I privately met with several of the largest repossession companies last summer and we brought in a PR Person to discuss some of the strategies involved in mounting a positive PR campaign around our industry. This person had successfully raised public awareness for industries that faced similar challenges, not quite as difficult, but I feel she can do the job, and she has no connection to anyone, and being located in the capital of the largest regulated state in the country, she may be in the right place.
Her ideas included:
Integrated marketing plans
Key Messages/Logo/Business System and Brand Developments
Media outreach
Media and presentation skills training
Advertising and media buys
Community outreach and public involvement
Web
Email/ VIP outreach list
Email blasts, special programs, etc
I’m running a skip company; Find John Doe, and getting ready to launch a software to hopefully help improve our industry, masterQueue by Intellaegis, so my time is limited at best, but I would participate on a board level if we could form an interest list and then a board and then select a leader to oversee this process.
Forget about the associations running this, if they wanted to do something they would have acted years ago and getting them to work together seems to be a challenge in itself. You need an independent board of entrepreneurs who can represent the industry, and I’d say the qualifications would be:
10 years exp in the repo industry
Verifiable personal experience repossessing cars themselves in the field, and I’m not talking about a ride along
Running a business in this industry that currently generates at least $1m in annual revenue
I’d also include 1-2 client members and I’d invite Kevin as a media rep
1 rep from each association responsible for being the liaison for their association and responsible for collecting dues to fund this program and sharing info to/from their members- and non assoc members would have a liaison for the companies not in associations
A paid independent admin to handle the day to day and budget
email me privately if you are interested in participating:
jlewis@findjohndoe.com
John Lewis
Showing posts with label repo man. Show all posts
Showing posts with label repo man. Show all posts
Tuesday, March 15, 2011
Monday, September 27, 2010
LPR Technology
A person posted a question on Linkedin - asking for opinions on dual assigning a repo assignment to two companies at once. I then raised the question about LPR (License Plate Recognition) and the fact it seems to go unnoticed that this also creates double assignments.
The LPR process puts a camera in a vehicle and hundreds or thousands of license plates are scanned each night. Lenders upload lists of the license plates on cars they are looking for and when an LPR camera spots a unit the Lender is looking for, each of the 3 companies with the camera's has a different process they follow, and most, if not all, allow a Lender to have one of their accounts double assigned to more than one repo company at a time- a deadly practice. The problem could be eliminated if the LPR companies required the Lenders to become accountable for each assignment as most of these accounts are already assigned to a repo company when the Lender gives the list of wanted cars to the LPR company, who then distributes the cameras and coordinates the assignment process when a camera spots a unit.
The owner of a LPR company posted a comment to explain LPR, however the same question remains. Here is his comment and my comment that followed - I think this is a challenge the repo industry faces with the advent of LPR
Here is a comment from Scott Jackson, owner of MV Track:
Scott Jackson • "The MVTRAC system is a real-time alert, so the moment an ALPR unit scans a plate the alert goes off and the agent can print an assignment. We do not view it as a "double assignment" In the early stages of research and development, lender white-board sessions brought this scenario up:
Agent #1 is assigned the account by the lender by fax or database and have been running the addresses for 14 days. Day 15, the VIN hits the MVTRAC systems Nationwide and Agent#2 drives by the vehicle which happens to be located at an originally assigned address assigned to Agent #1 and at that very moment, Agent #1 happens to be at the address as well. In this scenario, Agent #1 has the assignment and Agent #2 can print the assignment after his ALPR system hits on it generates a repossession order.
In this scenario, most would say it's a "Double-Assignment" Technology has definitely changed the playing field for us all. Statistically, the above scenario, the odds of it happening are very-very high (but of course it is still possible) You see, Agent #2 is unaware of the assignment, up until the very moment his system hits on the plate. Agent #1 would most certainly be in the process of recovering the vehicle and Agent #2 would see this, or Agent #1 would be down the street setting up for the recovery if it took some planning.
In the end, this is the scenario for a "double-assignment" with MVTRAC ALPR systems, which in the end comes down to the professionalism of the agents because the danger here is Recovery Agents "fighting" or "arguing", some altercation over the assignment and the recovery. MVTRAC's MVRecovery division maintains an approved vendor list of over 530 Recovery Agencies and as many readers here know, the packet is over 30 pages and very extensive. We're also working developing a Recovery Industry University for the individual agents to attend and become certified, that will cover this scenario and a quite a few more. Collectively, with greater awareness of the challenges of new technology, coupled with professionalism and continuing education, the Recovery Industry will evolve and develop further.........and again...... "
Here is my response...
Once LPR gets dialed and risks are reduced, AND when communication between ALL affected parties improves, it will have an even larger positive impact.
Two agents fighting over a repo is the exact situation our agents are running in to when our skip company, Find John Doe, assigns a locate. It has happened more than a few times , especially in L.A. Multiply that by the potential for a 3rd or 4th LPR Company to get an assignment from a lender …
In one actual case, we gave our agent a locate in a remote area, the unit didn’t show and our agent didn’t want to make a second trip, so they kicked it in. The guy didn’t even know his car was repo’d, so it was awkward, but could have been dangerous if the debtor was confrontational.
The biggest problems will happen when the debtor comes out and stops either the original agent or the LPR agent with a threat and the agent leaves without the unit. Later that night, the second agent spots the unit, and having no idea of the prior confrontation, they begin the repo and this time the debtor may be waiting with their shotgun. This is EXACTLY how my guys were killed several years ago.
