The State of the Repossession industry: 2011
A friend asked me, “Can you explain the repossession industry?”
“Funny you should ask”, I commented, “because after reading blog after blog, and comment after comment about all the in-fighting and grandstanding that’s been going on in the repo industry lately, my knee jerk reaction was “Wow, that’s a loaded question”.
“Why is that? she asked.
“Well, for starters, repossession in general has always been a highly fragmented, mom and pop kind of industry, but it appears to quickly becoming more corporate, and those who don’t take the steps to keep up may find themselves left in the dust. We seem to be on the verge of a great deal of consolidation activity as larger players have emerged and they need market share to survive,” I said.
“In the past couple of decades, and especially in the past ten years, many of these mom and pop operations have grown, some due to a passing of the torch to a younger generation within the same family, and some due to new blood coming into our industry, and many of these “newbies” are not afraid to take the risk required to rapidly grow their organizations, ” I explained.
“Ok, so why the fighting?” She asked.
“Well, that’s the tricky part. Let’s start by looking at the players:
• Lenders- this is where it starts- these companies loan money and they range from small finance companies in your local shopping center to credit unions to small, medium and large banks as well as companies built to finance a certain manufacturers car, and these companies are called “Captive’s”. General Motors Acceptance Corporation (GMAC) was a captive that always used to finance only GM products, or sometimes other models if they were sold used off the GM dealer lot, but like many companies they got in trouble. Our Government helped them out last summer by making them an offer they couldn’t refuse; “Become a bank and be open to financing anyone, and help out Chrysler btw, and if you do that we’ll give you TARP funds and you will succeed if you follow the plan”. They followed it better than anyone expected, probably because unlike most start up banks they had the deck stacked with GMAC veterans, and their catchy marketing plan and 24 hour internet based business model came on the scene at just the right time and now they’re either on pace to pay all the money back or they’ve already paid it back, and they’re positioned to do an IPO later this year.
• Repo Companies- There’s somewhere between 2500 and 5000 companies in the US that perform this service, most are reputable, a handful are not. The larger they are the better chance they’re reputable, but even the big one’s can take part in questionable business practices at times. A few states license and regulate this industry, most don’t. Most of these companies are small, one-location mom and pop operations doing less than $500K in annual revenue. The larger one’s do in excess of fifty million in revenue, some may even double that. The larger ones cover large areas of a state, all of the state, multiple states, or in a couple cases they cover most of the country. From my experience, running a repossession company has to be one of the more difficult businesses to manage. Finding good people to work in the field is extremely difficult, and training and managing them is even tougher. Your customers who give you work: lenders and companies they use as “middle men” can be demanding, and they’re not usually very loyal, although good repo companies build “brand name loyalty” by providing above-average levels of service. The lenders clients, and people whose cars are being repossessed are rarely happy, and you’re better off avoiding the debtors at all costs, when it’s practical to do so. If you are going to own a repo company you should not have high blood pressure, you shouldn’t be afraid of working 24/7/365 and you need a good lawyer, and a mentor who knows the industry if you’re just starting out, or if you’re struggling. You also better have kick ass software these days or you’ll get left in the dust by those who do. Many people think LPR- License Plate Recognition (see below) technology will change the face of the industry. I’ve seen the industry change with forwarding and skip tracing, and LPR seems to have the same potential impact as these innovations, but as is the case in many businesses and in our lives, (think Facebook and Google) Software as a Service is what will define the future of the repossession industry and without the best software available, repo companies who don’t have it will struggle to compete with those who do, and its as simple as that.
• Repossessors- The un-sung hero’s. Most are male, most drive tow trucks, and most are pretty resourceful. These guys are performing a job that ranks right behind the repo company owner in terms of degree of difficulty. Like the company they work for, they’re paid for results, and unfortunately only certain results count, which usually means no car, no commission. There are a handful of legendary, great one’s, many good one’s and many who are mediocre or just flat not good and in many cases a liability to the company they work for, and to themselves and the general public for that matter. This is a job that requires risk, but when those risks are not calculated, things can go wrong in a hurry, and that can be deadly.
• Forwarders- These are companies who receive all or a portion of a lenders repossession assignments and their job is to manage the repossession process. This includes picking a repo company they contract with and assigning the account to them for repo. They’re supposed to assign accounts only to companies that are licensed (if applicable), insured, and reputable, with the key word being “supposed to” as for some reason many lenders don’t do a very good job of insuring their Forwarding companies are using only reputable repossession companies. After the Forwarder assigns the account to the repo company, they follow for the progress through a series of written updates and phone calls between the forwarder and the repo company. Once the account is repossessed, or after the account closes due to the customer paying, or something else happening including the car not being located, the forwarder bills the lender for their services when that result is positive (repo or paid) or if the unit is not located there is usually not a bill generated; this is called contingency, one of a handful of “four letter words” in the repo industry. In addition to the repossession fee from the company they hire, Forwarders also charge a handling fee on the assignments they successfully conclude. This sub-industry within the repo industry has gone from barely a blip on the radar when we started American Recovery Service in 1994 to a major force in the industry where as many as 40-50% of all repossession assignments now are assigned to forwarding companies. The model has also changed, for the worse in my opinion, and many forwarders don’t use reputable companies to send work to, and for some reason many clients don’t seem to care who the forwarder uses to represent their company, which I think is crazy. The most dangerous job a bank is responsible for is likely repossession, so one would think they would want to insure the person doing the job and representing the bank is a professional, licensed, insured, reputable, trained repossessor. That’s not the case too many times, and if you Google “repo death” you’ll find examples of what happens when it goes south, and in many of these cases there is a Forwarding company involved.
