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Saturday, September 27, 2008

Identifying Risk

I've been skip tracing my whole life.

I think most decent skip tracers have.

I didn't realize it until I was 21 years old and working for Chrysler Credit as a collector.

I'd been hired as a field rep, but that type of work was closer to the shenanigans I used to pull as a kid growing up in the suburbs of Chicago. I never stole a car or anything like that, but my buddies and I were pretty mischievous and we did some crazy things when we did sleep outs in the summer. When I realized that my new job involved dressing in black and taking someone's car in the middle of the night, it wasn't too far off my radar screen.

When I got moved inside, I quickly realized that being a field rep was pretty easy because I usually knew where the cars were at, so all I had to do was take them.

Finding the cars proved to be a different challenge.

Each collector had a group of dealerships they represented -meaning that everyone who financed a car for that dealership was in my queue. Fortunately, 90% of the people paid as agreed and I never had to pull their files out of the drawer. Of the 10% who didn't, we usually got that down to between a quarter and a half a percent by their 30th day of delinquency. The month before I got promoted to be a collection supervisor, I kept my queue at zero delinquency for thirty straight days. It was a big deal to "Zero Out" for the day, meaning that no one in your queue with that due date went over thirty days late on that day. Doing it for a few days in a row was hard work, but once I'd developed a plan to identify my riskiest accounts, it really wasn't that big a deal to "Zero out" every day.

Identifying the risk of your queue as a collector is the name of the game.

My territory was Reno, and my "more challenging" customers were involved in the gaming and prostitution industries. I knew some of them from when I was a field rep working their accounts and collecting their payments in the field. Our field reps were like a pick up service. The collector didn't accept a promise to pay, they made an arrangement to have the customers payment picked up. By knowing my customers, I knew who would push me to the 29th day, so I started collecting their accounts when I received their last months payment. Besides being a collector, I was on a first name basis with my regular customers and many times I would have to dig deep into their financial situation to make sure I would get my payment each month.

Nowadays, I think most collectors know their customers about as well as we know the skip accounts we are assigned; not at all, or at least not on a monthly "Hi, how ya doin Mike, hows the job going? Did your daughter have her baby? BTW, when do you think you can get that payment to me as I noticed I didn't get your check as we agreed I would last week".

When field reps were eliminated in the mid 80s, controlling delinquency became more challenging. In the late 80s, when the personal touch went by the wayside to computers, growth, sub prime financing and collectors changing jobs like pro athletes changing teams, it suddenly became more challenging to collect car payments. Using skip tracing companies was almost unheard of when I started SKIPBUSTERS out of my apartment in San Gabriel with my wife in 1988. Now, its becoming a more common tool as collection departments identify risk and realize they need help in resolving the more difficult accounts they have not made progress on.

Identifying Risk. It's still the key to understanding, managing and controlling a queue, a portfolio, or even when broken down to one account. In fact, it should be broken down to one account.

These days, when a customer goes delinquent and you can't find them, you have a number of on line resources you can chose from to develop leads to call to locate your customer. Unfortunately, this information is not perfect, and what's even more unfortunate, is that many collectors will run a credit bureau or a public records report and they'll see an address they didn't have, and without verifying if its good or not, they'll "Shotgun" it out to a repo agency to have them check the address. What's worse is some inexperienced collectors will send out multiple addresses to the repo agent, making their job more difficult because it costs money to check all these addresses. To further complicate the problem, when the car doesn't show, then they'll ask the agent to "Kick it in", make contact, or more directly, do the skip tracing the finance company should be doing on the phone, or hiring someone to do if they are not capable of doing it, or don't have the time or resources to do it themselves.

They've identified the risk, but they've tried to resolve it with a step that delays the job that needs to be done, rolling up your sleeves and finding the customer, and the collateral. I think the main reason they do this is because they don't know how to really skip trace, or they are so overwhelmed with volume that they don't have the time. I also know first hand that while many of the tools available to find the leads are helpful, the sheer volume of this information can also be overwhelming, causing it to not be used properly for its ultimate purpose, to find the lost customer and the collateral.