Accidents will happen and when they do and there is an injury of some form, lawyers get involved. A review of large suits has proven that when something happens and there is accountability, i.e "In the early stages of research and development, lender white-board sessions brought this scenario up", the Punitive $ add up fast.
There is no doubt LPR is a powerful tool, however, until something really bad happens and a Lender is held accountable, my guess is not much will change. The scary thing is it still may not change, as history dictates with the explosion of the Forwarding model. The issues caused by using inexpensive, sub-professional repo agents to save a buck. i.e. several deaths and injuries caused by Forwarders using the cheapest guy they can find and Lenders turning their head because the contract passes on liability to the Forwarder is well documented, and it still goes on.
The decision to change the current LPR process of double assigning will be based on who is ultimately responsible when something really bad happens? Is it the lender for assigning a plate when they know that almost always it’s a double assignment, or the LPR company for not insuring their agents are protected from double assignments? It certainly can't be the agent in the field’s fault, unless there is something I am missing?
BTW, I like the alert going off concept and the agent being able to immediately take the car idea, but it would be nice if you could also assure that agent that already has his life on the line just by doing the job he does, that he doesn't have a second repo man pulling up when he's in the middle of hooking up, or worse, have a second repo man working "his deal" that already has had a confrontation with the debtor he's about to hook, or kick in.
This is where clients should get involved as I believe that they have the ultimate accountability on this, and if they're passing that liability to the LPR company through some language in a contract, I think LPR companies need to really work to get on top of this before it comes back on an agent in the field. LPR companies have the data, you hold the cards, so it shouldn’t be that hard to tell a Lender they cant risk people's lives and double assign deals. Before LPR, some Lenders double assigned deals, they got in trouble ,and then they stopped. Technology and the volume it will drive will only increase the odds of a problem, so why is it OK now?
If the contract says the LPR company agrees to defend and hold the Lender harmless, that's not a good thing as the LPR company didn't double assign it, the lender did. I’m curious to know how that part works Scott, who is responsible?
The LPR process puts a camera in a vehicle and hundreds or thousands of license plates are scanned each night. Lenders upload lists of the license plates on cars they are looking for and when an LPR camera spots a unit the Lender is looking for, each of the 3 companies with the camera's has a different process they follow, and most, if not all, allow a Lender to have one of their accounts double assigned to more than one repo company at a time- a deadly practice. The problem could be eliminated if the LPR companies required the Lenders to become accountable for each assignment as most of these accounts are already assigned to a repo company when the Lender gives the list of wanted cars to the LPR company, who then distributes the cameras and coordinates the assignment process when a camera spots a unit.
The owner of a LPR company posted a comment to explain LPR, however the same question remains. Here is his comment and my comment that followed - I think this is a challenge the repo industry faces with the advent of LPR
Here is a comment from Scott Jackson, owner of MV Track:
Scott Jackson • "The MVTRAC system is a real-time alert, so the moment an ALPR unit scans a plate the alert goes off and the agent can print an assignment. We do not view it as a "double assignment" In the early stages of research and development, lender white-board sessions brought this scenario up:
Agent #1 is assigned the account by the lender by fax or database and have been running the addresses for 14 days. Day 15, the VIN hits the MVTRAC systems Nationwide and Agent#2 drives by the vehicle which happens to be located at an originally assigned address assigned to Agent #1 and at that very moment, Agent #1 happens to be at the address as well. In this scenario, Agent #1 has the assignment and Agent #2 can print the assignment after his ALPR system hits on it generates a repossession order.
In this scenario, most would say it's a "Double-Assignment" Technology has definitely changed the playing field for us all. Statistically, the above scenario, the odds of it happening are very-very high (but of course it is still possible) You see, Agent #2 is unaware of the assignment, up until the very moment his system hits on the plate. Agent #1 would most certainly be in the process of recovering the vehicle and Agent #2 would see this, or Agent #1 would be down the street setting up for the recovery if it took some planning.
In the end, this is the scenario for a "double-assignment" with MVTRAC ALPR systems, which in the end comes down to the professionalism of the agents because the danger here is Recovery Agents "fighting" or "arguing", some altercation over the assignment and the recovery. MVTRAC's MVRecovery division maintains an approved vendor list of over 530 Recovery Agencies and as many readers here know, the packet is over 30 pages and very extensive. We're also working developing a Recovery Industry University for the individual agents to attend and become certified, that will cover this scenario and a quite a few more. Collectively, with greater awareness of the challenges of new technology, coupled with professionalism and continuing education, the Recovery Industry will evolve and develop further.........and again...... "
Here is my response...
Once LPR gets dialed and risks are reduced, AND when communication between ALL affected parties improves, it will have an even larger positive impact.
Two agents fighting over a repo is the exact situation our agents are running in to when our skip company, Find John Doe, assigns a locate. It has happened more than a few times , especially in L.A. Multiply that by the potential for a 3rd or 4th LPR Company to get an assignment from a lender …
In one actual case, we gave our agent a locate in a remote area, the unit didn’t show and our agent didn’t want to make a second trip, so they kicked it in. The guy didn’t even know his car was repo’d, so it was awkward, but could have been dangerous if the debtor was confrontational.
