Access to Capital

All Subprime Lending is Not the Same

By most definitions, Self-Help is a subprime lender, making home loans to borrowers whose credit, income, or other circumstances place them outside the bounds of conventional loans. Our secondary market for home mortgages increases the capacity of other lenders to serve these borrowers, who might otherwise end up in predatory subprime loans. The term subprime has taken a beating lately, and has even become synonymous with the foreclosure crisis. Along with the connection has come a perception that subprime lending is in and of itself a bad thing. But the majority of low-income borrowers facing foreclosure are victims of loose underwriting and predatory terms that made it easy to get people into loans, but did nothing to help them stay in their homes. Subprime lending is not the problem; reckless underwriting and abusive loan terms is.

Home Lending

Self-Help makes fair loans at reasonable rates to the same subprime market targeted by abusive lenders, but our mission is to build wealth and ownership for our borrowers, not to exploit the families with predatory fees and interest rates.  The people we lend to have less cash, savings and collateral. They likely have a lower credit score and perhaps medical collections to contend with. Because they may be living at the edge of their financial means, they may fall behind on their payments more frequently than wealthier borrowers. But we work closely with them to help them catch back up. In fact, the loss rate for the home loans we originate is only 0.26% over the past five years. Above all, our borrowers have a strong desire to be part of the American Dream, as well as the will and the ability to repay their loans.

Commercial Lending

Our commercial lending supports entrepreneurs seeking to create or expand a small business or nonprofit. Their enterprises provide jobs, anchor neighborhoods, and communities and inspire others to reach for prosperity. Our commercial loans range from a few hundred dollars to millions of dollars, but in each case at least one factor put the loan outside the range of conventional lenders.

We don’t seek to serve every commercial borrower. We refer those whose good credit or experience qualifies them for better terms to a traditional bank. And we often provide intensive technical assistance to those who are not yet ready to take out a loan, helping them along the path toward owning a business. But for those in between, Self-Help provides access to capital and opportunity to build a legacy of business ownership.

Avoiding Foreclosure and Liquidation

Our approach to delinquency for both commercial and mortgage borrowers differs from that of many conventional lenders:

▪    We keep our mission at the forefront. Our goal is to keep the business running or keep the borrower in their home.

▪    We reach out to borrowers who are falling behind sooner than the norm, which allows for more time to find a workable solution.

▪    We offer a range of options from modification of the loan terms to temporary repayment plans that keep payments manageable for the life of the loan.

▪    We listen to what our borrowers have to say, understanding that there are many factors that can contribute to delinquency. We work with our borrowers irrespective of the reasons for their delinquency.

As a result, very few loans end in borrowers losing their homes or businesses; Self-Help's historical loss ratio is low, well below 1% per year. But we are a lender and not a charity, and we must maintain our financial soundness in order to continue our community development work to help other families and entrepreneurs. So we tell our borrowers very clearly up front that, if necessary, we will foreclose to collect on their loan if they fail to pay.

Fighting predatory lenders does not restrict access to credit. Self-Help is not opposed to subprime lending. In fact we are dedicated to financing the homes, businesses, and community centers that strengthen low-wealth communities, and to demonstrating that supporting them is a sound investment. We are opposed to abusive fees and terms that unfairly extract wealth from these families. And we hold ourselves to the same high standards we seek in the industry as a whole. People of all incomes are flooded with opportunities to obtain credit – payday loans, fee-based overdraft loans, and credit cards to name a few. The issue that motivates our work now is not just providing access to credit, but making sure that the terms of credit help people achieve greater financial independence. That dual purpose is reflected in our mission statement: “Creating and protecting ownership and economic opportunity for people of color, women, rural residents and low-wealth families and communities.”

A Good Investment

Self-Help was founded in 1980 to provide credit to people who had long been denied the opportunity to buy a home or build a business. Over time Self-Help, along with community development financial institutions, nonprofit lenders, and Community Reinvestment Act participants, have made good loans to families, individuals, and institutions that fall outside the mainstream. These borrowers prove every day that making fair loans at reasonable rates is a good investment. We thank everyone who invests in us and our borrowers for their support.