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Thursday, December 6, 2007

WSJ Page 1 article Dec 6, 2007 "Surge in Auto-Loan Delinquencies.."

From the front page of today's Wall Street Journal... Subprime average delinquency on 2006 loans hits 12% in Sept 2007, up from 11% in Aug 07, and Prime DQ goes from 2.9% to 4.5% from Aug 2007 to Sept 2007 - those are some pretty sharp increases.

Here is the article:

Surge in Auto-Loan Delinquencies
Is Latest Trouble for the Economy
December 6, 2007; Page A1

First came housing loans and the subprime-mortgage crisis.

Now, signs of stress are creeping into another key consumer area: auto loans.

Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association.

About 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month, according to a Lehman Brothers survey of companies servicing these loans. That is the biggest one-month jump in at least eight years. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1% the previous month.

"The numbers will get worse for auto loans," says Dan Castro of GSC Group, a New York firm that runs debt-related investment funds. "We're starting to see signs of rising losses, and delinquencies are creeping up."

Few in the auto-loan industry see the strain as the kind of disaster-in-the-making that home mortgages have become. Still, there is a connection between the two categories, since the squeeze on some home borrowers may make it harder to carry car loans. The trouble signs in auto loans suggest that the credit woes could be spreading to the broader economy, a development that has been worrying investors and policy makers in Washington.

Other corners of the credit market are also sending troublesome signals. Shares of First Marblehead Corp., which packages student loans into securities, dropped to a two-year low yesterday after an analyst cut his rating on the stock and Moody's Investors Service threatened to downgrade some of its securities, also because of delinquency concerns.

Car loans differ from home loans in one crucial way. During 2004-06, many home loans were made to speculators on the assumption that the underlying asset -- the home -- was sure to keep rising in value. Many people, inspired by fervor in the market, took out home loans that in retrospect they had little hope of paying back.

By contrast, everyone understands that the car behind a car loan is an asset destined to lose value. The typical delinquent borrower in a car loan isn't a speculator but someone who became unable to make what previously seemed like a manageable payment. That is why car delinquencies are closely linked to the health of the economy.

"Auto-loan defaults tend to be event-driven, like a job loss or an unexpected health-care bill or a divorce," says Dan Berce, chief executive of AmeriCredit Corp., one of the country's largest subprime auto lenders. "We watch quite closely economic indicators like unemployment rate, weekly job claims or hours worked."

In the second quarter, borrowers were at least 30 days behind on 2.77% of all auto loans made by nonbank lenders, the main players in the market, according to the American Bankers Association. That was the highest delinquency rate since 1991.

Many auto loans undergo the same Wall Street financial engineering as the mortgage loans that stand at the center of the credit crisis, making this a potential issue for investors. Auto loans often are bundled together into securities, sliced and diced into pieces with varying levels of risk and return, and sold to investors around the world.

In 2006, $89 billion of auto loans were packaged into asset-backed securities and sold to investors, according to Standard & Poor's, making it the biggest asset class for such securities next to mortgages and credit cards. That tally doesn't include certain other types of securities backed by car loans. The market is now slowing. Deutsche Bank estimates such bundling was down to $69 billion during the first 11 months of this year, a 19% drop from the same period last year.

Borrower problems also could deal a blow to the already-struggling auto industry. Auto sales held up during the 2001 recession in part because lenders were able to offer easy borrowing terms. If lenders tighten terms in response to the delinquencies, it would make it harder for some people to buy cars.

U.S. auto sales are down about 2.5% this year, and the auto industry is bracing for sales to decline further in 2008. Interest rates on auto loans have increased to nearly 8% from about 6.5% in late 2004, according to J.D. Power & Associates.

The auto-loan-delinquency problem is somewhat less severe for two lenders associated with the top two U.S. car makers -- Ford Motor Co.'s Ford Credit, and GMAC Financial Services, which is 49%-owned by General Motors Corp. That is because Ford Credit and GMAC don't handle many subprime loans.

GMAC Treasurer David Walker said auto-loan delinquencies in the third quarter were the highest in at least three years, partly because of economic factors, but he said credit losses are still well within historical levels. Separately, GMAC is struggling with the fallout of the subprime-mortgage crisis because one of its units was a big home lender.

AmeriCredit, of Fort Worth, Texas, is also experiencing stress. The company makes about 500,000 new- and used-auto loans a year, valued at about $9 billion, some of which get sold to investors.