The biggest problems will happen when the debtor comes out and stops either the original agent or the LPR agent with a threat and the agent leaves without the unit. Later that night, the second agent spots the unit, and having no idea of the prior confrontation, they begin the repo and this time the debtor may be waiting with their shotgun. This is EXACTLY how my guys were killed several years ago.
Accidents will happen and when they do and there is an injury of some form, lawyers get involved. A review of large suits has proven that when something happens and there is accountability, i.e "In the early stages of research and development, lender white-board sessions brought this scenario up", the Punitive $ add up fast.
There is no doubt LPR is a powerful tool, however, until something really bad happens and a Lender is held accountable, my guess is not much will change. The scary thing is it still may not change, as history dictates with the explosion of the Forwarding model. The issues caused by using inexpensive, sub-professional repo agents to save a buck. i.e. several deaths and injuries caused by Forwarders using the cheapest guy they can find and Lenders turning their head because the contract passes on liability to the Forwarder is well documented, and it still goes on.
The decision to change the current LPR process of double assigning will be based on who is ultimately responsible when something really bad happens? Is it the lender for assigning a plate when they know that almost always it’s a double assignment, or the LPR company for not insuring their agents are protected from double assignments? It certainly can't be the agent in the field’s fault, unless there is something I am missing?
BTW, I like the alert going off concept and the agent being able to immediately take the car idea, but it would be nice if you could also assure that agent that already has his life on the line just by doing the job he does, that he doesn't have a second repo man pulling up when he's in the middle of hooking up, or worse, have a second repo man working "his deal" that already has had a confrontation with the debtor he's about to hook, or kick in.
This is where clients should get involved as I believe that they have the ultimate accountability on this, and if they're passing that liability to the LPR company through some language in a contract, I think LPR companies need to really work to get on top of this before it comes back on an agent in the field. LPR companies have the data, you hold the cards, so it shouldn’t be that hard to tell a Lender they cant risk people's lives and double assign deals. Before LPR, some Lenders double assigned deals, they got in trouble ,and then they stopped. Technology and the volume it will drive will only increase the odds of a problem, so why is it OK now?
If the contract says the LPR company agrees to defend and hold the Lender harmless, that's not a good thing as the LPR company didn't double assign it, the lender did. I’m curious to know how that part works Scott, who is responsible?
Saturday, June 12, 2010
How was your weekend?
When building a relationship with another person at a company you do business with, the temptation or opportunity to move that relationship beyond a business relationship can occur. It can be initiated mutually, or by one side when there is something that side perceives they will gain. Schmoozing is what best describes this form of communication. The definition of Schmooze is:
Main Entry: Schmooze
Function: verb
Inflected Form(s): schmoozed or shmoozed; schmooz·ing or shmooz·ing
Etymology: Yiddish shmuesn, from schmues talk, from Hebrew shĕmu'ōth news, rumor
Date: 1884
intransitive verb : to converse informally : chat; also : to chat in a friendly and persuasive manner especially so as to gain favor, business, or connections transitive verb : to engage in schmoozing with
— schmooz·er \ˈshmü-zər\ noun
A solid business relationship is built when each side has an equal amount to gain from the relationship, and when one side gains an advantage, problems start, and the relationship will usually falter.
At a high level, executives get to know each other outside work all the time. Many companies frown on this, and while I agree with the initial perception of a conflict of interest, I can attest that some of the strongest and most valuable business relationships I've formed have been when both companies provided equal value to each other, and when the executive level staff spent enough time together so they built a trust of each other, knowing when a problem occurred, they each could fall back on the relationship they'd built to move past the issues, getting the business relationship back on track. If a catastrophic problem happened, the business relationship may be fractured, but the business bond these individuals had formed would usually transcend the companies they owned or worked for, and their paths would again cross as a result of the individual bond they'd built. The other component to this relationship is talent, allowing a bond to form by two peers with common interests and solid values, and their ability to solve issues and always strive to move their organizations forward without compromising their integrity.
At a staffing level, the playing field is similar, yet the need to communicate more frequently and the inexperience of the staff members in situations like these can make the situations that may arise a bit trickier.
How much small talk is too much? What do you do when the relationship moves from purely business and an innocent comment like "how was your weekend?" to "will you be my Facebook friend?", or "we should get together sometime."
As an employer, those last two scenarios can be seen as harmless by some, but in many cases they can be the beginning of the end for what the Executives thought was a solid business relationship. If my employee becomes friends with your employee will that influence their business decisions? If they're sleeping together and then one pulls the plug, will that affect my business relationship I've built on a high level with a client who sees value in our product or services? Is one of those people capable of having a hidden agenda that could really cause problems?
In thirty plus years of working in offices, I've learned some lessons the hard way, and my philosophy nowadays is to keep my business and personal life as separate as possible. I encourage our employees to do the same. I love hearing my people did a great job, and I know when you do enough great jobs you'll start getting closer to a client, or vice versa, as it will influence the amount of work that flows between two companies. I'd always prefer to be judged on what I do, and not on what I said I could do, or in a way which could be perceived as a conflict of interest in a manner which could affect my relationship with my employer, my client, or my company.
So, what do you do when a relationship that was friendly starts getting too friendly?
Find easy ways to identify these situations and without offending the other person, drop hints that hopefully they will understand over time:
1. Find things to say when the conversation goes in the wrong direction, i.e.
A) "I've got a call coming in on the other line, can I get back to you?"
B) "Can you hang on a minute?"
