Myth-Busting: Poor People are Risky / Cash Payers Are Risky

[The Straight Story]

Myth-Busting: Poor People are Risky / Cash Payers Are Risky
I want to do some myth-busting around the notions that:

1. Poor people are risky
2. Cash payers are risky

To make it real, I want to share a lending story about a woman who is small in stature and had very meager beginnings, but who is a giant in terms of faith and determination, Her name is Estella, and I actually dedicated both of my books to her and she has been a lifeling mentor to me. Estella was raised in poverty in rural Tennessee, and her parents were share croppers. She had to overcome many hurdles involving economic hardship and access to education.

Estella's life story is an inspiration, but the focus here is the challenge she faced to qualify for a loan. Those were the days when credit scoring was dawning at Fair Isaac and Company, but scoring's use did not become more widespread until a decade later, and almost exclusively for credit cards, and some installment lending, but not mortgage lending. Make no mistake, when she applied for a loan, Estella was more than likely evaluated using the long standing and widely accepted principles of the 5 C's of Credit, namely Character, Capacity, Capital, Collateral, and Conditions. Furthermore, Estella was not reduced to a number, rather she recounted how she sat in the branch, face-to-face with a loan officer, with whom she shared her story, her faith and determination, her qualifications, and her dream of owning her own home.

I first met Estella in 1959 when my parents employed her to help out in the home. In 1961, at age 47, Estella decided to take a big risk and buy a home. Everyone advised her against it, saying it was not a good idea, and that in those days an unmarried woman, especially being black and older, had too many forces working against her. But they did not know Estella and how much she wanted that home, which she saw as her security in old age and a chance to own a piece of the community in which she had decided to live. Estella possessed deep faith, and when she looked for a place to live, she called on The Lord for help. How she knew she had the right home is another story by itself, but suffice it to say she found the right one. It had a nice yard in the back and was close to a bus stop.

Estella always paid cash for everything. She had no record in the credit bureau, no formal education, no permanent job, but steady domestic work for several families and no debt. Her wage was a dollar an hour and she had to pay her own way to get to and from work. Her life savings of $4,700 made up the 20% down payment on a $21,000 duplex home in San Francisco, leaving no financial cushion. She applied for a 15 year fixed rate loan. Here’s how she rated at loan closing: her persistence, strength and faith were all very strong! Her other ratings were: credit history – none, capacity – poor, capital–poor, collateral – good, conditions – good. Based on judgment, the lender decided to take a chance on Estella and she got the loan!

....

Fast forward:

In 1974, Estella paid her mortgage loan off in full (two years early at age 60).
In 2005, Estella sold her home for $1.4 million, with zero debt.

Today Estella is a millionaire at age 95.

http://blogs.sas.com/fairlending/index.php?/archives/89-Myth-Busting-Poor-People-are-Risky-Cash-Payers-Are-Risky.html

[Edweird]

1. As a (former) contractor, I will attest to this. All the lower income customers paid on the spot.

The only customers I ever had trouble with were rich pricks. They would try to get everything for free.
One tried to stiff me outright. However, once this one in particular understood that I had no qualms whatsoever about hooking a chain from my newly completed work to the back of my 1 ton and dragging it the road with me when I left, he paid up. In full.