So we covered a lot and we went fast. Are there any questions or anything that I can clarify for people?
(Leslie): This is (Leslie) in Union, South Carolina. On the ratio is it necessary to do a ratio for debt to income, expense to income and a total ratio?
Cheryl Fatnassi: Well it depends on the lending institution, what their policy is. We hear - we run all those ratios but we only use the debt to income ratio on a loan to value. So just depends on what their underwriting policy is.
(Patty): One of the things that we do in Wisconsin that I think has been very helpful and kind of gives the picture at least for our consumers who often times are very low income is our board has asked for something that - and we underwrite our own loans so we’re the ones in charge. And we look at the debt to income before the loan and then we look at the debt to income after the loan and what is the percentage difference.
So you can kind of get a sense of it’s very different if someone’s debt to income that before the loan they had $500 left for all their other incidentals. And then after the loan if really it changes that they only have $200 discretionary that’s a huge difference versus someone who may have - if they have $100,000 as their income it might not change all that much as far as dollar amount.
But it’s an interesting thing to just see kind of the difference between here’s where they were before our loan now, we’re asking them to make a payment that’s going to be so much, but how does that really affect their bottom-line. And so now what do they jump to as far as the debt to income after the loan with the payment.
I think it’s been very helpful for their board to see it because in low income percentages sometimes don’t mean a lot of but when you really talk about dollar amounts it does and it can have a bigger impact. And also asking people, you know, how do you live on what you live on because I think we see a lot of people who are on just SSI and for most people they would look at, you know, how do you even survive.
And people are very creative about how they get by and they have figured out how to make it on $674 a month and it - and I think that that plays into the picture as well with this unique population that often times are working with.
Cheryl Fatnassi: That’s a very good point. And I think understanding where the rest of their income is going can help you. Also sometimes you might decide that 40% of their income is too high for this borrower. You know, if they live on a very small income and you know that they have a huge amount - large expenses for medicine, you know, you really have to coach that borrower and talk to them to really understand how are they going to make these payments.
Because you’re trying to help them with whatever the device is that you’re getting. You’re not trying to put them in a situation where they’re going to be, you know, worse off.
(Rick): This is (Rick) again. I wonder if I could just ask a question of the group. On the affordability and the debt to income ratios what are people generally looking for in the programs for a debt to income ratio?
(Patty): In Wisconsin it’s usually 50% can even be higher than that, depending on the situation.
(Robert): In Nevada we’re looking at a maximum of 55% after the new loan payment.
(Patty): Yeah, that would be very similar to Wisconsin.
(Tina): In Florida we do 50% including the new loan payment amount.
Cheryl Fatnassi: In Vermont we do 42% and then we do 45% if they have compensating factors, meaning other things that would give strength to the loan.
(Leslie): Does anyone use a total ratio? Like if you add your debt and your expenses divided by your income, does anybody look at that? Does everybody do debt to income?
Cheryl Fatnassi: Could you say that one more time?
(Leslie): Okay I understand debt to income, this is (Leslie). But does anyone look at the total ratio? Your total - I mean you have money going out, your debt and your expenses, and you have money coming in, your income, does anybody do a ratio based on the total paying out with income coming in? Does anybody do that?
Cheryl Fatnassi: So you’re talking about their whole budget of all their monthly expenses?
Cheryl Fatnassi: We only do that with our accounts in here, we don’t do that with lending because we usually don’t have all that information.
(Tina): (Leslie), in Florida we look at that. Especially for people who are straight up social security disability. Just because many times once we get done calculating they’re in the negative with, you know, things like medication and food and bus fare. When you’re only working with such a little amount we think it’s important to look at the whole picture for really, really low income people.
(Leslie): Well that was actually the basis of my question because in South Carolina we have, okay, normal credit scores are less than $500 so we have really, really poor people that apply for our loans. So it makes it very difficult for us.
So we do look at the total ratio but, you know, we’ve gotten bits of information from so many sources, I was just curious what the consensus was. Does anybody look at the total because our people, most of the applicants we have are on SSI or SSDI. Most of them don’t work so they have a complete fixed income.
Man: Sometimes it’s not so much debt as it is as different monthly expenses that they have to spend their money on.
Cheryl Fatnassi: Right.
(Leslie): So we didn’t know, you know, what a general percent would be. We look at 50% still, I mean, with the total ratio, 50 to 60%. If you go much over that we’re kind of raising our eyebrows but we don’t know if we’re being too stringent on that ratio.
Cheryl Fatnassi: How do you use their credit score as a piece of the decision-making process? Is it just kind of a piece of information or is it something where - or do you go behind it and say well - because the 530 came from lates or collections or something and so how do you go in and weigh that against their loan?
Man: We try to just look at the whole picture. We don’t - we don’t look at just the credit score. If we looked at only the credit score we would just get a big red stamp that says no and we wouldn’t make any loans. So we try to look, you know, try to give them the benefit of the doubt. We look at the credit score and we look at the trends.
We look at the debt to income, we look at the excess income. We try to look at everything in this to see if, you know, at the whole - as close as we can what the whole picture is and see, you know, make - just give our loan panel a good piece of information where they can make an informed choice and see if we can give them the benefit of the doubt.
(Leslie): Our financial institution here, the way it works just for us, we’re 100% guaranteed on all our loans so they don’t care. We’re going to guarantee every loan 100% currently until we can get that fixed or changed. So our lending institution doesn’t care. So we have to decide, you know, between us what’s good and what’s not good and are they at risk and are they not at risk.
So I was just curious if there are anyone that uses the total ratio because we do use all the ratios but we ultimately look at bottom line can they afford to make a payment.
Man: That’s kind of the way that our lending institution as far as what they kind of - what’s more important to them is excess income or discretionary income, you know, whichever you want to call it. But that’s what they look at a little bit closer than debt income ratio or any other ratios.
