Lender Life


A Philadelphia bank starts lower-income lending program

By Phil Britt

Most of the financial services marketplace clamors to serve high-income customers. Jay Sidhu, chairman of Customers Bank in Wyomissing, Pa., an affluent suburb of Philadelphia, appreciates the intense interest. His $3.7 billion-asset community bank offers appointment and concierge banking programs to draw the business of high net worth customers, including wealthy business owners.

However, as part of a new expansion plan, Customers Bank started an affordable lending program in October that’s specifically aiming to lend as much as $300 million to lower-income homebuyers and small-business owners in south and north Philadelphia. “We believe there is a tremendous opportunity for community banks to serve customers in these neighborhoods,” Sidhu says. “We want to develop products and serve these communities in a profitable fashion.”

Citing his experience with a similar lending effort for lower-income borrowers at another bank, Sidhu says Customers Bank’s homebuyer and business lending program is expected to be profitable. One important reason, he says, is that the Philadelphia’s low-income market area is underserved, with many banks intently competing for the city’s affluent borrowers.

Critical to serving lower-income customers profitably is the bank’s 30-day education program to teach potential borrowers money management and budgeting skills, including the financial responsibilities that come with having a mortgage and owning a home. Borrowers have to complete the education track to qualify for the bank’s affordable lending program.

The bank’s lower-income outreach also includes a deposit gathering and scholarship program.

Jay Sidhu, chairman of Customers Bank in Wyomissing, Pa., offers five tips for community banks seeking to start their own affordable lending programs:

  1. Learn the market and where the low- and moderate-income borrowers and prospects live.
  2. Hire talent with the right skills and offer appropriate products and services to serve the market.
  3. Move steadily and cautiously to properly manage risk, emphasizing proper character evaluations of borrowers.
  4. Require that potential borrowers participate in homeownership education programs.
  5. Reach out to community organizations to market the program.

Five employees run Customers Bank’s affordable lending program, which is being marketed by local churches and other community organizations. Borrowers in the program receive various loan options to get them into homes. While adhering to sound lending policies, the bank has leeway in providing loans slightly below market rates or with low down payments because it keeps all of the program’s loans in its portfolio, so there’s no need to meet rigid secondary market guidelines.

“We lend on the basis of character, commitment and responsibility,” Sidhu says.
He adds that in his previous experience with an affordable lending program, there were only three delinquencies in 500 mortgages, which he attributes to a similar education component.

Sidhu points out that one of the greatest needs for homebuyers in the program is gathering sufficient savings for a down payment. To help overcome the obstacle, the bank is working with a Federal Home Loan Bank of Pittsburgh grant program that helps with various affordable housing needs, including down payments. The bank also works with community organizations for down payment assistance, a program similar to one the bank runs in Redding, Pa., where a community group organizes various fundraising programs to provide borrowers with help to make their down payment.

In the first three months, the bank had already achieved half of its goal for the total program, according to Sidhu. He expects the multifamily and small-business lending to be profitable, with the residential lending program to be “marginally” profitable.
“Not every single loan will be profitable, but the program as a whole will be,” Sidhu says.

Phil Britt is a writer in Illinois.