• Skip Tracing Companies – When the finance company doesn’t know where to assign the account for repossession, they hire a skip tracing company like Find John Doe, or dozens of other companies like this who do the same thing; locate people who are trying not to be found. Back in 1988 when we started Skipbusters, I’d never heard of a skip tracing company and I’m not sure if there were any out there. I thought of the idea when I worked at Chrysler a few years earlier. I’d been sent to different branches to find people who had loans that those branches were trying to stop from charging off. The only option we had back then were finding these people ourselves or utilizing repossession companies and some were great at finding anyone, but for some reason we weren’t allowed to pay repo companies for skip tracing, or if we did it was limited to like $75. I’d heard the reason was the repo guy got caught with his hand in the cookie jar too many times and they didn’t trust them to bill for skip tracing as sometimes they’d charge for skip work and they really didn’t do anything that warranted a fee. Nowadays, skip tracing is a big industry, and a big part of the repossession process, and in many cases they also perform the same service as a forwarder when they coordinate the repo process for the lender.
• Skip Tracers – aka Investigators, these are the people who are good at finding people. They utilize public records and information they gather from a lenders notes, from a credit application the debtor filled out when they bought the car, and they gather info through the Internet. Then they contact friends, relatives, neighbors, landlords, ex-places of employment and a variety of other sources, or leads, as they attempt to gain pieces of information on where the customer and/or collateral are located. They are also skilled negotiators, as many times they will make contact and convince the debtor to surrender their unit.
• License Plate Recognition Technology Companies – This is a somewhat new concept, high speed cameras mounted on tow trucks and cars that scan thousands of plates a day. The scanned plate and its GPS location are downloaded into a computer and then the unit is either repossessed right there on the spot, or the lender is notified and asked to pay a fee for the location of the unit. I’m not sure how the second part bypasses laws like the one in California that says its illegal to do this:
(j) Soliciting from the legal owner the recovery of specific collateral registered under the Vehicle Code or under the motor vehicle licensing laws of other states after the collateral has been seen or located on a public street or on public or private property without divulging the location of the vehicle. The fine shall be one hundred dollars ($100) for the first violation and two hundred fifty dollars ($250) for each violation thereafter.
• Transporters – These are the companies who pick up the vehicles from the repossession yard after they’re repossessed, but they’re just bit players in this story.
• Auctions – After the unit is repossessed the debtor is sent a letter and they have a right to pay off the unit, and in some cases they can get it back by paying the past due payments. If they don’t reinstate the loan or pay it off, the unit is transported to a private auction and it’s sold.
• Repossession and Collection Software Companies – In 1998, I wrote a business plan that detailed the development of a repossession software to allow clients and repossession companies an internet portal to send and receive assignments, to update accounts, to process repossessions, to coordinate the transportation of the unit to auction and to document the sale process. Prior to that, I’d been involved in some enhancements of a repossession software called eTracker, and I’d used one of the first repossession software’s called Pro’s, but as of 1998, we were just barely starting to email assignments and updates, so the internet was not on anyone’s radar as a way to manage the repossession process. We ended up selling our company in 1999 to a different company than the company I wrote the business plan for, but a few years later the idea I’d written about came to be in a software built by one of the principals and it became the dominant software in our industry; RDN. There have been others written since then, and some have gained market share, and now, thirteen years later, we’ve finished our own software called masterQueue, and we’re preparing to bring it to market in the Spring. We believe it has the potential to change the face of the lending, repossession, forwarding and skip tracing industries, and most of all, I hope it can help repossession agencies manage their businesses more efficiently, because if anyone deserves a break it’s the repo guys. We’ve also written over a dozen interfaces with other software companies and were hoping that other software companies in our industry will follow our lead in working with each other, as no one wins when we don’t all cooperate and work together, and hopefully RDN will also interface with us to make everyone’s job easier.
Showing posts with label repossession. Show all posts
Showing posts with label repossession. Show all posts
Monday, February 28, 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.
Monday, November 30, 2009
Why Forwarding?
I just received this note from a TFA member about the state of the forwarding business.
Having helped create this industry within our industry, its a subject I am passionate about, as you can tell by some of my other blogs. He raises some good points and I've copied his letter below for your reference.
I agree with most of what he says, but I disagree with his statement that the reason lenders went to Forwarders was gouging? Maybe on a few occasions, as is the case with any industry, but lenders are paying more now for a managed process, so it is doubtful to me that it was a cost issue, or a gouging issue.
I witnessed first hand the transformation of Chrysler Credit from a hundred or so branch company to a 3-4 call center company. That is one reason lenders went to forwarders as it became difficult for these companies to manage so many relationships after they went to a national call center model. It killed the days of getting to know your local repo man. When I was a collector in the Sacramento branch, and a collection manager in Long Beach and Cerritos for Chrysler Credit, I knew all the agents in town, and I knew who to use, and who not to use. Being the president of some association didn't automatically qualify a repo company as being good in my book back then, or even now. I respect those who serve the industry, but for me the bottom line is always the bottom line, and that's performance.
Good luck knowing your local Wyoming repo man if your at a call center in Dallas. Relationships are built on trust, and that's tough when you've never even met the person who owns the repo company. Relationships as difficult as the one between a lender and a repo company are more complex than most business relationships, and in many ways, they're built on trust and hard work. When we brought on a new lender to handle their forwarding back in the 90s, each of those relationships had evolved over years of trust being built.
IMO, the second reason forwarding became common was inexperience. How many clients had departments or people managing the repo process on a national basis? At Chrysler, the agents you approved was a decision made at the branch level back then. We were successful at ARS with our first client in 1993-94, VW credit, for this exact reason. We had started Skipbusters in 1988 and for the prior six years, we'd been managing a group of 300 or so agents, and believe me, it wasn't easy getting the number whittled down from 2000 to 300 of the best agents in the country. We were repossessors and we understood that business, so it was easier to manage, but it took six years to get it right. We'd also been skip tracing and managing the VW skip repo's for several years and we had built trust with them.