Woman: Ratios are good to have, we just want to make sure that we’re not missing something here.
Cheryl Fatnassi: Yeah, one of the patterns that we’ve seen -- I don’t know if it’s being seen in other parts of the country -- but one of the common things that seems to have happened, and we work with a lot of disadvantaged populations, is that as people found that their incomes went - didn’t cover everything that they needed and we had a severe problem with the fuel prices rising, a lot of people - they had to heat their homes because they were in the North when those went up, it just took a huge chunk of their bills or their monthly income.
And so people started using credit cards to - not just for little fill-in gaps but they used it to buy medicine and they used it to buy food. And then they maxed those out. And then all of a sudden they had no more ability.
So a pattern I think you want to match for also is where people seem to be able to make their monthly payment but that credit card is getting larger and larger and large and it’s getting close to the limit. Because when it hits the limit then what happens is the bank isn’t going to give them an increase on that and they were really using that, they really had a shortage every month of $100 or $200 that that credit card was filling for them.
And so we have some of those situations where we’re trying to help people work their way back out of those to get them down so that they do have some discretionary income. There’s also something called a care card and I think you may start so see those on people’s credit reports. And they’ve been given by doctors or even veterinarians. Many of the people we work with have pets and they care deeply about them and they take them and give people large vet bills.
Notice they will get this care card which is basically a credit card and it has a high interest rate and then all of a sudden they’re encouraged to use that and then that becomes a bill that they’re really not able to stay on top of also.
(Patty): You know, I think that what you’re dealing with is very common as far as for not knowing where is that line. I know in Wisconsin we - 80% of the consumers who come to us are not - do not work. They’re on SSDI or SSI. And it is tricky to kind of try to figure out who is - where is that line. Is it at 50, is it at 60% debt to income, what else do you need to look for, what are people who really are going to pay or not pay.
Even though on paper most of them look like they shouldn’t be able to pay. And I mean our board has taken the sense of really taking risk and knowing that this is a unique population that we’re serving and that they are not going to look the same as what a bank would normally see. And in Wisconsin we do 100% guarantee as well. But our boards is the one who makes the decisions which it sounds like you have the same thing in South Carolina that your board is making that decision of whether or not to grant the loan.
And what we have found is that often times people will rise to the occasion. Because it is something that is important to them, that wheelchair, that vehicle with a lift, and then sometimes events just happen. That, you know, whether someone dies or the spouse gets - becomes ill as well or other things. But I don’t - we’ve been doing this for seven years, I think, and we haven’t figured out a magic formula for that.
Some loans that look great when we started them have gone south and some of them that we didn’t have a lot of hope for, you know, they paid off and came back for another one. So I don’t think there is something magic. I would just encourage you to take some risk and defaults are not a bad thing. It shows that you’re taking risk where - with consumers where a bank would not.
Cheryl Fatnassi: Other questions or other items that we didn’t cover?
Woman: I did have one question for you Cheryl. As far as for when you look at the debt to income with a mortgage and their credit card and so forth. Do you also take 4% of their collections that may be liens or may be, you know, kind of whatever is all in there? Whether it be credit cards that have now gone into collections? Or do you just look at the mortgage debt, the rent or whatever and then their credit card or loans that they have out there as their monthly payment versus a percentage of the collection.
Cheryl Fatnassi: We - any collections that they have we basically put them aside in a category whether they’re medical or either kind and we sit down with the borrower and we try to negotiate a payment plan wit those creditors to get them resolved. It may take them ten years to do it, it may take them five. But the counseling staff basically negotiates settlements and so we kind of put that aside in a separate category and then we say, you know, how much can this borrower afford to pay monthly to try to recover these.
And if it’s $50 a month that we think is available then we try to negotiate a payment plan across all creditors that they would be paying it back. We combine all of those charge-offs and collections. We don’t necessarily finance it.
But we combine it into a product that’s called a tracker and then basically as the borrower remits to us every month we remit out to those creditors based on that payment plan. So we are essentially helping them get their credit cleaned up over time. In many cases most of those creditors will also accept substantially less than the original debt amount. So that’s part of what’s agreed to.
And generally they’ll take them off their credit report as long as they maintain those payment plans.
Woman: Okay. So you do that in addition to actually doing the loan for the assisted technology that they come to you for? Or is that kind of like they have to do that first and then they can come back and actually apply for a loan?
Cheryl Fatnassi: We do it simultaneously. So we generally are looking to see - depends on the collection. If you have one little thing then we’re going to work with you to help you get that resolved for that creditor. But if you have a whole serious of them and there’s a pattern we really want you to get in the habit of getting those resolved because we don’t want to be the next collection on your file.
Woman: Okay, okay.
Cheryl Fatnassi: So we really try to say how could this have gotten worked in your budget. You know, if there’s a lot of credit card debt with interest, we don’t care about the interest, we just care about the amount that they charged originally and paying kind of a reasonable amount back.
We have an arrangement with a hospital here. That they’ll actually reduce the amount of debt based on what we’ve - when we review the financials for the borrower we feel the borrower can really pay back and they’ll accept that and reduce the amount that’s owed. So for us we set up a payment plan with them as part of their loan.
(Rick): Are there any other questions? All right, well it’s been a little over an hour at this point and I think it’s been a very informative conversation. Cheryl let me thank you again for informing us and for taking the time. And thanks everybody for calling in. Before we leave though let me just quickly ask, there was an evaluation form that was attached also to the email that you received with the PowerPoint and such. If you wouldn’t mind filling that out and returning it to me after we close out.
But thank you all and...
Cheryl Fatnassi: Thank you.
(Rick): And have a good rest of your day.
Woman: Thanks, bye-bye.