Risk on an auto loan is identified by a variety of factors:

Balance of the loan
Perceived value of the collateral
Age of the loan
Payment history
Credit History and a sudden change
The quantity and quality of all available leads that can be used to skip trace

Once you identify the risk of an account, you must allow that file the time it needs to be worked to be resolved in a positive manner. It always amazed me that a company would charge off millions or billions in full balance skip charge off losses, but when it came time to drill down and see how they could reduce losses, the obvious solutions seemed to go by the wayside.

A good skip tracing company can give you an outside benchmark to where your staff is in terms of your ROI with each employee. Let me give you an example. After you throw in facility fees, employee benefits and misc. overhead, lets say your cost per collector hour worked is $35. I think this is a pretty low number when you really add everything in, but we'll go with it. Then lets say that collector is working a queue of 100 charged off accounts at an average charge off rate of $18K, for a total queue size, in dollars, of $1.8m. Lets say they locate and recover 25% of their files each month, and the average car they recover brings in $10K at auction. You just spent $6066 in wages to recover $250K. Not a bad ROI.

If you gave a skip trace company a like group of 100 files and your cost to them was an average locate fee of $400, if they got you the same 25%, then your cost would $10K, which is not a good deal for you if both sides get you 25%. Now lets say the skip company gets you 35%. Your cost would increase to $14K, but your recoveries would increase by an extra 10 cars, or $100K if your getting $10K per car at auction. Now you've spent $14K to recover $350K, versus doing it in house at $6066 to recover $250K. You also don't have the burden of the extra employee, and you made an extra $92K. If the skip company can get you 40% or better, then you are really ahead of the game.

Besides the numbers, what you've also gained is an invaluable resource, a work in progress monthly benchmarking challenge to your staff to raise the bar. By collaborating with your skip vendor through regular meetings and constant communication and measurement of the numbers, down to a granular level, you now can forge ahead with a relationship with your skip vendor to improve your numbers and theirs, making it a win-win for both sides.

and when I was hired to

Wednesday, August 6, 2008

Skip Tracing Preparation

Skip Tracing File Review Worksheet

The purpose of this worksheet is to show you how to prepare yourself to work a skip file.

Working a queue of files means you have to know how to get in and out of files in a hurry. You need to be quick, yet thorough, in your review of an account before you work it. This step should take no more than 5 minutes, and many times the last minute or so is done when you’re dialing the collector who gave you the assignment, and then when you are waiting for them on hold, you are looking at the last things to review. The skip tracers who multi task this way have proven to be the most effective I’ve come across.

These are the things you want to review BEFORE you make a call on a new file:

1. Client
2. R/O and COX names
3. Collateral
4. Address
5. Delinquency
6. Credit Application and Contract
7. Collection notes
8. Client contact

1. Client- who is the client. Clients operate differently, so first see who the client is and then make sure you understand how they want their accounts worked.

2. Names - Look at the name of the R/O. Is it an easy name to pronounce, do they have a nick name, an American name if they are foreign? These are things you want to determine as its much easier if you know what name your subject goes by. If someone is looking for me and they ask for Johnathon Lewis, everyone they come in contact with will be suspicious. If the subject you are looking for is named Scott Reid and he goes by Scooter, you need to find that out- so when you start working the file- ask people you come in contact with, whom you feel you have their confidence and they will tell you….“Does he have a nick name or does he go by Scott?”

3. Collateral –its important to know what you are looking for. Many clients now don’t include the color of the collateral, the license plate, and some times its difficult to know what the collateral is. The other day we had an agent running an address looking for what they thought was a Honda Jet Ski. The way we received the deal, it had a code for the type of collateral and it was a motorcycle we were looking for. We told them their update said they were looking for the wrong type of collateral, and we got the bike the next night. Go to Google and look up the unit so you can see what it looks like. When you’re calling a neighbor or asking a relative if he drives a little white car, that’s better than asking of they drive a Ford Escort. When you call the client, use that opportunity to ask them if they have a plate or a color.

4. Address – compare the address from the client to what is in the public records you have access to. If a new address pops up in public records, ask them if they had that address, and if not, tell them you’ll confirm it and let them know if its worth giving to a repo agent to run. Clients have a tendency to see a new address pop up in Public or Credit records and they just assign it for repo without verifying the address. We are professionals, and were expected to verify an address as much as possible before assigning for repo, and every assignment needs to have the reason why its being assigned to that address, which you cant do without some form of verification.

