Following a decade of continuous job creation that boosted the financial standing of all consumers — especially those with subprime credit — and lower interest rates that provided incentives for major purchases, we are now in an unexpected disruption. Subprime borrowers and the businesses that serve them now face a challenge.
Despite federal-, state- and lender-driven forbearance initiatives, we can expect requests for further extensions and increased delinquencies to cripple lender cash flows. Many subprime lenders have already tightened their credit policies and reduced loan volumes to prevent further losses, but the challenge of the “now” remains.
Process agility in systems and culture
How to best remain afloat? One necessary quality for lenders is agility. Lenders whose systems and culture facilitate rapid change are best positioned to survive this hairpin turn in the economy. Agile lenders:
• Employ a high degree of automation and integration across all phases of the lending cycle to easily accommodate changes in loan volumes, customer support requests and coordination among lending partners;
• Quickly configure credit policies, workflows, decision rules and queues to modify processes and policies to accommodate changing market dynamics and compliance regulations;
• Proactively communicate with borrowers via their preferred channel to inform them of relief options available;
• Provide an entirely digital experience from loan origination through servicing to avoid face-to-face contact;
• Maintain a single view of the borrower so that all interactions are captured and recorded to ensure accurate information and compliant processes; and
• Support remote working for employees, particularly loan-servicing professionals who are critical in fielding the volume of calls and inquiries associated with subprime borrowers looking for accommodations.
Defaults further test the agility of subprime lenders
Based on historical performance statistics of the subprime market, where borrowers typically have difficulty weathering unexpected financial setbacks, lenders can expect the current economic climate to stress this segment like never before. Despite the accommodations, lenders could experience a significant jump in subprime defaults, and managing those volumes becomes yet another test of agility.
In this case, however, it’s not just a matter of automated, integrated software. Essential business restrictions that vary by state may make it difficult for repossession agents, transportation providers and vehicle auctions to efficiently manage volumes of any size. Subprime lenders may need to seek outside services to more efficiently coordinate the increased recovery volume.
Optimism is difficult, but focus on agility and resilience
The subprime market faces significant challenges with an outcome unknown to even those with decades of experience in dealing with market uncertainties. Lenders with system agility and a resilient culture possess two of the most important qualities to succeed in the most challenging of times.
Shaimaa Elk serves as executive vice president, chief information officer and chief technology officer at defi SOLUTIONS, the technology partner of Auto Finance Excellence, a sister service of Auto Finance News.
Editors Note: This feature first appeared in the July issue of Auto Finance News, available now.
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