Place hand over mouthpiece on phone and say
"Just a minute"
Remove hand and say:
"Sorry about that, can I give you a call back later, I've gotta run.."
C) If my wife heard you talking like that I'm not sure who would be in more trouble, you or me.
OK, just kidding about the last one, but you get the idea. Find ways to catch the tone going the wrong direction early and find a way to move on. Don't avoid the person, keep consistent with your desire to be friendly and occasionally chat on an impersonal level, but at all costs, avoid getting into your personal lives other than you have a great family or you are happily single or whatever. I tell my people to stay away from the details or the next thing you know you will be sitting in someone's office listening to something you don't want other people to hear as the conflict of interest or the content of your conversation will clearly indicate this got way beyond the point of "how was your weekend?". That can cause more problems than you want to deal with at your job, and how would you feel if the other person got fired and you initiated the conversation, or you played along.
Business is business, and your ability to develop a reputation for delivering a product or service will take you places in your career. If you can do that while having a little personality, being a nice person with good morals, you will succeed in business. By not crossing the business to personal line, you will be ahead of the game. When it happens and you didn't initiate it, be prepared to control the situation with the fine art of bringing it back to business when it crosses the line. This is a trait you want in your tool box and it will help carry you a long way in your road to personal success in your business career.
Main Entry: Schmooze
Function: verb
Inflected Form(s): schmoozed or shmoozed; schmooz·ing or shmooz·ing
Etymology: Yiddish shmuesn, from schmues talk, from Hebrew shĕmu'ōth news, rumor
Date: 1884
intransitive verb : to converse informally : chat; also : to chat in a friendly and persuasive manner especially so as to gain favor, business, or connections transitive verb : to engage in schmoozing with
— schmooz·er \ˈshmü-zər\ noun
A solid business relationship is built when each side has an equal amount to gain from the relationship, and when one side gains an advantage, problems start, and the relationship will usually falter.
At a high level, executives get to know each other outside work all the time. Many companies frown on this, and while I agree with the initial perception of a conflict of interest, I can attest that some of the strongest and most valuable business relationships I've formed have been when both companies provided equal value to each other, and when the executive level staff spent enough time together so they built a trust of each other, knowing when a problem occurred, they each could fall back on the relationship they'd built to move past the issues, getting the business relationship back on track. If a catastrophic problem happened, the business relationship may be fractured, but the business bond these individuals had formed would usually transcend the companies they owned or worked for, and their paths would again cross as a result of the individual bond they'd built. The other component to this relationship is talent, allowing a bond to form by two peers with common interests and solid values, and their ability to solve issues and always strive to move their organizations forward without compromising their integrity.
At a staffing level, the playing field is similar, yet the need to communicate more frequently and the inexperience of the staff members in situations like these can make the situations that may arise a bit trickier.
How much small talk is too much? What do you do when the relationship moves from purely business and an innocent comment like "how was your weekend?" to "will you be my Facebook friend?", or "we should get together sometime."
As an employer, those last two scenarios can be seen as harmless by some, but in many cases they can be the beginning of the end for what the Executives thought was a solid business relationship. If my employee becomes friends with your employee will that influence their business decisions? If they're sleeping together and then one pulls the plug, will that affect my business relationship I've built on a high level with a client who sees value in our product or services? Is one of those people capable of having a hidden agenda that could really cause problems?
In thirty plus years of working in offices, I've learned some lessons the hard way, and my philosophy nowadays is to keep my business and personal life as separate as possible. I encourage our employees to do the same. I love hearing my people did a great job, and I know when you do enough great jobs you'll start getting closer to a client, or vice versa, as it will influence the amount of work that flows between two companies. I'd always prefer to be judged on what I do, and not on what I said I could do, or in a way which could be perceived as a conflict of interest in a manner which could affect my relationship with my employer, my client, or my company.
So, what do you do when a relationship that was friendly starts getting too friendly?
Find easy ways to identify these situations and without offending the other person, drop hints that hopefully they will understand over time:
1. Find things to say when the conversation goes in the wrong direction, i.e.
A) "I've got a call coming in on the other line, can I get back to you?"
B) "Can you hang on a minute?"
Place hand over mouthpiece on phone and say
"Just a minute"
Remove hand and say:
"Sorry about that, can I give you a call back later, I've gotta run.."
C) If my wife heard you talking like that I'm not sure who would be in more trouble, you or me.
OK, just kidding about the last one, but you get the idea. Find ways to catch the tone going the wrong direction early and find a way to move on. Don't avoid the person, keep consistent with your desire to be friendly and occasionally chat on an impersonal level, but at all costs, avoid getting into your personal lives other than you have a great family or you are happily single or whatever. I tell my people to stay away from the details or the next thing you know you will be sitting in someone's office listening to something you don't want other people to hear as the conflict of interest or the content of your conversation will clearly indicate this got way beyond the point of "how was your weekend?". That can cause more problems than you want to deal with at your job, and how would you feel if the other person got fired and you initiated the conversation, or you played along.
Business is business, and your ability to develop a reputation for delivering a product or service will take you places in your career. If you can do that while having a little personality, being a nice person with good morals, you will succeed in business. By not crossing the business to personal line, you will be ahead of the game. When it happens and you didn't initiate it, be prepared to control the situation with the fine art of bringing it back to business when it crosses the line. This is a trait you want in your tool box and it will help carry you a long way in your road to personal success in your business career.
