Has the Auto Finance Skip Tracing business gone the way of the Auto Repo business?
It's brutal out there.
We always relied on Lenders making bad loans and then not doing a very good job on finding their skips, but that's changed. The gravy is gone.
Skip Companies- If you are not working in an environment where you can measure and manage your business every minute of every day, you can fail. If you fail, your clients fail, but I guess that doesn't really matter to you cause you failed.
Are Lenders looking as closely as they can at what Skip companies they hire; I doubt it. Can their Skip Companies go toes up, damn straight they can, and trust me, they will.
Attn Lenders: Please start lending money, and please start taking some risk, and please take a closer look at who you do business with. If your Skip Company has lost four of its five biggest clients in the past few months, there is a problem. If you google your skip companies name followed by the word "LAWSUIT" and there is more than one page of results, you are a sitting duck.
C'mon, there are people out there who need loans and you are all overstaffed and you can handle it. You may need masterQueue to help organize your collection department, but you know your people's Queue sizes are way down, and you have the people to handle the deals, so dont wait for the paper buyers to tell you its coming, force the issue, tell them you can handle it.
Of course, come of those skips will fall through the cracks, but you will make so much off the deals that pay you know that it wont matter, and our industry needs some bread crumbs.
EVERYONE will win.
Showing posts with label auto finance collections. Show all posts
Showing posts with label auto finance collections. Show all posts
Sunday, September 18, 2011
Wednesday, October 28, 2009
The biggest change in the Auto Finance Industry has been...
WOR.
You may have no idea what WOR means, unless you've been around since the early 80s.
When I started at Chrysler Credit there was a clause in most auto finance contracts called "Recourse".
Recourse meant that the customer, the debtor, the guy buying AND Financing the car, was ultimately the responsibility of the dealership if he went beyond the point of basic delinquency.
It's been a while, so my memory may be a bit rusty, but I believe most deals were 90 or 120 day recourse. That meant that when the customer bought the car at the dealership and they sent us the credit app and contract to consider the customer for a loan, we knew that the dealer was also a part of that credit decision as they would be on the hook for the FULL BALANCE if the customer went into default beyond 90 or 120 days.
When we got to day 60 of the delinquency we would notify the dealership that the customer was late on his payment(s) and they were being put on notice, and that we could, and would, be asking for a payoff of the loan if that delinquency was not immediately corrected. Sometimes we let the dealer slide a few months and we allowed them to make a payment or two versus having to pay off the entire loan.
Can you imagine the ramifications of this in today's market? Think about how that would have affected the sub prime mortgage industry if the brokers would have ultimately been responsible to the bank if the guy buying the house defaulted. Would they have been so quick to falsify the documentation to get the loan approved if they knew they ultimately could and would be responsible? Of course not. Would they have been selling everyone who could walk, talk and sign a contract a house, if they would be responsible of the person went into default? Of course not.
At Chrysler, our dealers were our partners. When WOR, or With Out Recourse paper became the rule instead of the exception, that partnership went away. It started to go to WOR when some finance companies offered WOR as an alternative to Recourse contracts, and the rates were competitive enough that the dealer would start placing those loans to finance companies offering WOR contracts. Pretty soon, Chrysler and all the other major lenders had no choice but to offer WOR contracts.
With WOR, the dealership no longer had any interest in what deals they sent us, how those loans would perform, how we collected payments on their customers, etc. Once the deal was financed, the dealer was off the hook, so what was their motivation to make sure they got good reference numbers, valid POE info, a Co-Signer who could and would pay, etc? There was no motivation, and when that happened, the quality of the paperwork dealerships would collect in terms of customer documentation started to decline.
I believe the dealerships were also responsible when we repossessed a car before the 90 or 120th day. We'd bring the dealer the car instead of taking it to an auction and the dealer would pay off our contract.
At the same time this happened, Chrysler and all the other major lenders started consolidating to large call centers, another major change. This further segregated the finance company from the dealership.
It's interesting to see Chase getting back to a local branch model in regard to their auto finance collection strategy. As time goes on, I believe you will see this model succeed for them, and you may also see other lenders try and look to copy what they've done when they acquired WAMU and took over their branches, in many cases setting up auto finance collection centers. I've often wondered if they thought of this as a pre-acquisition strategy, or as a "what do we do with all these branches?" after the acquisition strategy?
As banks and lenders continue to keep their belts tightened, will we ever see Recourse paper come back?
