DALLAS – Lenders need to rethink their approach to repo scorecards and put an emphasis on asset value to increase their return on investment, Primeritus Chief Executive Mike Thomas told attendees at the ALS Resolvion Innovations in Recovery conference last week.
Some of Primeritus’s clients have begun to reap the rewards of a value-driven approach, but only four out of 1,500-plus lenders have caught on, Thomas said. So far, two of the lenders that have shifted their scorecard focus have received a 5% and 7% lift of asset value over the traditional model. Approximately, that’s an additional $400,000 on a portfolio of $8 million and $180,000 on a portfolio valued at $2.5 million, respectively, Thomas said.
As a forwarder, Thomas said lenders are concerned with three major things: compliance, recovery rates, and administrative logistics between lenders, forwarders and agents. “There hasn’t been too much change in that regard, except for an increased focus on compliance, but are you getting the most bang for your buck on your repossession dollars?” he said.
Loss mitigation is largely seen as a cost inside the institution, Thomas noted. “Everyone’s up and about saying this is too expensive, this is too expensive, but there’s an alternative that if you don’t pick up the vehicle, it’s even more expensive and that’s the challenge,” he said.
Yet, at the end of the day, some cases are a lot more valuable to lenders than others, Thomas expalined. Repossessing a vehicle worth $50,000 is different for the lender than repossessing three cars worth $5,000, Thomas explained, yet the exact same effort goes into both cases. “The current model doesn’t really make that distinction and therefore doesn’t provide any incentive to your vendors to put more effort and resources to cases that are more valuable to you,” Thomas said.
In fact, if Agent A picks up one $50,000 car and Agent B picks up three $5,000 cars, Agent A has returned more money to the lender, but on a traditional scorecard, Agent B would be scored better. “But you’re going to tier [Agent B] and give [them] more volume meanwhile [Agent A] actually did a better job for you if what you’re trying to do is mitigate loss, trying to get the most dollars back,” Thomas said.
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