Tidewater Finance Co. has continued to build out its internal audit and compliance team despite waning interest in the subprime auto space from the Consumer Financial Protection Bureau, Kroll Bond Ratings reported in a pre-sale report for the lender’s latest securitization.
Specifically, Tidewater created compliance manuals adopted for use by the legal department and implemented a learning management program, which Kroll said will allow employees and supervisors to track learning objectives and progress throughout the year.
“The objective of both programs is to assure Tidewater Motor Credit is maintaining compliance with new state statutes and the CFPB,” according to the pre-sale report.
The transaction itself is backed by a pool of $130 million in subprime auto loans, down from $143 million compared with the lender’s most recent 2016 issuance. Tidewater’s balance of loans is higher than similar issuance from peers such as Flagship Credit Acceptance and First Investors but much smaller than the biggest subprime players.
The issuance also shines a light on the private company’s originations strategy, which is increasingly reliant on bankrupt customers who have had their 341 meeting of creditors. In 2017, Tidewater originated $90 million worth of auto loans up from $72 million the year prior, and 72% of those loans were made to consumers in bankruptcy.
“In Q4 2015, management reduced originations based on increased competition and negative industry trends, as evidenced by lower margins, increased term, and higher advance rates,” Kroll noted in the report. “Since Q1 2016, the company has been increasing originations in the 341 product and recently discharged bankruptcies, while reducing originations among traditional subprime borrowers. This is because TMC has experienced superior performance of 341 product loans relative to traditional subprime loans.”
The rating agency anticipates a cumulative loss rate between 10.8% and 12.8%. Tidewater makes loans for 872 participating independent and franchise dealers in 35 states.