If it does, I think it would be a way to rebuild the bond between car dealers and finance companies, especially for captive lenders who so greatly rely on each other. I believe the industry should revisit the benefits this relationship used to bring each other, and maybe this could be the catalyst to rebuilding a stronger auto finance model in the future. Now that banks hold more cards in regard to lending, there may not be a better opportunity to revisit recourse lending.
John Lewis
President
www.FindJohnDoe.com
You may have no idea what WOR means, unless you've been around since the early 80s.
When I started at Chrysler Credit there was a clause in most auto finance contracts called "Recourse".
Recourse meant that the customer, the debtor, the guy buying AND Financing the car, was ultimately the responsibility of the dealership if he went beyond the point of basic delinquency.
It's been a while, so my memory may be a bit rusty, but I believe most deals were 90 or 120 day recourse. That meant that when the customer bought the car at the dealership and they sent us the credit app and contract to consider the customer for a loan, we knew that the dealer was also a part of that credit decision as they would be on the hook for the FULL BALANCE if the customer went into default beyond 90 or 120 days.
When we got to day 60 of the delinquency we would notify the dealership that the customer was late on his payment(s) and they were being put on notice, and that we could, and would, be asking for a payoff of the loan if that delinquency was not immediately corrected. Sometimes we let the dealer slide a few months and we allowed them to make a payment or two versus having to pay off the entire loan.
Can you imagine the ramifications of this in today's market? Think about how that would have affected the sub prime mortgage industry if the brokers would have ultimately been responsible to the bank if the guy buying the house defaulted. Would they have been so quick to falsify the documentation to get the loan approved if they knew they ultimately could and would be responsible? Of course not. Would they have been selling everyone who could walk, talk and sign a contract a house, if they would be responsible of the person went into default? Of course not.
At Chrysler, our dealers were our partners. When WOR, or With Out Recourse paper became the rule instead of the exception, that partnership went away. It started to go to WOR when some finance companies offered WOR as an alternative to Recourse contracts, and the rates were competitive enough that the dealer would start placing those loans to finance companies offering WOR contracts. Pretty soon, Chrysler and all the other major lenders had no choice but to offer WOR contracts.
With WOR, the dealership no longer had any interest in what deals they sent us, how those loans would perform, how we collected payments on their customers, etc. Once the deal was financed, the dealer was off the hook, so what was their motivation to make sure they got good reference numbers, valid POE info, a Co-Signer who could and would pay, etc? There was no motivation, and when that happened, the quality of the paperwork dealerships would collect in terms of customer documentation started to decline.
I believe the dealerships were also responsible when we repossessed a car before the 90 or 120th day. We'd bring the dealer the car instead of taking it to an auction and the dealer would pay off our contract.
At the same time this happened, Chrysler and all the other major lenders started consolidating to large call centers, another major change. This further segregated the finance company from the dealership.
It's interesting to see Chase getting back to a local branch model in regard to their auto finance collection strategy. As time goes on, I believe you will see this model succeed for them, and you may also see other lenders try and look to copy what they've done when they acquired WAMU and took over their branches, in many cases setting up auto finance collection centers. I've often wondered if they thought of this as a pre-acquisition strategy, or as a "what do we do with all these branches?" after the acquisition strategy?
As banks and lenders continue to keep their belts tightened, will we ever see Recourse paper come back?
If it does, I think it would be a way to rebuild the bond between car dealers and finance companies, especially for captive lenders who so greatly rely on each other. I believe the industry should revisit the benefits this relationship used to bring each other, and maybe this could be the catalyst to rebuilding a stronger auto finance model in the future. Now that banks hold more cards in regard to lending, there may not be a better opportunity to revisit recourse lending.
John Lewis
President
www.FindJohnDoe.com
Tuesday, September 29, 2009
Repossession assignments and fine wine; a case study
The Auto Finance summit is convening in a couple weeks, and while I unfortunately won't be able to attend, I have replied to a question by the organizer of the event who asks what challenges does the auto finance industry face as we enter the 4th quarter of 2009.
Here is my reply:
A huge challenge lenders continue to face is in regard to assessing and managing risk; i.e. high risk loans on their books that go delinquent.
I have been on the cutting edge of the back end of our industry for nearly thirty years, and when you ask about challenges and solutions, I believe I have identified the challenges many lenders face on the back end, and I have worked very hard and invested a significant amount of my own capital to come up with a solution that can assist lenders, and one that can reward, instead of punish, the solid repossession companies, which is the direction I unfortunately have seen our industry headed in the two and a half years since I got back into it.