Back then we charged a reasonable fee of $75 per assignment, and the next reason lenders outsourced this process is the cost was less, and by cost in the VW example, it was driven by actual cost and also productivity gains we showed over the results they were getting before they were using ARS, so their bottom line improved. If more lenders looked at "cost" as a bottom line number and not a line item repo expense, we wouldnt be in this mess. It still blows my mind the same effort is expected and the same price per repo is paid for a car worth $1500 as one worth $50K. That certainly doesnt make sense for a finance company, but that's the way it is, and that's another topic for another blog. I could also ask why a client pays the repo man less, or in most cases nothing, when they make contact and the customer pays from their contact. If they took the car the lender suffers a several thousand dollar loss, but if their efforts get the customer to pay, they dont lose that money, so why wouldnt they reward an agent for dong this, versus penalizing them as they do now?
The next reason I believe forwarding became so popular, at least for us at ARS, was the explosion of the sub prime market. Companies like LSE were jumping into servicing and they didnt really understand the repo assignment model and they were getting eaten alive with wrongful repossessions, inefficient vendors, volume, etc. We handled a then industry record 50K repossessions in 98 and most were sub prime loans serviced by companies like LSE, Harvest group, and a bunch of other names I don't remember as they're all long gone. We knew the decision makers they hired from prior business relationships we'd established and we gave them an immediate solution, at a fair price. We also paid the repo guy back then $275. It blows me away when I read things like this that say the fee is still $275, or less. We didnt even have tow trucks or computers back then, and now you need all that and more, wages and insurance is much higher, but the price per repo is still being driven down? Why dont lenders see repossessors as valuable commodities to improve their bottom line? FWIW, we pay all our agents $375 a repo, and a $75 to $150 close fee for positive resolution, which we believe is still below what it should be, but at least we have a few clients who see the results and agree this is a fair price.
The next reason is it became attractive for a lender to push the liability to the forwarder as it gave them an extra layer of insulation if something went wrong. This is still the case, and will always be, but the liability exposure from a PR and actual dollar standpoint pales in comparison to the losses some of these lenders are taking by using the current forwarding model. When he says now clients are driving down the price for forwarding, that's to be expected, it's the same thing they did to us as repossessors when I ran my repo companies in the 90s. Clients see expenses as something that should be reduced, and although you can reduce your line item repo expense by making the repo guy charge less, is it really improving your bottom line? No it is not. I guarantee it.
Finally, the selection and management of agents is a process that's difficult to manage when doing it manually, and when you add in metrics, it's still something very few, if any lenders or forwarding agents have a good handle on. Most lenders or forwarders want the cheapest guy and the rest of the details are less important. The one's who measure performance are only scratching the surface of what really needs to be measured.
You cant manage what you cant measure is never more true than when applied to a difficult business like skip tracing and repossession. Just because an agent recovers 60% of the cars does that mean he's great? He may get a better percentage than others, but does that have more to do with the agent or the paper, the area he is in or the quality of the collection work and the assignment preceding the repossessors work in the field? I want to know what an agent does by zip code, how they do overall in all aspects of the job, especially when they have multiple offices.
I can guarantee you J&B Recovery in LA pulls more cars and resolves more accounts out of South Central and Compton than most of the other three dozen guys who advertise in those areas, and that's because Jake gets out of his truck and knocks on doors. The thing is, recovery percentages in South Central have to be low, so if his numbers only show 50% is that bad? Everything is relative, and measurement of as much of the repo process as can be measured is the name of the game when it comes to managing the process, from a lender standpoint, down to a repo agency standpoint, and especially down to an repossessor standpoint so they can become accountable to themselves as well as to their boss.
This is the exact reason I have spent three years re-entering this crazy industry. I believe a change is in order, and if I'm right, lenders will gladly pay more money for results that improve their bottom line, which will start going direct to agents again, as it can be a process they not only will be better able to manage with our software, but after seeing how we manage the process, there is no way they would ever again consider outsourcing such an important decision to a company ran by guys who don't have their best interests in mind, i.e. most forwarders today.
John
Here's his note:
Something new and very interesting is happening.
Chrysler told PAR they would no longer pay more than $350 per repossession. That's $350 total to PAR. In response to this PAR is contacting every agent and cutting their fee to $275 per repossession (Los Angeles agents were given $25 more). PAR wanted to make the cut even greater and tell agents they would only get $250, but they figured too many agents would quit so they settled for $275. At $75 per assignment PAR can't make enough money to make it worthwhile to forward. They also get fewer services from agents, poorer quality of agents and more incidents as they use less experienced and cheaper agents.
How long is Chrysler or anyone else going to use the forwarders when their recovery rates are dropping every year? Some companies are seeing recovery rates as low as 20% from forwarded accounts.
If Chrysler paid me $350 to pick up a car, I'd still do it for them and do them a good job, but how good a job can I do for $275? As you know, I work for most of the forwarding companies and have a good relationship with them, but I'm firing more companies every month. I tell them they want a top of the line agency, but they want to pay for a grease monkey with a sling truck. It just isn't going to work.
PAR made another change a short time ago. They doubled the number of assignments their employees must work each month. They have a quota and if they don't meet it they are gone. Consequently, the employees don't have time to verify addresses, locate new addresses or even talk to the agent in the field about an account.I see this happening more and more often with the forwarding companies.
I've long said the pendulum swung away from agents because they were gouging the lenders. It was our own fault the forwarding companies ever got started. Now, the pendulum is going to swing back toward direct agents and it will be the fault of the forwarders.
I believe in 2010 you are going to see a few of the lenders leaving the forwarding companies and going back to direct agents to get their recovery percentages back up.
Having helped create this industry within our industry, its a subject I am passionate about, as you can tell by some of my other blogs. He raises some good points and I've copied his letter below for your reference.
I agree with most of what he says, but I disagree with his statement that the reason lenders went to Forwarders was gouging? Maybe on a few occasions, as is the case with any industry, but lenders are paying more now for a managed process, so it is doubtful to me that it was a cost issue, or a gouging issue.