5. Delinquency- Many clients don’t provide this information, and some provide bits and pieces. Some accounts are assigned before they charge off and some are assigned after they’ve charged off. These are important things to know. When you speak to the client, if they’re a client who will share this info with you, its helpful to know the following information:

Date last paid - This is important as it tells you how long ago they paid, and many times when someone stops paying, there is a reason that’s worth investigating- did the unit get wrecked? Did they give it to a 3rd party? Did they lose a job? Foreclosure?

Date past due – This tells you how long they have been delinquent. If a person is two payments down versus five payments down, that makes a huge difference in regard to how you approach the way you work the account, and what you say if you speak with them.

Amount past due – This is important if you speak with them and they ask how much do they owe. Many times these customers have not had anyone speak with them for months as they’ve been on the lamb. If you happen to get them on the phone, you may only have one chance to resolve the account, and if you don’t know how far past due they are, in exact numbers, you lose credibility.

Monthly payment amount – This is important as they may have another payment due the following day, so its good to know how much that will be.

Balance – This gives you an idea what the difference is between the amount in full they owe (with interest) versus the actual value of the car. Many times this can have an impact on the customer’s decisions regarding the loan, and the collateral.

Charge off information - When applicable, this is critical information to know. First off, if the loan hasn’t charged off yet, but is nearing charge off, the actual charge off date is important, as that is usually the last date the customer will have an opportunity to make any payments. After a loan is charged off, loan payments are normally not accepted, which means the only payment options after charge off are to pay off the full amount of the loan, including expenses, less interest. The charge off date is also important as many files will close with the skip agency when the loans charge off, so if you are close to resolving the case, it may not matter to some clients as they have to close the file with the skip agency when it charges off.

6. Credit Application and Contract. When available, this can be very valuable. Successful Skip Tracing involves working with actual data, factual information. The credit app and contract are the two documents that were filled out on the day the customer bought the collateral, so this is when the trace starts. The app gives you valuable references, usually people the customer knows well. The numbers may have changed, but just knowing their names and an address can help you skip them down to see if they know your skips whereabouts. The credit app also tells you where the skip was living and what date, how long they were there and sometimes who their landlord is. This information is available in public records, however, many public records have distorted dates as they are only as accurate as what someone entered in a computer. This gives you a starting point, and the more recent the date of the contract the easier it is to trace their steps after they bought the car. It also gives you the customers place of employment information, and sometimes a prior job or address. There are also boxes the customer checks that ask if they’ve ever been convicted of a crime, filed BK, committed a felony, etc.. If you find out they lied on their credit app that technically means they committed a form of fraud, and is something you can use in your investigation.
The contract is the binding legal document between the finance company and the customer, and while you usually have the necessary information it contains, it sometimes can give you important information like a color, the dealership contact info, or the payment amounts. IF YOU DON’T HAVE A CREDIT APP IN THE FILE WHEN YOU REVIEW THE ACOCUNT, ASK THEM TO SEND YOU A COPY OR READ YOU THE INFORMATION FROM IT.

7. Collection notes. Unfortunately, these are not always available, and yet they are possibly the most important part of the pre file review. If you know what has transpired on an account, it’s much easier to work a file, and it can save you a lot of time. While you don’t always take the work someone else has done as the gospel, if the client assigned an account to run an address that looks interesting to you and the repo agent reports they made contact with the guy who just bought the house and he says he bought it out of foreclosure, there is no point in running that address in the field. If the client says a relative is cooperative, or not, that is helpful to determine how you approach the call to that relative, versus going in blindly.

8. Call the client to review the account - This is an important part of how you prepare to work the file. It’s a good idea to introduce yourself if you don’t already know the collector, and even if you do, a couple minutes on the phone discussing what they know about the file and what they’ve done, and asking for the information you need, can all make a big difference in your success.

Thursday, January 10, 2008

Skip Tracing 101 : Turn Over Every Rock

Skip Tracing 101 : Turn Over Every Rock

Hard work pays off

This common saying can be applied to any business, and Skip Tracing is no different.

Through the years there have been many times when a skip tracer or a collector has come up to me with a file they claimed they were at a dead end on. Because there has yet to be a program written that allows a supervisor to quickly look at a file to determine if the collector or skip tracer has pursued all the available leads, this was not always the easiest claim to agree or disagree with.

“What have you done so far?”