We have been working diligently to create an opportunity through a software product that assesses and manages risk, and we will be launching it in 2010. We have an immediate interest in adding one lender to our team of three external financial institution beta test users in Q4 2009. There is no cost to the lender during testing, and if our software works as we project, it can save a lender millions of dollars in annual losses.
As the person who started the first exclusive Skip Tracing company for the auto finance industry in 1988 in SkipBusters, and the first forwarding company to handle more than 50,000 assignments a year in American Recovery Service in 1993-94, I have re-entered this industry after my five year non-compete expired, and my goal was to create a software product that could assist lenders to identify, and better manage, their high risk accounts.
We have finished our internal beta testing of the new software and in a 90 day contest against two of the largest skip companies in the country, working a captive lenders oldest, most difficult charged off skip accounts, we won this contest handily. The results are a direct reflection of the power of our new software. In this 500 file per company contest, we've more than doubled the amount of repossessions the 3rd place company has gotten, and we've gotten 40% more repossessions than the second place company. We also helped our client get twice as many accounts paid in full than the second place finisher, with the last place finisher getting zero paid in full. These paid in full accounts are a direct reflection on the work done by our approved and contracted outside repo agents as they get paid a close fee when a customer pays, and they are not working on a strictly contingent basis.
As a comparison, we also beat these same two skip tracing companies in the last contest that ended July 1st, but we only were using the new software for the last 30 days, and in those last 30 days, we came from last to first to win by 10%, which happened as soon as we started using our new software.
These results are not a reflection on our two competitors as both are leaders in the skip tracing industry and I'm sure they do a fine job overall, in fact, I personally trained the owner of one of those companies when he used to work for me. These results do show that when utilizing the proper software, you can increase your efficiency and if you're a lender using this in a pre-charge off environment, you can reduce your losses significantly.
How many of you are on an old legacy software platform that isn't much better than using a green screen when it comes to measuring and analyzing data?
How many of you cringe when you or your collection managers need to deploy resources from your internal IT department?
Those are some of the major challenges our industry faces today, at least from what I've seen through the interaction I've had with some of the largest lenders in the industry in the past two years. I've created a back end solution for this problem, and so far, the results are positive.
In addition to these internal challenges facing lenders, they also are facing new challenges posed by two relatively new industries, and one older industry; Skip Tracing, Forwarding and Repossession.
When we started Skip Busters in 1988, there were no skip companies that exclusively handled skip tracing on delinquent auto loans. Now there are dozens, and its a several hundred million dollar a year industry. While this helps lenders, it also opens them up to risk as they now have outside vendors working their files by phone, and between FDCPA, SOX, GLB and many other federal and state laws, plus ID Theft issues, this is now a greater risk to lenders who outsource this work then they've ever faced. Due to this, you need a solid software program that analyzes and manages this risk. If your customers ID is compromised at a vendor level, you need specifics answers and metrics to back up those answers, otherwise, the liability and exposure you and your vendor face can be in the hundreds of thousands to millions of dollars range.
When we started exclusively managing the repossession process for VW Credit on a national basis in 1993, Manheim had just closed its doors on a division they had started a few years earlier that did the same thing. There were a few other industry leaders from the repossession industry, i.e. Minnesota Repossessors, who had gained market share through trust in terms of direct repossession assignments as we had done with Skip Busters, and through our No Calif repo companies; River City Auto Recovery.
As a result of our growth, we were starting to get requests from clients to help them manage their national needs. The industry had grown from individual branches to large, national call centers, and the managers of these places were now facing new challenges in identifying their best repo companies on a national level, and not as they used to on a local level. Almost immediately after we started seeing success, ADT got in and soon they were purchased by Manheim, and many others followed suit on what we were doing for VW Credit, and then for a number of large, new sub-prime lenders; managing their repossessions.
They now call it Forwarding, a term I never really liked as it implies there is little or no skill involved. Our idea was to "manage" the process by paying the repo company a fair price, and then we would charge a flat service fee based on our work. We charged a $75 mark up back then. Nowadays, you'll be hard pressed to find anyone doing over 20% of their forwarding work for less than a $100 mark up per repo.
