Gaps in data verification likely contributed to missed double-pledging of assets at Tricolor Auto, prompting changes at rating agencies, Larry Chiavaro, president at his consulting company LC Advisors Group, told Auto Finance News during a special recording of the Weekly Wrap podcast.
Chiavaro also served as executive vice president and co-founder of First Associates Loan Servicing from 2010 to 2021. That company was rebranded as Vervent in 2020. The backup servicer took over Tricolor’s portfolio following the company’s Sept. 10 bankruptcy filing.
Tricolor is under investigation for allegations of fraudulently double-pledging assets to warehouse lines, with former Tricolor Chief Executive Daniel Chu and other former Tricolor executives facing a federal indictment alleging they committed fraud at the company.
Wilmington Trust serves as the trustee and custodian for Tricolor’s asset-backed securitization transactions. The trustee, Chiavaro says, was in charge of matching the loan tape data to fields in the loan agreements and addressing any mismatches. The issue, he says, is that much of the process is done manually overseas — not just Tricolor’s case but in general. The custodian agent, verification agent and backup servicer did not upload every one of the loan tapes into a platform to match the data, Chiavaro says.
“If somebody would have done that and said, ‘Wait a minute here, we’re going to take Securitization 1 and we’re going to take Securitization 2 and we’re going to do a quick check,’ they would have caught this [double pledging] five years ago,” he said. “That’s the real issue.”
Wake-up call
The Tricolor bankruptcy served as a “wake-up call for the industry” and has spurred changes, Chiavaro tells AFN. In situations in which the data is not updated frequently, he says, it may take 90 days to transition the loan servicing to the backup servicer in the event of a transfer.
“In 90 days, there are a lot of issues; cash flows run off,” Chiavaro says, adding that because the data changes within that time frame, it can take months to get a servicer report. “If you’re getting monthly data tapes, [the] data changes. You need nightly data tapes. … If you don’t have the data, you can’t take it over.”
Some rating agencies have limited backup transitions to a maximum of 30 days, said Chiavaro, whose tenure includes stints at servicing companies and who advises companies in the fintech and consumer loan spaces.
“Maybe the message is getting out there,” he said.
In this special episode of the Weekly Wrap, Auto Finance News Founder and CEO JJ Hornblass joins Chiavaro to discuss the collapse of Tricolor Auto, backup servicing operations and risk management.
Subscribe to “The Roadmap Podcast” on iTunes or Spotify or download the episode.
Auto Finance News will present multiple invaluable events for industry professionals in 2026, starting with Auto Finance Summit East and Auto Finance Capital Summit in May. To see event agendas and register, visit autofinance.live.
