"Nobody will loan to me."

Many credit union members, too, needed a plan and a vision to make it through these challenging times. For Sara, it began with a family recipe.

Sara has been a member of Point West since 2004. Like many Spanish-speaking members, she would wait in line for her favorite teller, Mary Vasquez, who was, in 2007, the only Spanish-speaking teller at Point West (today, as a direct outcome of their strategic planning during the financial crisis, almost half the staff at Point West is bilingual and bicultural).

Vasquez and Sara became familiar friends through their brief chats, talking about their lives and families. One day, Sara brought in one of her homemade tamales for Mary. It was good. Really good. The kind of good that makes you tell someone they should go into business. Sara was doubtful when Mary suggested this very idea, but she decided to give it a try.

A stay-at-home mother of 4, Sara had a credit rating of 0 and no social security number. She did have an ITIN, and as a member of Point West, she had an ally. Point West issued Sara a $500 loan to pay for permits and ingredients to start her tamale business. Over the next few years, Sara received two additional micro-loans from Point West and -- just as Point West was doing -- continued to learn and refine her business model. For both Point West and Sara, an important community partner in this process was Hacienda Community Development Corporation (CDC).

"All fingers pointed to Point West."

Hacienda CDC's partnership with Point West began in 2004, when Hacienda Community Credit Union merged with Point West, bringing in about a thousand new members, primarily from the Latino and immigrant community. Since 1992, Hacienda CDC has provided affordable housing, financial advising, and educational support to the Latino community in Portland.

Among Hacienda's offerings is a class on small-business ownership and entrepreneurship, a class that Sara attended in the early stages of her business planning. Point West knew that expanding services to members like Sara was vital to their growth and stability. The class Sara attended, along with Hacienda's first-time homebuyer education and foreclosure prevention advising, are among the services provided by the CDC that make it a valuable community partner for Point West.

At the same time, Hacienda CDC was looking for ways to help its clients locate and secure loans for first-time homebuyers without social security numbers. Carlos Garcia, Director of Economic Opportunity at Hacienda, notes that often, people would attend Hacienda's first-time homebuyer's class but would be unable to secure a loan: "They would say, 'I want to buy a home. I have an income, I have the credit. I have savings. But because I don't have a social security number, I can't get a mortgage; nobody will loan to me.'"

Before the foreclosure crisis, there had been programs available for ITIN lending, but these programs had dried up. Affordable housing near the city center had become increasingly sparse as high-income earners moved in, and many residents were being pushed to look for homes up to 40 miles from where they worked and where their kids were going to school. Garcia went looking for a lender who would serve the clients of Hacienda. He had conversations with several other non-profits and community partners, and "all fingers pointed to Point West."

Garcia contacted Steve Pagenstecher, Vice President of Member Experience at Point West, and, says Garcia, "we were able to work with them to provide a product and provide a choice that hasn't been available in our community." Through the partnership, Hacienda CDC provides prepurchase counseling to make sure clients have the necessary credit, capital, collateral, and income. When they identify a potential client who meets the basic criteria, they call Point West and help set up a meeting with the client. Mary Vazquez at Point West stays in touch with the financial counselor at Hacienda CDC throughout the process.

There were a couple of silver linings for Point West in the dark clouds of the Great Recession and the net worth restoration process. Their dependence upon community partners such as Hacienda CDC, and the strengthening of these relationships during the recession, was among these silver linings. As Point West began to emerge from the financial crisis and complete its net worth restoration plan, it was able to turn to Hacienda CDC and other community partners—with expertise in immigration law, health and human services, and other areas—to develop its noncitizen lending program.

"Sometimes if you don't have help, you can't do anything."

In the decade since Sara took out her first micro-loan at Point West, much has changed, for both Sara and the credit union. Sara's Tamales, LLC, has taken off as a self-sustaining and profitable business. Sara has gone from a credit score of 0 to a score of 778. She has long since paid off her micro-loans and has hired an additional employee to keep up with demand. She has become the primary breadwinner for her family and is helping two of her children further their educations. In addition, Sara received a $15,000 loan through Point West's non-citizen lending program, which, combined with over $10,000 she saved in profits from her business, she and her family recently used to buy their first home. Asked what advice she would give to other credit unions looking to extend its loan portfolio to non-citizens, Sara offers this reminder: "Sometimes if you don't have help, you can't do anything."