When I got back in the industry in 2007, I was shocked to see how much traction the forwarding business had gained, and I was also shocked by what it had done to the industry. Most forwarders now make their money on the mark up they get by charging the lender as much as possible, and by paying the repo agent as little as possible. This raises the stakes to the finance company significantly, and it's not just the cost of the insurance claim, it's now also the exposure on CNN they may someday get, something every lender would be more concerned with if they could see what's really happening on their repo assignments placed with most forwarders.
Repossession management was a good idea, and it still is on a limited basis, but only when lenders hold the forwarder liable for their actions and when they audit them to insure their practices are within the best interests of the lending institution. Are all their outside repo agents contracted? Do they have proper insurance? Do they drug test their employees and do the repo agents they hire hold their employees to certain standards? Do they perform background checks and do their agents? Do they allow repo companies to use independent contractors versus hiring employees? Do they get out of their truck to kick in a deal, or is it not worth it because they are being paid on a contingent basis and there is no commission for the repo man when he tries to help the lender resolve the account, unless its through repossession.
"Oh, but we pay our guys $25 on every deal they close".
Show me the documentation.
I challenge you CEO's out there reading this to pull a report on the average amount of days your repossession assignments are assigned to the agent they are currently with, forwarder or direct. If it's higher than two weeks on average you have a problem. Accounts need to be moved through queue's, followed up on, and managed to the point where there is always some form of forward progress. I don't mean the type of backward progress we see in our end of the industry when a collector runs a bureau or a public records report and throws the last three, or six addresses reported for the customer at the repo agent to run "and kick in hard", making the repo agent do the work the collector or skip tracer should, and can do with a couple phone calls to verify first if the address is good or not. Those are the challenges a lender faces, and if you have a high charge off percentage, you might want to start by analyzing those trends and numbers.
High risk accounts need to be identified and worked diligently, or they will become more difficult with age in the same manner a fine wine becomes better with age, by sitting around and aging. The difference is your customer is driving and causing your collateral to lose value with every mile whereas your wine is sitting in a wine cellar aging gracefully, increasing, noty decreasing in value.
Many forwarding companies do a good job, but if they're paying a tow jockey with marginal, if any insurance a $175 repo fee and then charging the client a $475 repo fee so they can make their margin that they're losing because 50% of their deals are being worked on a contingent basis, the client, and the successful repo agent who doesnt get the deal are the one's taking it in the shorts, not the forwarder. I"m not saying a repo agent needs to get paid on every close, but they should expect to get deals with verified addresses, one address at a time (two if there is a POE) and if they resolve that address in a positive manner, they should get something for their effort. This allows you to move the account to the next queue, and by doing so, you are addressing and not pushing aside your risk.
Forwarding, as it currently is being used, and from what I've seen, is not good for the finance industry, yet accounts are assigned to Forwarders thousands of times a day. Forwarders now control a material portion of the repossession assignments, which is scary when you see how most of them are operating their companies. That's a challenge lenders face, and the solution is to re-establish direct relationships with solid repo companies they identify, and then use software and training to manage the process. I know why Outsourced Repossession Management made sense in the 90s, but as I see how it's evolved, I believe it has trended in the wrong direction and that's a challenge lenders who use Forwarders face.
Some things were meant to be outsourced, and while early stage collections on an account that is not a high risk is a good idea, outsourcing the management of your entire repossession portfolio without a clear understanding of the relationship between the Forwarder and the repo agent and the metrics behind that to verify what you are being sold is accurate, its a recipe for disaster. I think the assignment and verification of specific pieces of your portfolio like impounds and assignments in remote locations is an idea worth paying a mark up for, but there is no reason to pay the mark up to a guy pushing the paper when you can, and are better off, making those decisions yourself.
If you are a lender and agree with some of what I've said and would be interested in speaking with me about becoming a beta test user for our software, please contact me at 916 730 3335 or jlewis@FindJohnDoe.com
OK JJ, now you can ask your programmers to limit the replies to people's posts to xxx characters. Sorry for rambling about a subject I'm passionate about, but this industry has been good to my employees, my family, and to my wife and I, and if we can somehow give something back, we're hoping it can be through the technology we've created with the software we've written that's based on thirty years of experience as a lender, a vendor, and an outsider who is now back in.
John Lewis
President
FindJohnDoe.com
Here is my reply:
A huge challenge lenders continue to face is in regard to assessing and managing risk; i.e. high risk loans on their books that go delinquent.
