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Benefits & Risks of Indirect Dealer Lending
cunastrategicservices.com
page 2 October 13, 09 |
Agenda
• Company Introductions • Automobile Market Update • Risks, Policies and Monitoring Quality • Identifying Risks and Evaluating
Effectiveness • Analyzing Loan Pricing • Identifying Problem Loan Types
page 3 October 13, 09 |
Certified Public Accountants with Over 60 Years
Collective Experience
Well Over $100 Billion in Loans Evaluated
Work Exclusively with Credit Unions
page 4 October 13, 09 |
• Loan Level Risk Analysis – Provides a "Credit Quality Grade" to each loan based on current
characteristics of the borrower and their collateral. This risk-based approach is widely accepted by the NCUA and has been proven to pinpoint a high percentage of charge offs (70%-90%) in a small percentage of loans (8%-12%)
• Portfolio Stress Analysis • Collateral Confirmation for Consumer Loans (Black Book) • Collateral Confirmation for Real Estate (AVM) • Loan Allowance Validation
page 5 October 13, 09 |
page 6 October 13, 09 |
Founded in 1955 in Gainesville, GA
Owned by The Hearst Corporation since 1981
Independent source with the most timely updates and most accurate values
Over 3K lenders and 1K Credit Unions use Black Book as their Trusted Values
Originate loans at more accurate LTVs
Lost Business Analysis
Collection and Forecasting Models
Remarketing with the most accurate floors
41 of the top 50 auto finance providers use Black Book
Over 18,000 dealers in the US and Canada use Black Book values
Timely, Independent and Accurate™
page 7 October 13, 09 |
Our Markets
» Cars, Trucks, Vans, SUVs » PowerSports - Motorcycles, Personal Watercraft, Snowmobiles » CPI – Collectibles and Exotics » MD & HD Trucks & Commercial Trailers » New Car Pricing and Specifications » Residual Value Projections » US & Canada
page 8 October 13, 09 |
Timely, Independent and Accurate™
page 9 October 13, 09 |
Where have we been in 2012? Increasing new car sales Jan – April: SAAR 14M+ May – 1st month of 2012 under 14.0M June – Surprised everyone
Excitement is back in the industry! New and redesigned models Better then expected new car sales increases More alternative fuel options Traditional fuel getting 40 mpg
page 10 October 13, 09 |
Overall Average Used Values
A good market with reasonable retention
Adjusting to make room for the 2013’s
More supply in the market from increased new sales in 2012
Trade-ins are getting older and with higher miles.
No need to be alarmed
Retention levels won’t support early pull from lease and fleet
page 11 October 13, 09 |
Indirect Dealer Lending Overview
• Benefits – Grow Your Portfolio – Grow Your Membership
• Risks – Less Control – Underwriting – Loan-to-Value
page 12 October 13, 09 |
Risk Environment
• You Are Not the Underwriting/Originator – Your Best Interests
• Loan Growth • Member Growth • Well-Priced Loans Based on Risk
– Dealer’s/Salesman’s Best Interests • Making the Sale • Making the Sale • Making the Sale
page 13 October 13, 09 |
Underwriting Policies
• What Bureau Are Scores Received From • What Factors Can Dealers Use to Mitigate
Insufficient Credit History – Income – Employment History
• Set Standards and Stick with Them • How Are Evaluations Recorded/Reviewed
page 14 October 13, 09 |
Underwriting Policies (continued)
• Loan-to-Value – Three Different Prices – Sales Price* – Dealer Value – Off-The-Lot Value
*(Incl. Admin, Add-Ons, Warranties)
0%
20%
40%
60%
80%
100%
120%
140%
100% LTV 80% LTV Off-The Lot 100%
Sales Price* 23,000 Dealer Value 20,000 Off-The-Lot Value 17,000
page 15 October 13, 09 |
What Could Go Wrong?
• Fraudulent Borrowers – Fictitious Income – Signing for Someone Else (Not Co-Signing)
• Inflating Borrowers Qualifications • Inflating the Value of Collateral
– Including Non-Existent Upgrades/Add-Ons – Outright Lying
page 16 October 13, 09 |
What’s Different Today? Things we look for
Year, Make and Model
Trim
XL vs Lariat Altima: Base to S to SL Not always VIN identified
Content/Equipment
Condition matters: XC, C, A, R
page 17 October 13, 09 |
What’s Different Today?
Things we look for (continued) Adds/Deducts
Mileage Less detrimental in a tight market
page 18 October 13, 09 |
Vehicle Example
page 19 October 13, 09 |
Would you buy stock based on last month’s WSJ listings?
page 20 October 13, 09 |
Mitigating Risk
• Monitoring Credit Bureau Fraud Alerts – Remember: Only 22% Report
• Buyer Training – Information on What Constitutes Fraud
• Lending in Your Area • Verifying Basic Information
page 21 October 13, 09 |
Hierarchy of Reliability and Evidence
• Most Reliable Evidence – External Documentation Received From Source
• BlackBook Valuation • Credit Report
– External Documentation Received From Dealer – Internal Documentation Received From Dealer
• Dealer Valuation • Dealer Documentation of Credit Review
page 22 October 13, 09 |
Mitigating Risk (continued)
• Maintaining Dealer Relationships – Train Dealers on Fraud Prevention – Visit Your Dealers, Understand Their Business – Remind Them of Value You Bring
• Scrutiny of Dealer Practices – Eases Your Mind on “Safety and Soundness” – Makes Them Uneasy
page 23 October 13, 09 |
Detecting Fraud
• First/Early Payment Defaults • Approval/Denial Ratio • Significant Overall Downward Migration
(Compared to Other Dealers and Direct Loans) • Exposure in Excess of Expectations
page 24 October 13, 09 |
Credit Score Migration Analysis
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Don Ready Ford Gibby NewsomeDodge
Ben SelleckChevrolet
Brent GageHonda
Babs MerrickToyota
Paxton HardingBMW
Improvement 0 - 40 Decline 40 - 80 Decline 80 - 120 Decline > 120 Decline
page 25 October 13, 09 |
Loan-to-Value Analysis
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
2005 2006 2007 2008 2009 2010 2011
Don Ready Ford Gibby Newsome Dodge Ben Selleck Chevrolet
Brent Gage Honda Babs Merrick Toyota Paxton Harding BMW
page 26 October 13, 09 |
Pricing Analysis
page 27 October 13, 09 |
Pricing Analysis (Net of Charge-Offs)
page 28 October 13, 09 |
Changes in Risk
page 29 October 13, 09 |
THANK YOU!
Dan Price Manager
352.634.0042 [email protected]
Ricky Beggs VP, Managing Editor
770.533.5221 [email protected]