As both a provider and a recipient of help from its community, Point West, too, has thrived. From the board to the staff to the members, there is a common and widely shared understanding that the credit union is an inclusive organization that prioritizes the well-being of all of its members, including non-citizens.

This clearly articulated identity has freed Point West to advocate passionately for the financial empowerment of its members and to pursue programs and policies, products and services that align with its mission. For the staff at Point West, this means going to work at a place they believe in.

Mary Vasquez's job title at Point West—Community Advocate—speaks volumes. Her job is to proactively seek ways to help the members and to make sure the community is aware of the services available. For Mary and for other staff, being able to make a difference in people's lives provides a feedback loop: in helping others reach their goals, Point West's employees, too, are fulfilled. "I love going out and talking about what we do," says Mary, "even on my days off."

Steve Pagenstecher puts it succinctly, saying working at Point West "feeds my heart." And the other bottom line, the one that determines whether Point West will be able to keep its doors open and continue to serve its members and community? The non-citizen lending program is doing its part to help them reach greater success. According to Steve, “delinquency in the NCL portfolio is 0.83%, versus 0.75% for the portfolio overall. Most of the delinquency is under 60 days and resolves within that timeframe, but it’s certainly in line with the overall portfolio, and the weighted rate/earned loan interest income certainly make up for any differences.”

This is only the beginning...

Despite all the progress, everyone—Amy, Mary, Steve, and Sara—seems to agree that this is only the beginning. Point West is reaching out to other financial institutions to describe its non-citizen lending program and how it can be a financially sound component of a lending portfolio. They recognize that the market is way bigger than they can hope to serve in the Portland metropolitan area alone, and they encourage credit unions and other financial institutions nationwide to take a second look at this opportunity.

And Sara? "Right now," she says, "my goal is to pay off my home loan to Point West and then take out another loan to do my own restaurant." She's on the lookout for locations. Along with Sara's A+ credit rating and impeccable loan payoff record, Point West has an additional incentive to offer the loan: the location she's currently looking at is a 3-minute walk from Point West's front door!

Data from Reaching Minority Household Incubator Report:

  • Credit unions reported having generally positive experiences with ITIN Lending, with all (100%) agreeing that they would refer ITIN Lending to other credit unions and that members liked the program.
  • The data showed that more than two-thirds of ITIN Lending borrowers (67%) had not been members before they received their loans—making this the second-highest program within the Reaching Minority Households Incubator for attracting new members.
  • Return on assets was an impressive 3.81% vs. a system average of 0.75%.

Illiana Financial Credit Union

Chicago Heights, IL

A Door to Opportunity

Samuel and Jim have a lot in common. They both enjoy their work, file their taxes on time, and can grow a garden in their front yard. So what, you may be thinking, but because both are also part of the Illiana Credit Union community, and thanks to the Individual Taxpayer Identification Number (ITIN) Lending Program offered by the credit union, Samuel, like Jim, owns his own home.

Samuel first heard of the program while on the job at Chicago Heights Steel. Though it was only a few blocks from his work, Samuel had never heard of Illiana Credit Union before Carmela Osornio visited the factory to introduce the program.

Samuel did his banking at a large financial institution, but he had struggled to secure an affordable home loan. Like many of his neighbors and coworkers, Samuel had just about everything a first-time homebuyer needs: a long-term history at a good-paying job, a decent credit history, money for a down payment. What he didn't have was a social security number. For Samuel, as for many others in the community, and for millions nationwide, the difference between a social security number and an individual taxpayer identification number was the difference between an affordable mortgage and remaining a renter. It was the difference between a fair auto loan and needing to save enough cash to buy a car outright, between establishing credit through a secured credit card and facing the predatory environment of payday lenders. For many potential borrowers, it has meant the difference between treatment as an "alien" and treatment as a neighbor. Samuel wanted to plant roses by his own front door, and he needed an affordable loan to make that happen.

Jim Henmeuller is the CEO of Illiana, a position he describes as being "an advocate for the membership." When he heard from credit union staffers that there was an unmet need for loan products for residents, members of his community and potentially neighbors without social security numbers, he knew that Illiana not only could, but should, provide a solution. The credit union's tagline is "Your door to opportunity," and in the problem faced by Samuel and others in his situation, Jim saw an opportunity for both the credit union and potential members like Samuel.