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
Friday, November 23, 2007
Sub-Prime Mortgage problem sounds a lot like prior Sub-Prime Auto Finance problems from the 90s.
“WHAT WERE THEY SMOKING?”
My buddy is a real estate investor. When I asked him the other day “how’s business”, I was very interested in his take on the situation. Like everyone else, I’ve heard all the bad news about the Sub-Prime mortgage industry. Freddie Mac down two billion for the quarter. Moody’s estimates 1.7 million homes will be lost to foreclosure in 07-08, double the prior two year total, and a conservative number to many. Citigroup CEO resigns after a ten billion dollar write down, Merrill Lynch loses eight billion, and it’s CEO.
What I didn’t know was exactly how this happened, or more importantly, when it would hit rock bottom. I figured my buddy could clue me in, and in doing so, I believe he hit the nail on the head. Several times during his analysis he used the term “Reset Rate”. I knew a reset was the point when a loan resets to a different interest rate, usually a higher one. What I didn’t know was that there was a mechanism in place to track this number. I guess I shouldn’t have been surprised, because I’ve learned during the start-up phase of Find John Doe that almost everything can be tracked.
His business, like mine, is directly tied to the Sub-Prime mortgage fall-out. When he told me the high water mark for resets will happen this March, when One Hundred and Ten Billion Dollars in mortgage paper will reset, he caught my attention. When he told me the high months in 2007 were September and December at fifty eight billion each, and when he further explained that the first six months of 2008 will reset at an amount that’s almost equal to what will have reset in all of 2007, I got my answer. We’re in big trouble, again.
I say again because while we were talking, I started to realize that this was sounding way too familiar. I’ve been in the auto finance industry since 1982, and in 1999, I was a small player in the clean up of the Sub-Prime auto financing carnage. Not many people outside our industry even knew of our woe’s back then, mainly because our troubles happened at the same time Internet 1.0 started to implode, and mostly because we’re talking about car loans, not home loans.
I’ll never forget when a client of mine explained Sub-Prime auto financing to me back in the mid 90s. At first, it didn’t sound much different than what some of the mouse-house finance companies you see in rural strip malls were already doing, charging highway robbery interest rates to try and cover their butts in case a large percentage of the deadbeats they put on the road couldn’t make their payments. My client further explained that due to the popularity of credit scoring and better credit reporting methods, there were more people that needed second-chance financing than all the mouse-houses could handle. Then he mentioned a word I’d never really heard associated with auto financing; Wall Street.
Back in those days, my wife and I owned a medium sized repossession business that paid the bills and kept us busy running a business that really needs a screenplay written about its idiosyncrasies to fully explain what goes on behind the scenes in one of America’s more interesting industries, but I digress.
When my client explained how Wall Street investors were looking to purchase large, securitized pools of auto loans, I asked him a simple question; who is going to find the people who skip, and who is going to repossess their cars? He smiled knowingly, and within a couple years my wife and I grew our business into the largest repossession company in the country. What happened was actually pretty straight forward. I quickly realized that these Wall Street investors needed to hire a servicing company to work all these loans they’d purchased, so I started looking around to see who these servicer’s were. Suprisingly, there weren’t many. When we located the one’s who were getting into this during the infancy of Sub-Prime servicing, we soon realized that the one’s servicing the loans were struggling with a process that many lenders have struggled with for years; skip-tracing and repossession.
I’d been hired by Chrysler Credit back in 1982 as a field rep, which was a corporate way of saying repo man. After five years at Chrysler and a year at Mitsubishi’s start up financial arm, I branched out into the private sector to manage two small Los Angeles repossession companies. My wife and I then started a skip tracing company in 1989, and after a few cocktails we named it after a film we’d just seen; Skipbusters. When the Sub-Prime wave began to hit around 1995, Skipbusters started to get really busy, especially after the delays in collection activity that should have taken place on these loans, but didn’t, because each loan had now changed hands from originator, to Wall Street investor, to servicer, in a relatively short period of time. Within a year we had contracted with a nationwide network of what we considered to be the ‘best of the best’ repossession companies in the country, and we were locating and they were popping hundreds of cars every day.
It was during this time that one of the largest servicers came to us with a problem. They were having trouble finding the best repossession companies to do their work on their “normal” repossession assignments. Anyone who has ever been associated with repossession knows the word “normal” is not in our vocabulary. Anyway, they wanted to know if we would manage their repossession process for them. We did some research and quickly determined that no one in the country was doing this type of work. Manheim Auctions had tried it a few years back, and when I called and discussed their experiences with the person who managed this process for them, they suggested I don’t attempt it as it “blew up in our faces”.
We then polled the repossession companies we were sending work to through Skipbusters, and everyone said they were up for more volume, so we formed a company called American Recovery Service. We started by managing the repossession process for many Wall Street investors, and then we branched into doing work for mainstream companies like VW credit, General Electric Capital, and other more traditional lenders. Within two years, our business doubled and then tripled, and we were handling a then industry record fifty thousand assignments for repossession a year. In March of 1999, after too many eighteen hour days and with two kids who didn’t know their parents well enough, we sold our companies to a large auto transport and towing company that expressed a desire to get into the repossession industry. We were the sixty-sixth and last acquisition this company did, but unfortunately, most of the promises they made were never kept.