I witnessed first hand the transformation of Chrysler Credit from a hundred or so branch company to a 3-4 call center company. That is one reason lenders went to forwarders as it became difficult for these companies to manage so many relationships after they went to a national call center model. It killed the days of getting to know your local repo man. When I was a collector in the Sacramento branch, and a collection manager in Long Beach and Cerritos for Chrysler Credit, I knew all the agents in town, and I knew who to use, and who not to use. Being the president of some association didn't automatically qualify a repo company as being good in my book back then, or even now. I respect those who serve the industry, but for me the bottom line is always the bottom line, and that's performance.
Good luck knowing your local Wyoming repo man if your at a call center in Dallas. Relationships are built on trust, and that's tough when you've never even met the person who owns the repo company. Relationships as difficult as the one between a lender and a repo company are more complex than most business relationships, and in many ways, they're built on trust and hard work. When we brought on a new lender to handle their forwarding back in the 90s, each of those relationships had evolved over years of trust being built.
IMO, the second reason forwarding became common was inexperience. How many clients had departments or people managing the repo process on a national basis? At Chrysler, the agents you approved was a decision made at the branch level back then. We were successful at ARS with our first client in 1993-94, VW credit, for this exact reason. We had started Skipbusters in 1988 and for the prior six years, we'd been managing a group of 300 or so agents, and believe me, it wasn't easy getting the number whittled down from 2000 to 300 of the best agents in the country. We were repossessors and we understood that business, so it was easier to manage, but it took six years to get it right. We'd also been skip tracing and managing the VW skip repo's for several years and we had built trust with them.
Back then we charged a reasonable fee of $75 per assignment, and the next reason lenders outsourced this process is the cost was less, and by cost in the VW example, it was driven by actual cost and also productivity gains we showed over the results they were getting before they were using ARS, so their bottom line improved. If more lenders looked at "cost" as a bottom line number and not a line item repo expense, we wouldnt be in this mess. It still blows my mind the same effort is expected and the same price per repo is paid for a car worth $1500 as one worth $50K. That certainly doesnt make sense for a finance company, but that's the way it is, and that's another topic for another blog. I could also ask why a client pays the repo man less, or in most cases nothing, when they make contact and the customer pays from their contact. If they took the car the lender suffers a several thousand dollar loss, but if their efforts get the customer to pay, they dont lose that money, so why wouldnt they reward an agent for dong this, versus penalizing them as they do now?
The next reason I believe forwarding became so popular, at least for us at ARS, was the explosion of the sub prime market. Companies like LSE were jumping into servicing and they didnt really understand the repo assignment model and they were getting eaten alive with wrongful repossessions, inefficient vendors, volume, etc. We handled a then industry record 50K repossessions in 98 and most were sub prime loans serviced by companies like LSE, Harvest group, and a bunch of other names I don't remember as they're all long gone. We knew the decision makers they hired from prior business relationships we'd established and we gave them an immediate solution, at a fair price. We also paid the repo guy back then $275. It blows me away when I read things like this that say the fee is still $275, or less. We didnt even have tow trucks or computers back then, and now you need all that and more, wages and insurance is much higher, but the price per repo is still being driven down? Why dont lenders see repossessors as valuable commodities to improve their bottom line? FWIW, we pay all our agents $375 a repo, and a $75 to $150 close fee for positive resolution, which we believe is still below what it should be, but at least we have a few clients who see the results and agree this is a fair price.
The next reason is it became attractive for a lender to push the liability to the forwarder as it gave them an extra layer of insulation if something went wrong. This is still the case, and will always be, but the liability exposure from a PR and actual dollar standpoint pales in comparison to the losses some of these lenders are taking by using the current forwarding model. When he says now clients are driving down the price for forwarding, that's to be expected, it's the same thing they did to us as repossessors when I ran my repo companies in the 90s. Clients see expenses as something that should be reduced, and although you can reduce your line item repo expense by making the repo guy charge less, is it really improving your bottom line? No it is not. I guarantee it.
Finally, the selection and management of agents is a process that's difficult to manage when doing it manually, and when you add in metrics, it's still something very few, if any lenders or forwarding agents have a good handle on. Most lenders or forwarders want the cheapest guy and the rest of the details are less important. The one's who measure performance are only scratching the surface of what really needs to be measured.
You cant manage what you cant measure is never more true than when applied to a difficult business like skip tracing and repossession. Just because an agent recovers 60% of the cars does that mean he's great? He may get a better percentage than others, but does that have more to do with the agent or the paper, the area he is in or the quality of the collection work and the assignment preceding the repossessors work in the field? I want to know what an agent does by zip code, how they do overall in all aspects of the job, especially when they have multiple offices.
I can guarantee you J&B Recovery in LA pulls more cars and resolves more accounts out of South Central and Compton than most of the other three dozen guys who advertise in those areas, and that's because Jake gets out of his truck and knocks on doors. The thing is, recovery percentages in South Central have to be low, so if his numbers only show 50% is that bad? Everything is relative, and measurement of as much of the repo process as can be measured is the name of the game when it comes to managing the process, from a lender standpoint, down to a repo agency standpoint, and especially down to an repossessor standpoint so they can become accountable to themselves as well as to their boss.
This is the exact reason I have spent three years re-entering this crazy industry. I believe a change is in order, and if I'm right, lenders will gladly pay more money for results that improve their bottom line, which will start going direct to agents again, as it can be a process they not only will be better able to manage with our software, but after seeing how we manage the process, there is no way they would ever again consider outsourcing such an important decision to a company ran by guys who don't have their best interests in mind, i.e. most forwarders today.
John
Here's his note:
Something new and very interesting is happening.