I have been on the cutting edge of the back end of our industry for nearly thirty years, and when you ask about challenges and solutions, I believe I have identified the challenges many lenders face on the back end, and I have worked very hard and invested a significant amount of my own capital to come up with a solution that can assist lenders, and one that can reward, instead of punish, the solid repossession companies, which is the direction I unfortunately have seen our industry headed in the two and a half years since I got back into it.
We have been working diligently to create an opportunity through a software product that assesses and manages risk, and we will be launching it in 2010. We have an immediate interest in adding one lender to our team of three external financial institution beta test users in Q4 2009. There is no cost to the lender during testing, and if our software works as we project, it can save a lender millions of dollars in annual losses.
As the person who started the first exclusive Skip Tracing company for the auto finance industry in 1988 in SkipBusters, and the first forwarding company to handle more than 50,000 assignments a year in American Recovery Service in 1993-94, I have re-entered this industry after my five year non-compete expired, and my goal was to create a software product that could assist lenders to identify, and better manage, their high risk accounts.
We have finished our internal beta testing of the new software and in a 90 day contest against two of the largest skip companies in the country, working a captive lenders oldest, most difficult charged off skip accounts, we won this contest handily. The results are a direct reflection of the power of our new software. In this 500 file per company contest, we've more than doubled the amount of repossessions the 3rd place company has gotten, and we've gotten 40% more repossessions than the second place company. We also helped our client get twice as many accounts paid in full than the second place finisher, with the last place finisher getting zero paid in full. These paid in full accounts are a direct reflection on the work done by our approved and contracted outside repo agents as they get paid a close fee when a customer pays, and they are not working on a strictly contingent basis.
As a comparison, we also beat these same two skip tracing companies in the last contest that ended July 1st, but we only were using the new software for the last 30 days, and in those last 30 days, we came from last to first to win by 10%, which happened as soon as we started using our new software.
These results are not a reflection on our two competitors as both are leaders in the skip tracing industry and I'm sure they do a fine job overall, in fact, I personally trained the owner of one of those companies when he used to work for me. These results do show that when utilizing the proper software, you can increase your efficiency and if you're a lender using this in a pre-charge off environment, you can reduce your losses significantly.
How many of you are on an old legacy software platform that isn't much better than using a green screen when it comes to measuring and analyzing data?
How many of you cringe when you or your collection managers need to deploy resources from your internal IT department?
Those are some of the major challenges our industry faces today, at least from what I've seen through the interaction I've had with some of the largest lenders in the industry in the past two years. I've created a back end solution for this problem, and so far, the results are positive.
In addition to these internal challenges facing lenders, they also are facing new challenges posed by two relatively new industries, and one older industry; Skip Tracing, Forwarding and Repossession.
When we started Skip Busters in 1988, there were no skip companies that exclusively handled skip tracing on delinquent auto loans. Now there are dozens, and its a several hundred million dollar a year industry. While this helps lenders, it also opens them up to risk as they now have outside vendors working their files by phone, and between FDCPA, SOX, GLB and many other federal and state laws, plus ID Theft issues, this is now a greater risk to lenders who outsource this work then they've ever faced. Due to this, you need a solid software program that analyzes and manages this risk. If your customers ID is compromised at a vendor level, you need specifics answers and metrics to back up those answers, otherwise, the liability and exposure you and your vendor face can be in the hundreds of thousands to millions of dollars range.
When we started exclusively managing the repossession process for VW Credit on a national basis in 1993, Manheim had just closed its doors on a division they had started a few years earlier that did the same thing. There were a few other industry leaders from the repossession industry, i.e. Minnesota Repossessors, who had gained market share through trust in terms of direct repossession assignments as we had done with Skip Busters, and through our No Calif repo companies; River City Auto Recovery.
As a result of our growth, we were starting to get requests from clients to help them manage their national needs. The industry had grown from individual branches to large, national call centers, and the managers of these places were now facing new challenges in identifying their best repo companies on a national level, and not as they used to on a local level. Almost immediately after we started seeing success, ADT got in and soon they were purchased by Manheim, and many others followed suit on what we were doing for VW Credit, and then for a number of large, new sub-prime lenders; managing their repossessions.
They now call it Forwarding, a term I never really liked as it implies there is little or no skill involved. Our idea was to "manage" the process by paying the repo company a fair price, and then we would charge a flat service fee based on our work. We charged a $75 mark up back then. Nowadays, you'll be hard pressed to find anyone doing over 20% of their forwarding work for less than a $100 mark up per repo.