“We’ve had it assigned for repo to the last known address, but he’s moved from there. His parents are covering for him, and the references are no help, I’ve spoken with a couple neighbors but they don’t know anything. I’ve pulled a credit bureau, but he’s late with everyone and when I tried to call the other finance companies, they won’t speak with me due to privacy concerns.”

I’d then take a look at the notes and there were plenty. When I looked at the expenses on the account, we’d spent the money to run the bureaus and we’d paid for several different public records reports. The file was an inch thick, the guy was six payments down, and everyone else had charged off their debts.

Back at Chrysler Credit in the early 80s, when I was the one asking for permission to charge off the loan, we had a “skip worksheet” we had to fill out before we brought the account to our supervisor. I think some companies still use a manual form to do this. It was a four-page document to confirm we’d contacted every reference, neighbor, relative, job, landlord, the post office, the local grocery store, you name it.

In hindsight, it was a valuable exercise, but it was too difficult for the supervisor to really know if the account had been worked properly, and it wasn’t nearly as comprehensive as it needed to be. It also was a document that could easily be skewed.

To find a skip, one needs to have several factors working in their favor:

I. The person looking for the skip must be positive that they have a chance to find the person. If you are not optimistic, you’re in the wrong profession.

II. A good skip tracer must be confident, and confidence comes from life experience, followed by skip tracing experience.

III. A good skip tracer must also be a good sales person. My first boss once told me a valuable piece of information when he compared a collector to a salesman. He said you must sell yourself to the person your collecting money from so they have to buy what you are selling, which as a collector was getting them to pay me ahead of everyone else. As a skip tracer, its getting people to tell you what they know, even if it’s the smallest detail.

I can remember one time I was looking for a lady that no one could find. I knew the parents knew where she was, but every time I spoke to them, they claimed they didn’t know her whereabouts. The day before the loan was going to charge off I was probably filling out one of those skip worksheets when I’d realized I hadn’t called every neighbor, and I’d remembered we’d gotten in a new Criss-Cross guide for an address where she used to live. After speaking with a couple people who didn’t have a clue who I was asking about, I found a lady who knew exactly who I was asking about, but unfortunately she had no idea where my customer had moved. I was running out of questions when I asked

“When was the last time you saw her?”

“I saw her a few weeks ago at the gas station” She was getting ready to have a baby”.

That one piece of information cracked the case for me. I thanked her, and then asked a female colleague of mine to call the Mom back.

“Hi, Mrs. Wilson, this is Mary. I just got back to town and I’m so excited for Debbie, has she had her baby yet?”

Many skip tracing calls can be based on one question, and how the question is asked, which leads me to the next point.

IV. You must be a good actor. The girl I had make the call was one of twenty in my office, but she had the voice, and the personality, to make the call pay off. She didn’t know it, but I did.

“Hi Mary. We’re so excited. She just had the baby and her and Dan are at Mercy Hospital in Folsom”.

This of course, also turned out to be where the car she hadn’t made a payment on since she bought it almost a year ago was sitting.

The next three factors are probably the most important ones.

V. You must find every rock, sort them in order of importance, and then be prepared to turn them over. You never know which rock you turn over will lead to the person you are looking for.

VI. Ask the right questions. It’s pretty simple. Who, what, where, when and why.

VII. Listen.

The key to skip tracing is finding people who know the person you are looking for, i.e. rocks. Once you find these people, you need to use your acting skills, thrown in with a little data analysis, to quickly understand whom you are speaking with. You will definitely speak differently to a person who thinks and talks fast compared to a person who thinks and speaks slowly; an 18 year old versus an 80 year old; a Harvard grad versus a backwoods hick.

Once you understand the person you are speaking with and you set your tone and dialect, you then need to ask the right questions. Your tone and dialect will set the person on the other end of the phone at ease, and then after each question, you must listen and not interrupt. Most people love to talk, and fortunately, some don’t know when to stop.

The other important part about the person you are speaking with is to quickly determine if they are a friend or foe. Ex-spouses, ex-neighbors, ex-landlords, and ex-employers are great sources of info, especially when the skip didn’t leave on the best of terms.

Nearly everything a person who actually knows the skip discloses to you becomes a lead. A good skip tracer will piece these leads together to crack the case, and they will remain confident and optimistic throughout the process.