Chrysler told PAR they would no longer pay more than $350 per repossession. That's $350 total to PAR. In response to this PAR is contacting every agent and cutting their fee to $275 per repossession (Los Angeles agents were given $25 more). PAR wanted to make the cut even greater and tell agents they would only get $250, but they figured too many agents would quit so they settled for $275. At $75 per assignment PAR can't make enough money to make it worthwhile to forward. They also get fewer services from agents, poorer quality of agents and more incidents as they use less experienced and cheaper agents.
How long is Chrysler or anyone else going to use the forwarders when their recovery rates are dropping every year? Some companies are seeing recovery rates as low as 20% from forwarded accounts.
If Chrysler paid me $350 to pick up a car, I'd still do it for them and do them a good job, but how good a job can I do for $275? As you know, I work for most of the forwarding companies and have a good relationship with them, but I'm firing more companies every month. I tell them they want a top of the line agency, but they want to pay for a grease monkey with a sling truck. It just isn't going to work.
PAR made another change a short time ago. They doubled the number of assignments their employees must work each month. They have a quota and if they don't meet it they are gone. Consequently, the employees don't have time to verify addresses, locate new addresses or even talk to the agent in the field about an account.I see this happening more and more often with the forwarding companies.
I've long said the pendulum swung away from agents because they were gouging the lenders. It was our own fault the forwarding companies ever got started. Now, the pendulum is going to swing back toward direct agents and it will be the fault of the forwarders.
I believe in 2010 you are going to see a few of the lenders leaving the forwarding companies and going back to direct agents to get their recovery percentages back up.
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
Tuesday, June 23, 2009
Direct Repossession vs Forwarding - Price vs Cost
Repossession Forwarding – Price vs Cost
Newspapers and TV crews love to tell stories about Repo Men, but the stories I’m seeing lately seem to be more about the Forwarding Industry than the Repossession Industry.
FROM USA TODAY 2/29/2009
Violence up between Repo Men, Car Owners
HALSELL, Ala. (AP) — Alone in his mobile home off a winding dirt road, Jimmy Tanks heard a commotion at 2:30 a.m. just outside his bedroom window: Somebody was messing with his car. The 67-year-old railroad retiree grabbed a gun, walked out the back door and confronted not a thief but a repo man and two helpers trying to tow off the Chrysler Sebring. Shots were fired, and Tanks wound up dead, a bullet in his chest.
The man who came to repossess the car, Kenneth Alvin Smith, is awaiting trial on a murder charge in a state considered a Wild West territory even by the standards of an industry that's largely unregulated nationally. Since Tanks' death last June, two other repo men from the same company Smith worked for were shot, one fatally.
Smith worked out of Birmingham with XXXXXXX Recovery (Repo agency) , a subsidiary of the Chicago-based XXXXXX Services (Forwarding Company). The same recovery firm employed a repo man who was shot and killed on Jan. 8 in Birmingham, as well as a third worker who was wounded while towing a vehicle in the city on Feb. 10.
I removed the name of the Repo Company and the Forwarding Company that hired them because my point is not to bad mouth a specific company, but to make a point about the state of the Forwarding Industry.
Before I do that, let me give you a little bit of history. I know a little bit about the “Forwarding Industry”. I started a company in 1994 called American Recovery Services, or ARS, as it’s known in the industry. It was one of, if not the first large volume Forwarding Companies, handling upwards of 50,000 assignments for repossession a year in the mid to late 90s.
We started it by accident. We had formed one of the first Skip Tracing companies that exclusively serviced the auto finance industry in 1988; Skipbusters. By the early 90s, we had several hundred Repossession Companies across the United States under contract to repossess the cars we located on the skip accounts we worked for large financial institutions.
One of our clients was VW Credit, and ironically, I had been one of the first VW Credit employees back in the early 80s when they first started financing cars in the US. VW had hired Chrysler Credit to manage the finance and collection process, and I was a Chrysler employee. By 1994, VW had split from Chrysler and they had gone out on their own, and I had done the same.
I’d landed VW as a client at the first repossession company I had started in 1990 with my wife and a business partner; Crown Recovery Services in L.A. By early 94, we’d sold our half of Crown and we’d started River City Auto Recovery at several locations in Northern California. We were doing all of VW’s repossessions in Northern California, and we were also were handling several hundred skips a month through Skipbusters.
While visiting VW’s HQ they asked us if we would be interested in managing their repossession process through our nationwide network. We did some research and formed ARS within a few weeks. We never called it “Forwarding”, in fact, we never even gave it a name other than ARS. By the late 90s, all the national auction houses had jumped in and started similar companies, and even Manheim got back into the business with their acquisition of ADT in 2000, even though in 1994 when I first started researching the formation of ARS, they told me they tried it a few years earlier on a small scale and almost immediately got out because it was just too difficult a business to manage. Interestingly, I heard last week they were recently sold to XXXX Forwarding company, probably a smart move on Manheim’s account, if they got a good price and didn’t have to guarantee revenue. It’s tough to run a successful Repossession company, and running a successful Forwarding company is even more challenging, in my opinion.
So yes, I know a little bit about the Forwarding Industry, and what I’ve seen recently is not something I’m proud of when my name is mentioned as a pioneer of this industry.
Here’s another recent, similar story:
From NBC Augusta, GA. 4/13/2009
Repo Man wanted for murder of Augusta Man
MARTINEZ, Ga. - A vehicle repossession turned deadly. The man called his lender to have his vehicle voluntarily repossessed. "As the reposessor was attempting to leave with the truck, he was causing damage to Mr. Jacob's vehicle, it was a van," said Captain Steve Morris with the Columbia County Sheriff’s Office.
"When the truck came forward, he hit me. I was able to push off and get out of the way," said the man. His friend of 20 years, William Jacobs, wasn't as lucky.
"They went diagonally across my front yard and I saw Bill falling and I saw the guy turn and he ran over him...and he never slowed down," said the man. Jacobs was taken to the hospital, where he died.
Now the couple who hit and killed him is on the run and wanted for murder.