In hindsight, the promises weren’t kept for three reasons. First off, our main customers, the Wall Street investors, were starting to really take some huge losses. Many were going out of business, and that started to affect our business right after we sold the company. Secondly, the Internet bubble was starting to burst, and that was carrying over into many industries, including ours. The third reason is one that I now see as the biggest reason back then, and the biggest reason now, given the current trouble the Sub-Prime mortgage industry faces. It’s a reason that is as old as time; Greed. When I started to see the house of cards the company who bought mine was built around, I resigned and left the auto finance industry after a twenty-year career.
As I now look back on those times, I can see how greed played an important role in the creation of the Sub-Prime auto industry mess. When my buddy was explaining the current woe’s of the Sub-Prime mortgage industry, I quickly connected the dots and realized that greed must have played a role in how we got into the current situation we are in. It was then I recalled seeing the cover of this week’s Fortune magazine sitting on my nightstand, an issue I’d yet to read. I remembered the cover saying “WHAT WERE THEY SMOKING?” and it showed the faces of four recent CEO’s who resigned their positions amidst the looming crisis. When I got home after talking to my buddy, I read the accompanying article. It went on to detail the billions in losses and write downs major corporations are now having to record when they try and assess the value of these high risk mortgage loans they still carry on their books, “and no one seems to have any idea what they’re worth”, the article goes on to say.
So, when my buddy told me “We’re waiting for the reset to hit the high water mark, and then we’ll see what the fall-out is”, I now realized exactly what he was on to. The problem is caused when the reset amount is more than the person can afford to pay, and it’s compounded when there is no equity in their home because the bottom has fallen out of the housing market. The equity they thought they would have in place to allow them to refinance their loan is not there, i.e. no one will make a $300K loan on a home now worth only $270K, especially when it appears $270K may be $250K in a few months.
The Sub-Prime mortgage problem was caused by a number of factors. For starters, lenders gave brokers too much flexibility in lending qualifications, making it difficult for the lenders to properly assess the risk of each loan. Not that anyone cared, because they all were riding the wave and making money hand over fist, but it was the first breakdown of the most common of all lending practices; qualification. The next factor was the poor structuring of loan products by investment banks. The popular adjustable rate loans in 2005 and 2006 looked great to the rookie investor jumping on the house flipping bandwagon, or even more sadly, to the first time homeowner who was sold a bill of goods they ultimately never could pay. These loans, which are now the one’s that are resetting at record rates and causing the largest impact in the current blood-bath, did not offer lenders or their customers many options when we saw a 200 basis point rise in mortgage interest rates and the sharp decline of new home sales and dropping sales prices. “If the home goes up just half the amount it’s gone up in the past two years, you’ll have more than enough equity to refinance it at a reasonable rate before your balloon is due”. Those are some famous last words many people heard as they signed up for a loan that would eventually become a foreclosure.
So when will it hit rock bottom? My buddy said they’re expecting the fall-out from the first four months of ’08 to hit hard in Q2 and Q3, “because it takes a while after the reset for the foreclosure process to run it’s course”, he said. I agreed, and then I started to wonder how this will carry over into other industries, especially the one I have now jumped back into after a six year absence, auto finance.
When you take a closer look at the number of these loans due to reset in 2008, and the scary similarities to the Sub-Prime Auto Loan problems we witnessed first hand back in 1999, I believe you will agree that the problem looks like it will get worse before it gets better, and statistics are starting to show this problem is starting to carry over into other financial sectors.
An article in the Columbus Dispatch titled “Car sales are the latest Sub Prime casualty” recently stated, ”Payments on 2.73 percent of auto loans made through car dealerships were at least 30 days past due in the first quarter of 2007, a 10-year high, the American Bankers Association said.
Called indirect loans, this type of financing accounted for about 75 percent of all car loans in 2006, said research firm J.D. Power and Associates.”
Tom Krisher wrote, in an article from this past Monday titled “Analysts worry that mortgage troubles could spread to auto loans ”Lehman Brothers analyst Brian Johnson said his analysis of auto loan-backed securities sold by Ford Motor Credit Co. and GMAC Financial Services showed some higher delinquency rates for October and September compared with recent years.”
Experience also tells me that the finance companies that go into 2008 prepared to handle the worst will come out of this much better than those who go in with blinders on, unprepared.
My suggestion to the finance companies is to find a way to recognize a problem before the problem finds you. Identify your high-risk accounts, especially those directly affected by the Sub-Prime mortgage fallout. Update your vendor lists, make sure you have the help in place to handle the storm when it hits, i.e. solid repossession companies and reputable skip tracing companies who have been tested through a champion v challenger program in the larger metropolitan and higher volume areas. Make sure you have a plan in place to see the signs of trouble, and work your early stage accounts harder than ever when those signs show a problem starting to happen. With the tools we now have available at our disposal, this process has never been more efficient, but if you don’t free up and devote your management and IT resources toward looking into the future, you may find yourself wishing you had done that a year from now.
http://www.msnbc.msn.com/id/21887610/
http://www.investorsinsight.com/thoughts_va.aspx?EditionID=564
http://jec.senate.gov/Releases/10.04.07SubprimeLeadershipEvent.html
http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232838/index.htm?postversion=2007111212
http://www.columbusdispatch.com/live/content/local_news/stories/2007/09/02/carloans.ART_ART_09-02-07_A1_0D7PLPO.html?sid=101
http://en.wikipedia.org/wiki/Balloon_payment_mortgage
http://www.businessweek.com/autos/content/may2007/bw20070502_662106.htm?chan=autos_autos+index+page_top+stories
My buddy is a real estate investor. When I asked him the other day “how’s business”, I was very interested in his take on the situation. Like everyone else, I’ve heard all the bad news about the Sub-Prime mortgage industry. Freddie Mac down two billion for the quarter. Moody’s estimates 1.7 million homes will be lost to foreclosure in 07-08, double the prior two year total, and a conservative number to many. Citigroup CEO resigns after a ten billion dollar write down, Merrill Lynch loses eight billion, and it’s CEO.
