Why hasn’t the buying and selling of auto loans been automated yet?
Why can’t we create a product that monitors a lender’s portfolio and notifies interested parties when loans have been added that they might be interested in purchasing, based on a pre-determined set of criteria? Potential buyers can set up profiles with their particular guidelines, such as LTV rate, APR, seasoning, vehicle information and geography, and receive email alerts when loans matching that criteria are found. The potential buyers can click on a link in the email, log into the service, and then submit an inquiry with a potential purchase price.
As I try to stay on top of what’s going on in auto finance, I see a lot of individuals and companies posting notices about their interest in buying or selling loans. I see a few companies that have tried to automate the process of matching buyers and sellers. But mostly, I don’t see much. And I think that’s the way a lot of people like it. The secondary market for auto loans is very fragmented and private, making it difficult to find potential business partners. To me, that screams opportunity.
The potential volume of alerts would have to be managed in some way. There are something like 35,000 cars sold every day. And if a buyer is looking for loans that are at least six months old, there are a lot of loans that reach that point on a daily basis. The service is worthless if buyers receive 1,500 emails alerting them to new loans available to be purchased. The criteria would have to be narrow enough and searchable so that the buyers can find the loans they are looking for with only a minimal amount of effort. If the service is akin to driving around to seven different malls to find a prom dress, then nobody is going to use it.
Technology exists to determine the value of an auto loan. Technology exists to search a database for entries that meet certain criteria. Technology exists to send email alerts automatically. Isn’t this service just a matter of putting together all these pieces and putting a price tag on it?
In a lot of cases, finding buyers and sellers is more luck than skill. What’s stopping the industry from traveling down this road?
Monica — thanks for the information about DebtMarket, but let me clarify my point. That’s not what I’m looking for. With DebtMarket, people still have to “post” portfolios of loans available for sale.
What I am looking for is a service that handles the “posting” of loans automatically. Nobody would have to create a pool and post it on a site. The service would be embedded in the servers of the company selling the loans and would operate automatically, without the need for any manual labor. Hence, as a potential buyer, I would be notified in the event that you, as a potential seller, had loans that meet the criteria I selected as being interested in purchasing. Communication and an agreement would flow from there.
I appreciate your comment.
Mike – I got really excited when I read your post and was so over caffeinated while typing my response that I failed to mention one of our most important features that speaks to your point. 😉 Our members have detailed profiles with the particular guidelines you mentioned. In addition, buyers are alerted when loans of interest to them are for sale.
We are also moving toward more sophisticated alerts for sellers when buyers submit their requests to our seller market.
Also, we share your big idea – we have been working with other service providers (loan origination software providers, DMS systems, etc) with whom we could integrate to eventually create a much more seamless model for regular buyers of loans that you are talking about, but with a lot of flexibility – some buyers want flow agreements to their specs and private marketplaces, and others buy – and turn around and sell – more sporadically.
Thank you for starting this dialogue – it has been very helpful to me already! Look forward to hearing more from you and everyone else.
Mark, do you really think such a standard is do-able? I recall the process that went into making Mismo, and it was a massive endeavor. I’m not sure auto finance is large enough to shoulder such a multi-year initiative, assuming there is the same volume of back-and-forth that went into the Mismo data standard. Remember, auto finance is historically a less cohesive industry than mortgage to begin with.
I absolutely believe that standards are do-able. While I don’t necessarily agree that auto finance is less “cohesive” than mortgage, it is true that it’s not very well connected at the mid-market level, especially amongst technology vendors. Having personally been deeply involved in really complex, very broad standards development (I was on the Oracle team for XML development as a standard, for example), I know that standards can have have different types of adoption cycles. Not everybody needs to jump on board right away, which is what I would expect for this type of standard. My company is working on this with our partners and we have a presentation scheduled for the NAF board in June. Getting a well-respected industry association and small cadre of technically capable vendors behind standards can certainly get the ball rolling.