Columbia County investigators are working with the repo company, (XXXXXX Forwarding Company) and XXXX (Tow Company) to help find XXXXX and XXXXXXX.
And here is another one…
Tow Truck Driver Arrested, Charged With Hit And Run
By RNW Staff Writer Hayden Jennings • on June 15, 2009 (Rome, GA.)
Police arrested a local tow truck driver for felony hit and run after he ran allegedly ran over a woman in what police are calling a car repo gone wrong. Residents began giving the driver problems after he failed to produce any paperwork dictating the repo. As the situation continued to escalate, the driver reportedly brandished a hand gun and jumped into the wrecker. At that time the victim, Tina Ferguson, 41, of the same address, walked in front of the wrecker and was struck by the front bumper. The collision sent Ferguson into a barrel roll beside the truck before she rolled under it and was struck by the rear wheels as the wrecker left the scene.
The common denominator is the unprofessional and downright criminal actions of the repossession agents in question. The other common denominator is the fact that most, if not all of these accounts were assigned by the finance company to a company they trusted to handle the management of the repossession process for them, i.e. Forwarding.
In 1994, I believed Forwarding was a good idea, and even today, it still makes sense for some clients who struggle with the repossession management process. The problem is that like everything else, costs of doing business have gone up, and as a result, many forwarding companies are lowering the rates they are willing to pay the repo agent in the field to make sure they can make their needed, or desired margins. I’ve heard some repo companies offering their prospective agents $225 or $250 a repossession, and half that on a voluntary, which very well may be why there are two towing companies mentioned in the stories above.
If you wanted to get Lasix surgery on your eyes, would you hire someone who doesn’t use the best equipment, isn’t licensed, or doesn’t have a successful track record with solid references? Repossessing a car isn’t performing surgery on someone’s eyes, but if I own a finance company and I know what I have learned in the nearly thirty years I’ve spent in this industry, I’m not hiring a tow truck driver to pick up a voluntary just because he will do it for less than a qualified repossessor. I’m also not hiring the cheapest repo guy in town unless I’ve made damn sure he is also the best in town, and those two denominators do not usually mix.
I believe Forwarding companies hire these second class repo and tow jockeys because the deal they cut with the finance company is based more on price than it is on results. They also do this because the finance company doesn’t hold them accountable unless a serious problem arises, and the finance company doesn’t perform the due diligence they should be doing before they give them their first assignment. If they did, many of these Forwarding companies wouldn’t pass the test, and then the one’s who do Forwarding would only be able to perform the services at a certain rate, because otherwise they would go out of business as it’s not inexpensive to properly run a legitimate Forwarding business, Skip Tracing Agency, or Repossession Agency for that matter. The Finance Company would also make sure they knew exactly who the repossession company was contracting with, and instead of not wanting to know, they would demand to know not only who their approved agents are, they would audit them and ask to see the contracts, their insurance policies and the endorsements naking the Forwarding company, and they would perform an acid test on their Forwarding companies policies, procedures and practices to insure that an assignment to a sub-standard repossession agency, or an unlicensed or unqualified tow company would never happen on one of their assignments.
Since I started in this industry in 1982, most clients I’ve known have been focused on getting their repossessions performed for a lower price. I was trained this way at Chrysler. Once I started my first repossession company, I started to see the other side of the picture. Through the years, I’ve built relationships with a few forward thinking clients who have allowed us to charge a fair fee that could be evaluated and renegotiated as we delivered or exceeded their desired results. As I’m building Find John Doe, I’m trying to work with clients who think this way, and I applaud the vendors we do work with who hold their companies to the same core business values. If a client asks us to perform a skip locate for less than our normal rate, I tell them that I just can’t do it as I’ve built an organization that produces results, and we have a level of expected results we have to meet or we would go out of business. Lowering our revenue by even a few dollars makes it that much harder to meet our expectations, and our employees expectations. We work from a results-driven fee basis. If we don’t find people and get the collateral recovered, we make no money. This means I have to build an organization that finds people, or at least enough people to make up for the one’s I don’t find.
Many repo agents say contingency is bad, and while I agree to some degree, it is the way our industry has been built. It will take a long time and some forward thinking clients to make a change. I believe if the repossession fee is high enough to cover the accounts that are not repossessed, and if there is a secondary fee that can be generated for the agent who gets out of his truck and generates a positive resolution, and most importantly, if the repossession company gets a positive resolution on a majority of the accounts they receive, they can make a profit. If they spread themselves too thin and try and cover too large a service area, the chances of making a profit are reduced. If they take on more work than they can handle, the chances of making a profit and building lasting client relationships are reduced. Based on my experience, I’m confident that if the agents we contract with can track their results and build relationships with our company based on results and trust, they can grow a solid business.
The only problem with this is there are times when our industry makes no sense, and then it’s almost as if we have to start all over again in trying to legitimize what we do. A typical example of this is when a client assigns an account for repossession and lets say the balance is $20K. If the agent repossesses the car, the client pays them between $325 and $395 on average, and then the car goes to auction and they lose around $10K. If the repo agent makes contact and as a result the customer pays the account current, avoiding a repossession and a potential $10K loss, the client doesn’t pay the agent more money, they usually pay them considerably less, and in some cases they pay them nothing.
As I approach my fiftieth birthday and the twilight years of my career in this industry, it would be nice if I could have a hand in helping clients see the benefits of building relationships with their vendors that are results based, with fair fees paid to the vendors that are justified by a solid ROI for the client, and for the vendor.