What I didn’t know was exactly how this happened, or more importantly, when it would hit rock bottom. I figured my buddy could clue me in, and in doing so, I believe he hit the nail on the head. Several times during his analysis he used the term “Reset Rate”. I knew a reset was the point when a loan resets to a different interest rate, usually a higher one. What I didn’t know was that there was a mechanism in place to track this number. I guess I shouldn’t have been surprised, because I’ve learned during the start-up phase of Find John Doe that almost everything can be tracked.
His business, like mine, is directly tied to the Sub-Prime mortgage fall-out. When he told me the high water mark for resets will happen this March, when One Hundred and Ten Billion Dollars in mortgage paper will reset, he caught my attention. When he told me the high months in 2007 were September and December at fifty eight billion each, and when he further explained that the first six months of 2008 will reset at an amount that’s almost equal to what will have reset in all of 2007, I got my answer. We’re in big trouble, again.
I say again because while we were talking, I started to realize that this was sounding way too familiar. I’ve been in the auto finance industry since 1982, and in 1999, I was a small player in the clean up of the Sub-Prime auto financing carnage. Not many people outside our industry even knew of our woe’s back then, mainly because our troubles happened at the same time Internet 1.0 started to implode, and mostly because we’re talking about car loans, not home loans.
I’ll never forget when a client of mine explained Sub-Prime auto financing to me back in the mid 90s. At first, it didn’t sound much different than what some of the mouse-house finance companies you see in rural strip malls were already doing, charging highway robbery interest rates to try and cover their butts in case a large percentage of the deadbeats they put on the road couldn’t make their payments. My client further explained that due to the popularity of credit scoring and better credit reporting methods, there were more people that needed second-chance financing than all the mouse-houses could handle. Then he mentioned a word I’d never really heard associated with auto financing; Wall Street.
Back in those days, my wife and I owned a medium sized repossession business that paid the bills and kept us busy running a business that really needs a screenplay written about its idiosyncrasies to fully explain what goes on behind the scenes in one of America’s more interesting industries, but I digress.
When my client explained how Wall Street investors were looking to purchase large, securitized pools of auto loans, I asked him a simple question; who is going to find the people who skip, and who is going to repossess their cars? He smiled knowingly, and within a couple years my wife and I grew our business into the largest repossession company in the country. What happened was actually pretty straight forward. I quickly realized that these Wall Street investors needed to hire a servicing company to work all these loans they’d purchased, so I started looking around to see who these servicer’s were. Suprisingly, there weren’t many. When we located the one’s who were getting into this during the infancy of Sub-Prime servicing, we soon realized that the one’s servicing the loans were struggling with a process that many lenders have struggled with for years; skip-tracing and repossession.
I’d been hired by Chrysler Credit back in 1982 as a field rep, which was a corporate way of saying repo man. After five years at Chrysler and a year at Mitsubishi’s start up financial arm, I branched out into the private sector to manage two small Los Angeles repossession companies. My wife and I then started a skip tracing company in 1989, and after a few cocktails we named it after a film we’d just seen; Skipbusters. When the Sub-Prime wave began to hit around 1995, Skipbusters started to get really busy, especially after the delays in collection activity that should have taken place on these loans, but didn’t, because each loan had now changed hands from originator, to Wall Street investor, to servicer, in a relatively short period of time. Within a year we had contracted with a nationwide network of what we considered to be the ‘best of the best’ repossession companies in the country, and we were locating and they were popping hundreds of cars every day.
It was during this time that one of the largest servicers came to us with a problem. They were having trouble finding the best repossession companies to do their work on their “normal” repossession assignments. Anyone who has ever been associated with repossession knows the word “normal” is not in our vocabulary. Anyway, they wanted to know if we would manage their repossession process for them. We did some research and quickly determined that no one in the country was doing this type of work. Manheim Auctions had tried it a few years back, and when I called and discussed their experiences with the person who managed this process for them, they suggested I don’t attempt it as it “blew up in our faces”.
We then polled the repossession companies we were sending work to through Skipbusters, and everyone said they were up for more volume, so we formed a company called American Recovery Service. We started by managing the repossession process for many Wall Street investors, and then we branched into doing work for mainstream companies like VW credit, General Electric Capital, and other more traditional lenders. Within two years, our business doubled and then tripled, and we were handling a then industry record fifty thousand assignments for repossession a year. In March of 1999, after too many eighteen hour days and with two kids who didn’t know their parents well enough, we sold our companies to a large auto transport and towing company that expressed a desire to get into the repossession industry. We were the sixty-sixth and last acquisition this company did, but unfortunately, most of the promises they made were never kept.