When I got back in the industry in 2007, I was shocked to see how much traction the forwarding business had gained, and I was also shocked by what it had done to the industry. Most forwarders now make their money on the mark up they get by charging the lender as much as possible, and by paying the repo agent as little as possible. This raises the stakes to the finance company significantly, and it's not just the cost of the insurance claim, it's now also the exposure on CNN they may someday get, something every lender would be more concerned with if they could see what's really happening on their repo assignments placed with most forwarders.
Repossession management was a good idea, and it still is on a limited basis, but only when lenders hold the forwarder liable for their actions and when they audit them to insure their practices are within the best interests of the lending institution. Are all their outside repo agents contracted? Do they have proper insurance? Do they drug test their employees and do the repo agents they hire hold their employees to certain standards? Do they perform background checks and do their agents? Do they allow repo companies to use independent contractors versus hiring employees? Do they get out of their truck to kick in a deal, or is it not worth it because they are being paid on a contingent basis and there is no commission for the repo man when he tries to help the lender resolve the account, unless its through repossession.
"Oh, but we pay our guys $25 on every deal they close".
Show me the documentation.
I challenge you CEO's out there reading this to pull a report on the average amount of days your repossession assignments are assigned to the agent they are currently with, forwarder or direct. If it's higher than two weeks on average you have a problem. Accounts need to be moved through queue's, followed up on, and managed to the point where there is always some form of forward progress. I don't mean the type of backward progress we see in our end of the industry when a collector runs a bureau or a public records report and throws the last three, or six addresses reported for the customer at the repo agent to run "and kick in hard", making the repo agent do the work the collector or skip tracer should, and can do with a couple phone calls to verify first if the address is good or not. Those are the challenges a lender faces, and if you have a high charge off percentage, you might want to start by analyzing those trends and numbers.
High risk accounts need to be identified and worked diligently, or they will become more difficult with age in the same manner a fine wine becomes better with age, by sitting around and aging. The difference is your customer is driving and causing your collateral to lose value with every mile whereas your wine is sitting in a wine cellar aging gracefully, increasing, noty decreasing in value.
Many forwarding companies do a good job, but if they're paying a tow jockey with marginal, if any insurance a $175 repo fee and then charging the client a $475 repo fee so they can make their margin that they're losing because 50% of their deals are being worked on a contingent basis, the client, and the successful repo agent who doesnt get the deal are the one's taking it in the shorts, not the forwarder. I"m not saying a repo agent needs to get paid on every close, but they should expect to get deals with verified addresses, one address at a time (two if there is a POE) and if they resolve that address in a positive manner, they should get something for their effort. This allows you to move the account to the next queue, and by doing so, you are addressing and not pushing aside your risk.
Forwarding, as it currently is being used, and from what I've seen, is not good for the finance industry, yet accounts are assigned to Forwarders thousands of times a day. Forwarders now control a material portion of the repossession assignments, which is scary when you see how most of them are operating their companies. That's a challenge lenders face, and the solution is to re-establish direct relationships with solid repo companies they identify, and then use software and training to manage the process. I know why Outsourced Repossession Management made sense in the 90s, but as I see how it's evolved, I believe it has trended in the wrong direction and that's a challenge lenders who use Forwarders face.
Some things were meant to be outsourced, and while early stage collections on an account that is not a high risk is a good idea, outsourcing the management of your entire repossession portfolio without a clear understanding of the relationship between the Forwarder and the repo agent and the metrics behind that to verify what you are being sold is accurate, its a recipe for disaster. I think the assignment and verification of specific pieces of your portfolio like impounds and assignments in remote locations is an idea worth paying a mark up for, but there is no reason to pay the mark up to a guy pushing the paper when you can, and are better off, making those decisions yourself.
If you are a lender and agree with some of what I've said and would be interested in speaking with me about becoming a beta test user for our software, please contact me at 916 730 3335 or jlewis@FindJohnDoe.com
OK JJ, now you can ask your programmers to limit the replies to people's posts to xxx characters. Sorry for rambling about a subject I'm passionate about, but this industry has been good to my employees, my family, and to my wife and I, and if we can somehow give something back, we're hoping it can be through the technology we've created with the software we've written that's based on thirty years of experience as a lender, a vendor, and an outsider who is now back in.
John Lewis
President
FindJohnDoe.com
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
Employment
Demographics
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
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
Employment
Demographics
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
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