In another example, I had an agent tell me the other day that they had a client giving them about 100 accounts a month for the past several years and they were charging somewhere in the range of $350. They tracked their stats and were getting close to 90% of the accounts either repossessed, or the people would pay from the direct contact they were making in the field and they charged them a $150 cure fee. The agent said they were considering asking the finance company for a 5-10% raise because the cost of fuel, state of the art technology, health and unemployment insurance increases and now that their staff was more experienced, their staffing costs had gone up and as a result of these expenses, their profits had been reduced to barely above a break even at $325 a repo, even when they got 90% closed or recovered. The agent called and asked for my opinion and I suggested they open their books and show the client how their margins had been cut, but their performance had been consistent and even if they couldn’t raise their fees enough in one year to make up the difference, maybe they could get a 5% raise, and an extra 5% if they increased their positive resolution to 92% from 90%.
I didn’t hear back from the agent and about a month later I put in a call to follow up. Unfortunately, what I heard was not surprising. Before they made that call they got a call from the new collection supervisor who said they would have to reduce their price to $325 or they wouldn’t receive any more business as they were going with a national forwarding company who was charging $325 a repo.
This is a typical example of a story I hear many times over. If the Forwarder is charging $325, then what are they paying the repo company and what is the quality of the repossessor they’re getting for $225 or $250 - see above stories for the correct answer. How much will the lawsuits in the above stories cost the finance companies? I guarantee it will be seven figures, plus the intangible bad press every finance company seems to be most scared of.
In this example, if the forwarder still got them a 90% recovery rate on an annual basis, they would be saving $25 per repossession, or a total of $27,000 for the year. I’ll bet the average charge off this finance company pays for every full balance skip charge off is about $15,000. So, if the Forwarding company got them a 70% recovery rate, which is a high rate for a typical forwarding company, that would be 20 less repossessions a month, or 240 less a year. At $15,000 per charge off, that’s a loss of about three and a half million dollars a year.
As I’ve said, using a company to help you manage the repossession process can be a benefit, but make sure you hold them accountable. If you have a repossession agent that’s getting you 80% or higher and they meet your other requirements, use the forwarder in the areas where your percentages are less, or in remote areas, and keep the company who has earned your trust and find a way to incentivize them to get an even higher percentage and pay them what they’re worth.
“Is it Price you’re concerned about, or is it cost?” One of the most famous sales consultants of our time, Zig Ziglar, wrote the gospel to this question, and ultimately it’s answer. If you haven’t heard him speak on this topic, please take the time to Google his name and listen to one of his podcasts, which are available on line for free. It certainly can be applied to the Repossession and the Forwarding industries.
Thursday, January 10, 2008
Skip Tracing 101 : Turn Over Every Rock
Skip Tracing 101 : Turn Over Every Rock
Hard work pays off
This common saying can be applied to any business, and Skip Tracing is no different.
Through the years there have been many times when a skip tracer or a collector has come up to me with a file they claimed they were at a dead end on. Because there has yet to be a program written that allows a supervisor to quickly look at a file to determine if the collector or skip tracer has pursued all the available leads, this was not always the easiest claim to agree or disagree with.
“What have you done so far?”
“We’ve had it assigned for repo to the last known address, but he’s moved from there. His parents are covering for him, and the references are no help, I’ve spoken with a couple neighbors but they don’t know anything. I’ve pulled a credit bureau, but he’s late with everyone and when I tried to call the other finance companies, they won’t speak with me due to privacy concerns.”
I’d then take a look at the notes and there were plenty. When I looked at the expenses on the account, we’d spent the money to run the bureaus and we’d paid for several different public records reports. The file was an inch thick, the guy was six payments down, and everyone else had charged off their debts.
Back at Chrysler Credit in the early 80s, when I was the one asking for permission to charge off the loan, we had a “skip worksheet” we had to fill out before we brought the account to our supervisor. I think some companies still use a manual form to do this. It was a four-page document to confirm we’d contacted every reference, neighbor, relative, job, landlord, the post office, the local grocery store, you name it.
In hindsight, it was a valuable exercise, but it was too difficult for the supervisor to really know if the account had been worked properly, and it wasn’t nearly as comprehensive as it needed to be. It also was a document that could easily be skewed.
To find a skip, one needs to have several factors working in their favor:
I. The person looking for the skip must be positive that they have a chance to find the person. If you are not optimistic, you’re in the wrong profession.
II. A good skip tracer must be confident, and confidence comes from life experience, followed by skip tracing experience.
III. A good skip tracer must also be a good sales person. My first boss once told me a valuable piece of information when he compared a collector to a salesman. He said you must sell yourself to the person your collecting money from so they have to buy what you are selling, which as a collector was getting them to pay me ahead of everyone else. As a skip tracer, its getting people to tell you what they know, even if it’s the smallest detail.
I can remember one time I was looking for a lady that no one could find. I knew the parents knew where she was, but every time I spoke to them, they claimed they didn’t know her whereabouts. The day before the loan was going to charge off I was probably filling out one of those skip worksheets when I’d realized I hadn’t called every neighbor, and I’d remembered we’d gotten in a new Criss-Cross guide for an address where she used to live. After speaking with a couple people who didn’t have a clue who I was asking about, I found a lady who knew exactly who I was asking about, but unfortunately she had no idea where my customer had moved. I was running out of questions when I asked
“When was the last time you saw her?”
“I saw her a few weeks ago at the gas station” She was getting ready to have a baby”.
That one piece of information cracked the case for me. I thanked her, and then asked a female colleague of mine to call the Mom back.
“Hi, Mrs. Wilson, this is Mary. I just got back to town and I’m so excited for Debbie, has she had her baby yet?”
Many skip tracing calls can be based on one question, and how the question is asked, which leads me to the next point.
IV. You must be a good actor. The girl I had make the call was one of twenty in my office, but she had the voice, and the personality, to make the call pay off. She didn’t know it, but I did.
“Hi Mary. We’re so excited. She just had the baby and her and Dan are at Mercy Hospital in Folsom”.
This of course, also turned out to be where the car she hadn’t made a payment on since she bought it almost a year ago was sitting.
The next three factors are probably the most important ones.
