UNCASVILLE, Conn. — Lenders and repossession agents created an interesting paradox at an annual conference held here this week.
The conference, sponsored by RSIG, is a gathering of nearly 300 agents and lenders from across the nation.
Lenders were optimistic about the future of their business, citing higher origination volumes and lower delinquency and default rates. Ally Financial, in one case, noted that repossession rates were at all-time lows. Ally, Chase Auto Finance, and Westlake Financial all reported higher loan-origination volumes.
Chase and Ally also noted that they have expanded their nonprime operations.
While lenders reported positive indicators about the short- and long-term future of the business, repo agents remain concerned about the state of their industry. Agents face lower fees, increased insurance costs, and fewer repossession orders. Agents aslo lamented that lenders were providing them with less information to use in locating and recovering defaulted collateral.
Anecdotally, a number of repossession agents expressed that the number of repossessions they are performing has dropped more than 20% during the past 18-to-24 months.
The paradox between the sentiments of lenders and agents is not altogether unusual. The ups and downs of the repossession industry generally trail the cycle of the auto finance industry. When loan volumes increase, delinquency and default rates tend to increase in the 12 months following the increase. The same is true when loan volumes decline; there is a corresponding decrease in repossessions 12 months down the line.
So as lenders increase originations, especially nonprime loans, delinquency and default rates are expected to increase. Whether the higher number of repossessions is enough to offset the lower fees paid by banks to agents will be a key determinant of whether the repo industry rebounds or not.
In the meantime, lenders and agents are searching for other means of keeping expenses down to offset the declining revenue.
Agents are hoping that an increased usage of technology tools will help lower costs to offset reduced revenue. RSIG, for example, is rolling out its National Agency Management System (NAMS), a tool that will act as an interface between lenders and repo agents to help improve workflow and communication.
I hope that all those non-prime loans include a fee for On-Star type of location services included in the loan package. That would certainly help for fast repos. The real question is whether the non-prime status is for credit, capacity, or collateral. Indirect auto lending is mostly collateral lending for the wise. A big down payment can help offset weak credit especially if the weak credit was partially the making of weak underwriting by the lender on the credit that went bad. Or the borrowers credit score was reduced by the failure of FICO, etc. to integrate the effect of those unsecured revolving credit line reductions that the bad banks did several years ago. Or a down payment can offset the capacity to pay which is being re-established as someone finally gets a job and can trade-in a car with real equity for the down payment.
Mike could send his comments to Ben Bernake who says that he does not understand why the economy is not recovering faster. Good underwriting of non-prime (Not sub-prime) can help jump-start the auto sector if bank underwriters are PRUDENT while being flexible. That may mean no $35,000 Mustangs or Camaros or $35,000 F150 or Chevy Silverado Pickups, etc for the non-Primeborrowers this time as they re-enter the new car market.
Right on Mike! Good observation! One key to a healthy recovery is to control that expected rise in default via my comments above.
So who knows what is going on in the non-prime market?
OnStar already knows your every move. All contracts I’ve ever seen have a default clause. It could be added to that clause that the lender has the option to use GPS technology to locate the vehicle.