In hindsight, the promises weren’t kept for three reasons. First off, our main customers, the Wall Street investors, were starting to really take some huge losses. Many were going out of business, and that started to affect our business right after we sold the company. Secondly, the Internet bubble was starting to burst, and that was carrying over into many industries, including ours. The third reason is one that I now see as the biggest reason back then, and the biggest reason now, given the current trouble the Sub-Prime mortgage industry faces. It’s a reason that is as old as time; Greed. When I started to see the house of cards the company who bought mine was built around, I resigned and left the auto finance industry after a twenty-year career.
As I now look back on those times, I can see how greed played an important role in the creation of the Sub-Prime auto industry mess. When my buddy was explaining the current woe’s of the Sub-Prime mortgage industry, I quickly connected the dots and realized that greed must have played a role in how we got into the current situation we are in. It was then I recalled seeing the cover of this week’s Fortune magazine sitting on my nightstand, an issue I’d yet to read. I remembered the cover saying “WHAT WERE THEY SMOKING?” and it showed the faces of four recent CEO’s who resigned their positions amidst the looming crisis. When I got home after talking to my buddy, I read the accompanying article. It went on to detail the billions in losses and write downs major corporations are now having to record when they try and assess the value of these high risk mortgage loans they still carry on their books, “and no one seems to have any idea what they’re worth”, the article goes on to say.
So, when my buddy told me “We’re waiting for the reset to hit the high water mark, and then we’ll see what the fall-out is”, I now realized exactly what he was on to. The problem is caused when the reset amount is more than the person can afford to pay, and it’s compounded when there is no equity in their home because the bottom has fallen out of the housing market. The equity they thought they would have in place to allow them to refinance their loan is not there, i.e. no one will make a $300K loan on a home now worth only $270K, especially when it appears $270K may be $250K in a few months.
The Sub-Prime mortgage problem was caused by a number of factors. For starters, lenders gave brokers too much flexibility in lending qualifications, making it difficult for the lenders to properly assess the risk of each loan. Not that anyone cared, because they all were riding the wave and making money hand over fist, but it was the first breakdown of the most common of all lending practices; qualification. The next factor was the poor structuring of loan products by investment banks. The popular adjustable rate loans in 2005 and 2006 looked great to the rookie investor jumping on the house flipping bandwagon, or even more sadly, to the first time homeowner who was sold a bill of goods they ultimately never could pay. These loans, which are now the one’s that are resetting at record rates and causing the largest impact in the current blood-bath, did not offer lenders or their customers many options when we saw a 200 basis point rise in mortgage interest rates and the sharp decline of new home sales and dropping sales prices. “If the home goes up just half the amount it’s gone up in the past two years, you’ll have more than enough equity to refinance it at a reasonable rate before your balloon is due”. Those are some famous last words many people heard as they signed up for a loan that would eventually become a foreclosure.
So when will it hit rock bottom? My buddy said they’re expecting the fall-out from the first four months of ’08 to hit hard in Q2 and Q3, “because it takes a while after the reset for the foreclosure process to run it’s course”, he said. I agreed, and then I started to wonder how this will carry over into other industries, especially the one I have now jumped back into after a six year absence, auto finance.
When you take a closer look at the number of these loans due to reset in 2008, and the scary similarities to the Sub-Prime Auto Loan problems we witnessed first hand back in 1999, I believe you will agree that the problem looks like it will get worse before it gets better, and statistics are starting to show this problem is starting to carry over into other financial sectors.
An article in the Columbus Dispatch titled “Car sales are the latest Sub Prime casualty” recently stated, ”Payments on 2.73 percent of auto loans made through car dealerships were at least 30 days past due in the first quarter of 2007, a 10-year high, the American Bankers Association said.
Called indirect loans, this type of financing accounted for about 75 percent of all car loans in 2006, said research firm J.D. Power and Associates.”
Tom Krisher wrote, in an article from this past Monday titled “Analysts worry that mortgage troubles could spread to auto loans ”Lehman Brothers analyst Brian Johnson said his analysis of auto loan-backed securities sold by Ford Motor Credit Co. and GMAC Financial Services showed some higher delinquency rates for October and September compared with recent years.”
Experience also tells me that the finance companies that go into 2008 prepared to handle the worst will come out of this much better than those who go in with blinders on, unprepared.
My suggestion to the finance companies is to find a way to recognize a problem before the problem finds you. Identify your high-risk accounts, especially those directly affected by the Sub-Prime mortgage fallout. Update your vendor lists, make sure you have the help in place to handle the storm when it hits, i.e. solid repossession companies and reputable skip tracing companies who have been tested through a champion v challenger program in the larger metropolitan and higher volume areas. Make sure you have a plan in place to see the signs of trouble, and work your early stage accounts harder than ever when those signs show a problem starting to happen. With the tools we now have available at our disposal, this process has never been more efficient, but if you don’t free up and devote your management and IT resources toward looking into the future, you may find yourself wishing you had done that a year from now.
http://www.msnbc.msn.com/id/21887610/
http://www.investorsinsight.com/thoughts_va.aspx?EditionID=564
http://jec.senate.gov/Releases/10.04.07SubprimeLeadershipEvent.html
http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232838/index.htm?postversion=2007111212
http://www.columbusdispatch.com/live/content/local_news/stories/2007/09/02/carloans.ART_ART_09-02-07_A1_0D7PLPO.html?sid=101
http://en.wikipedia.org/wiki/Balloon_payment_mortgage
http://www.businessweek.com/autos/content/may2007/bw20070502_662106.htm?chan=autos_autos+index+page_top+stories
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