V. You must find every rock, sort them in order of importance, and then be prepared to turn them over. You never know which rock you turn over will lead to the person you are looking for.
VI. Ask the right questions. It’s pretty simple. Who, what, where, when and why.
VII. Listen.
The key to skip tracing is finding people who know the person you are looking for, i.e. rocks. Once you find these people, you need to use your acting skills, thrown in with a little data analysis, to quickly understand whom you are speaking with. You will definitely speak differently to a person who thinks and talks fast compared to a person who thinks and speaks slowly; an 18 year old versus an 80 year old; a Harvard grad versus a backwoods hick.
Once you understand the person you are speaking with and you set your tone and dialect, you then need to ask the right questions. Your tone and dialect will set the person on the other end of the phone at ease, and then after each question, you must listen and not interrupt. Most people love to talk, and fortunately, some don’t know when to stop.
The other important part about the person you are speaking with is to quickly determine if they are a friend or foe. Ex-spouses, ex-neighbors, ex-landlords, and ex-employers are great sources of info, especially when the skip didn’t leave on the best of terms.
Nearly everything a person who actually knows the skip discloses to you becomes a lead. A good skip tracer will piece these leads together to crack the case, and they will remain confident and optimistic throughout the process.
Hard work pays off
This common saying can be applied to any business, and Skip Tracing is no different.
Through the years there have been many times when a skip tracer or a collector has come up to me with a file they claimed they were at a dead end on. Because there has yet to be a program written that allows a supervisor to quickly look at a file to determine if the collector or skip tracer has pursued all the available leads, this was not always the easiest claim to agree or disagree with.
“What have you done so far?”
“We’ve had it assigned for repo to the last known address, but he’s moved from there. His parents are covering for him, and the references are no help, I’ve spoken with a couple neighbors but they don’t know anything. I’ve pulled a credit bureau, but he’s late with everyone and when I tried to call the other finance companies, they won’t speak with me due to privacy concerns.”
I’d then take a look at the notes and there were plenty. When I looked at the expenses on the account, we’d spent the money to run the bureaus and we’d paid for several different public records reports. The file was an inch thick, the guy was six payments down, and everyone else had charged off their debts.
Back at Chrysler Credit in the early 80s, when I was the one asking for permission to charge off the loan, we had a “skip worksheet” we had to fill out before we brought the account to our supervisor. I think some companies still use a manual form to do this. It was a four-page document to confirm we’d contacted every reference, neighbor, relative, job, landlord, the post office, the local grocery store, you name it.
In hindsight, it was a valuable exercise, but it was too difficult for the supervisor to really know if the account had been worked properly, and it wasn’t nearly as comprehensive as it needed to be. It also was a document that could easily be skewed.
To find a skip, one needs to have several factors working in their favor:
I. The person looking for the skip must be positive that they have a chance to find the person. If you are not optimistic, you’re in the wrong profession.
II. A good skip tracer must be confident, and confidence comes from life experience, followed by skip tracing experience.
III. A good skip tracer must also be a good sales person. My first boss once told me a valuable piece of information when he compared a collector to a salesman. He said you must sell yourself to the person your collecting money from so they have to buy what you are selling, which as a collector was getting them to pay me ahead of everyone else. As a skip tracer, its getting people to tell you what they know, even if it’s the smallest detail.
I can remember one time I was looking for a lady that no one could find. I knew the parents knew where she was, but every time I spoke to them, they claimed they didn’t know her whereabouts. The day before the loan was going to charge off I was probably filling out one of those skip worksheets when I’d realized I hadn’t called every neighbor, and I’d remembered we’d gotten in a new Criss-Cross guide for an address where she used to live. After speaking with a couple people who didn’t have a clue who I was asking about, I found a lady who knew exactly who I was asking about, but unfortunately she had no idea where my customer had moved. I was running out of questions when I asked
“When was the last time you saw her?”
“I saw her a few weeks ago at the gas station” She was getting ready to have a baby”.
That one piece of information cracked the case for me. I thanked her, and then asked a female colleague of mine to call the Mom back.
“Hi, Mrs. Wilson, this is Mary. I just got back to town and I’m so excited for Debbie, has she had her baby yet?”
Many skip tracing calls can be based on one question, and how the question is asked, which leads me to the next point.
IV. You must be a good actor. The girl I had make the call was one of twenty in my office, but she had the voice, and the personality, to make the call pay off. She didn’t know it, but I did.
“Hi Mary. We’re so excited. She just had the baby and her and Dan are at Mercy Hospital in Folsom”.
This of course, also turned out to be where the car she hadn’t made a payment on since she bought it almost a year ago was sitting.
The next three factors are probably the most important ones.
V. You must find every rock, sort them in order of importance, and then be prepared to turn them over. You never know which rock you turn over will lead to the person you are looking for.
VI. Ask the right questions. It’s pretty simple. Who, what, where, when and why.
VII. Listen.
The key to skip tracing is finding people who know the person you are looking for, i.e. rocks. Once you find these people, you need to use your acting skills, thrown in with a little data analysis, to quickly understand whom you are speaking with. You will definitely speak differently to a person who thinks and talks fast compared to a person who thinks and speaks slowly; an 18 year old versus an 80 year old; a Harvard grad versus a backwoods hick.
Once you understand the person you are speaking with and you set your tone and dialect, you then need to ask the right questions. Your tone and dialect will set the person on the other end of the phone at ease, and then after each question, you must listen and not interrupt. Most people love to talk, and fortunately, some don’t know when to stop.
The other important part about the person you are speaking with is to quickly determine if they are a friend or foe. Ex-spouses, ex-neighbors, ex-landlords, and ex-employers are great sources of info, especially when the skip didn’t leave on the best of terms.
Nearly everything a person who actually knows the skip discloses to you becomes a lead. A good skip tracer will piece these leads together to crack the case, and they will remain confident and optimistic throughout the process.
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
Subscribe to:
Posts (Atom)