"Credit unions are chartered to service their members or their community," says Henmeuller, "and it was obvious that there was a need in our community." Illiana gets its name from its service area—the states of Illinois and Indiana. With four branches—in Chicago Heights, Bourbonnais, Naperville, and Calumet City—Illiana currently serves about 25,000 members.

In the immediate community of Chicago Heights, over a third of the population is Hispanic, including many residents with ITINs. "Payday lenders and used car dealers and mortgage brokers have been taking advantage of this population for years," Henmeuller notes, "and my philosophy has always been to run the credit union for the members, not for the regulators." The idea was to start by developing a program to provide holders of ITINs with loans at reasonable rates and then make sure the program complied with regulatory and auditing requirements. 

Run it for the members

At Illiana, this meant putting Anna Shaleva on the job. As the chief lending officer at Illiana, Shaleva was tasked with devising a program that both met the need in the community and satisfied the regulators. The challenge was that the agencies buying mortgages on the secondary market often had restrictive policies on purchasing ITIN mortgages. Shaleva: "So we developed a ... product that acts like a first mortgage, but we don't sell it to a secondary lender and we don't offer it as a first mortgage. We offer it as a home equity purchase product ... It works just like a first mortgage ... in that you can [use it to] purchase your property." Problem solved. As Shaleva puts it, "There are no legal issues because we're not out of compliance in any way with a general loan product for purchasing a home. We just have underwriting requirements that allow for verification of income and other factors by alternate methods." To Henmeuller, "[a credit rating of] 'A doesn't mean approved, and D doesn't mean denied.' There's a different story behind every member."

Having this flexibility to evaluate applicants on a case by case basis, to hear their whole story and make an informed decision based on more than simply a credit score or a certain number of check stubs, has been a hallmark of Illiana's ITIN lending program and a cornerstone of its success.

What About the Risk?

But this unorthodox approach raised questions, among both staff and the board; in particular, "What about the risk?" Illiana has taken multiple approaches to managing risk. First, they set aside a specific amount of money—$10 million—for the initial roll-out of the program. This allowed them to pursue the program while limiting the initial capital outlay to a reasonable level. Second, they worked carefully with their auditors and underwriters to ensure that, despite being unorthodox, their methods for verification of income and risk evaluation were sound.

More than two and a half years after offering the first loan under the home equity purchase program, there have been zero delinquencies. "We saw a need," says Jim Henmeuller, "and we knew that we could make it a win-win situation. If we could provide affordable financial products for the people in the community, it'd be a win for them, and if we managed the risk well, [it would] be a win for us. And so far, it's worked that way." According to Carmela Osornio, "[The members] are grateful ... that they have somewhere to call their home. And some of them are paying less for their mortgage, including homeowner's insurance and property taxes, than they were renting. One gentleman was paying $900 for rent, and his mortgage is $680 right now, and that's including principal and interest, property taxes and homeowner's insurance."

But what about the bottom line? Illiana, like most credit unions, really has two bottom lines: the financial well-being of its members and the well-being of the credit union itself as a financial institution. The program has been successful on both counts. "The numbers have shown," says Shaleva, "that the risk is small compared to the reward. We've got a lot of happy members, and we have happy staff. The morale has changed a great deal because they can offer something to people that need it rather than turn them away." Staff enjoy working for Illiana because they feel like they are making a difference in people's lives. "Credit unions can do that," Anna continues, "They can put the focus where it belongs: on the member. ... Our focus is on the member. It always has been, and it always will be. And that's what I enjoy about my job."

Marisela Zambrano, director of business development at Illiana, echoes this sentiment: "I take pride in helping and hearing the stories about people and how we made a difference." In fact, Zambrano notes, there has been an increase in the number of people applying to work at Illiana: "people want to be involved with helping the community. They see what we do, and they want to be a part of it."

A Great Change

With the framework for the loan program established, Carmela Osornio, Loan Officer II, who speaks Spanish and grew up in the Chicago Heights area, was charged with publicizing the program and served as the sole loan officer. She was nervous at first about the challenge, but "as soon as I started to get more into it and more involved, I said "I think I want to do this. This sounds so cool. Knowing that I was able to help out was an amazing feeling." One of her first presentations was to the employees of Chicago Heights Steel.