In the quarter ending Sept. 30, AmeriCredit reported net income of $61.8 million, down from $74.2 million for the period a year ago. It also lowered fiscal-2008 profit projections, blaming poorer-performing 2006 auto loans. AmeriCredit shares traded at $10.32 in 4 p.m. New York Stock Exchange composite trading yesterday, down 18 cents from the day before and 59% lower for the year to date.

There are reasons to believe the problems in auto loans won't reach crisis levels. Auto lenders and credit counselors say many consumers see their cars as a necessity and would sooner hand back the keys to a home and look for a rental than default on a car loan.

Auto lenders and dealers note that the monthly payment on a car is smaller than a mortgage payment. Most auto loans carry fixed interest rates, unlike subprime mortgages, which often reset to a higher rate after an introductory "teaser" period of two or three years.

Still, auto loans, like home loans, saw credit standards loosen in 2005 and 2006. CarMax Inc., of Richmond, Va., the largest used-car retailer in the country, said at the end of 2005 it lowered lending standards. For example, it allowed consumers to put down less money to buy more expensive vehicles. Car Max made about 140,000 car loans last year.

"We had been too strict and wanted to make more loans and maximize profitability. We expected our delinquencies and losses would go up, but they are up higher than we thought," said Katharine Kenny, head of investor relations at CarMax.

Some subprime auto lenders, such as Capital One Financial Corp., say they are seeing higher risks in parts of the country where home prices are falling the hardest, such as California and Florida. Lenders say rising delinquencies are also tied to higher fuel prices and slowing job growth.

Mr. Berce said rising delinquency rates prompted AmeriCredit to tighten its lending standards early this year and it will reassess the matter next month. It is now demanding that borrowers put down more cash against the value of the cars they are buying, especially among consumers with lower credit scores. Mr. Berce said this tightening of standards could reduce lending volume by about 10%.

--John D. Stoll contributed to this article.

Write to Jeffrey McCracken at and Gregory Zuckerman at

Saturday, December 1, 2007

Skip Tracing Leads and Information

There are so many ways to develop leads on finding people these days that it literally requires staffing an in-house data analyst. If used properly, the leads and information available can be a tremendous help in managing your business needs, especially when it comes to Risk Analysis.

The other day we got in a new deal on a guy who lived in Riverside, CA. When we pulled a public record report on him it showed he had a pending legal case. My Tracer went to a web site called Black Book on line, and through a link from that site, she found out he was in court all week, standing trial for the offense that was reported on his public record database document. We signed the deal out to a repo company and by the time that guy needed to go to lunch when the judge called for a break in the case, he also needed a ride because we had taken his from a surrounding parking lot near the court house. The Black Book on line site was free, and that example is one of the reasons why I've been so intrigued at getting back into the skip tracing business.

Skiptracing in today's world in comparison to how it used to be in the 80's when I first started is like the difference between Night and Day. In terms of available leads, it's almost as if we were blindfolded with our hands tied behind our backs when we had to find new leads in comparison to the data available today via the internet.

In the old days we relied on huge, outdated Criss Cross books, old microfische property records, Dozens of yellow page directories you had your friends and relatives collect from wherever they were going on vacation, and a number of other stale sources of information. The credit application, if properly filled out with some good, legible references, was worth it's weight in gold.

Skip tracing has always been all about finding people who know the person you are looking for. These people are "leads", and the more leads you have, the better shot you have at finding the person you are looking for.

In today's world, there are more leads than most skip tracers know what to do with in most cases. It's almost data overload when you pull some of the available reports, which is why you need a data analyst.

On the down side, the debtors and skips also are working with more knowledge, more information at their fingertips. They are smarter, craftier, so in a way it has balanced itself out. We worked a guy earlier this year who used his real name to go in and buy a million dollars worth of collateral over a two week period, which he did with his 770 FICO score and because he showed a long term, high paying job and he was a homeowner. On the surface, it looked like identity theft. Once you dug down a level, you could see the house had been flipped between he and his relatives multiple times over the past several years, depending on who needed it for their scam. The job appeared legit, but it was a business in foreclosure by the property landlord and the Franchise Tax Board. The business address also contained 26 different shell companies using 53 different spellings he had used for one scam or another, and all of these things didn't leap out to the people approving his loans based on his 770 Gold Balls FICO score.

So, as you can see, there are many sources of leads and information, but what really matters is how you use these tools to improve your specific business needs.