Subprime Market Still Ripe for New Entrants, Mark Floyd Says

Despite the specter of rising delinquencies and losses in the auto finance space, longtime subprime financier Mark Floyd believes the market is ripe for new entrants.

“If I were originating loans today, I’d think it’s a great time to enter the market,” said Floyd, who served as chief executive of Exeter for a number of years but now leads Horizon Digital Financial Holdings Inc. “When competitors are pulling back, it’s not a bad time to come into the market and be selective with what you buy.”

A number of lenders have pulled back in the subprime space due to rising delinquencies and losses, but that’s relative to how much lenders tightened up following the financial crisis. Floyd sees few signs that the “sky is falling,” he told Auto Finance News.

For example, 2017 yearend subprime delinquencies 30-to-60 days past due fell 6 basis points compared with the year prior, while long-term delinquencies remained flat, according to 40 lenders in the 2018 Non-Prime Auto Financing Survey.

Additionally, subprime lenders whose delinquency rates increased did so by an average of 22%, while lenders who experienced a decrease in delinquency rate did so by an average of 27%.

“Some of the lenders had to tighten up more than others because maybe they got out of their skies a little bit with credit, but they pulled back,” Floyd said. “Part of the bigger issue I see today is some of the warehouse lenders have tightened up because of the press around auto delinquencies and losses, and that’s created a lot of smaller lenders. Still, access to capital for the well-established companies on the securitization market has been really stable.”