When Samuel first visited the Chicago Heights branch and sat down with Osornio, he wasn't sure what to expect. He had compared the rates being offered for home loans by multiple institutions, including his current bank, and was not encouraged. He had also found it difficult to get his questions answered at the other financial institutions he'd visited. At Illiana, he was in for a pleasant surprise. "They explained very well," says Samuel, "And when I came in, she explained to me again everything that she explained to [my wife]. So, I say, 'These people have the time to do these things.'"

The digs were not fancy. Osornio didn't even have an office. She simply stepped out from behind the tellers' counter, shook hands with Samuel, and showed him to a seat in the waiting area, where she spent the next hour going over the terms and conditions of the loan program in detail. The details? Clear and reasonable approval requirements that he knew he met, a rate that was 4% lower than the rate offered by his current bank, almost no closing costs, and a sense that Illiana was the kind of financial institution where he would feel valued.

A few weeks later, Samuel received his loan, for $80,000, at a rate of 4.88%, and he and his wife moved into their new home shortly thereafter. Being a homeowner, Samuel says, "is a big change because you feel free in your house. ... My wife likes to decorate the house, and now she can do everything [without a landlord telling her not to], so it's a big difference. It's a great change."

"I Need Rollerblades"

One question Illiana had early on was how to advertise the program. They need not have worried. Word spread quickly about the program, from neighbor to neighbor, among friends and family and coworkers. And aside from Osornio's initial site visits to workplaces like Chicago Heights Steel, Illiana did almost no marketing of the program initially. It turned out that a lending program that offered competitive rates and did not require a social security number, that was based on underwriting requirements that took into account members' whole stories to evaluate risk, and that was explained by staff who took time to carefully explain the program's requirements essentially marketed itself.

Marisela Zambrano describes how she was cutting the grass her front yard when a new neighbor came over to introduce himself. Marisela was wearing an Illiana t-shirt, and the man said "Hey, you're the ones who lend to the ITIN market!" The man told Marisela an all-too-common story about how he had been taken advantage of by an auto dealer who had tricked him into paying a $7,000 financing fee for a car that he had paid for in full and in cash. She explained that when Illiana issues an auto loan, they make sure to research the value of the vehicle and that there are no hidden fees or scams like this. She gave him her card and told him to stop in and see how Illiana could help. "That's why when [people] find out about Illiana, word of mouth spreads so quickly," Marisela says. "Illiana provides an option. A good option."

In fact, word of mouth brought in more business than Illiana could handle. Samuel's loan was among the first of 65 loans that Carmela Osornio would approve through the ITIN lending program, reaching the $10 million cap in six months. Carmela was busy. She remembers telling a coworker, "I think I need rollerblades."

The hard work paid off. "The equity position of our members is better than it was before, and we're providing a service to the community," Jim Henmeuller points out. "We've had more defaults [on loans to members] with Social Security numbers" than with the ITIN lending program.

Smelling the Roses

The success of the ITIN lending program has not only changed the lives of members like Samuel, it has revitalized the credit union, bringing in more members and contributing meaningfully to Illiana's financial well-being. The Chicago Heights branch has been remodeled. Carmela Osornio has an office now! It would be a stretch to credit the ITIN lending program exclusively for the success Illiana has had in recent years, but it has clearly played an important role. Without the program, says Osornio, "this [could] have just been another closed-down credit union or another [vacant] building in the area, and that was the whole purpose, to revamp this branch and let it shine."

Like Samuel in his job at Chicago Heights Steel, the staff at Illiana work hard but enjoy their work. "I feel I'm relaxing when I'm working," says Samuel, and it is not uncommon for Samuel and his coworkers to stop by Illiana's Chicago Heights branch after work. They come to deposit their checks and make payments on their loans, but they also come to chat with staff and with one another about their lives. There is, as both Samuel and Anna Shaleva describe it, a family feel to these interactions, a bond that, as Shaleva puts it, "Once you establish it, it's not going away."

If you're in the neighborhood, you might see Samuel in his front yard. Chances are, he'll want to show you his roses. He'll probably also be happy tell you where you can get a competitive loan with a credit union he trusts.

What happens next?

Keep this momentum going:

  1. Download the Reaching Minority Households Incubator research.
  2. Read the other credit unions’ stories about their ITIN Lending success on the tabs above.
  3. Bring the ITIN Lending Program home to your credit union with the ITIN Lending Implementation Guide.