benefits & risks of indirect dealer lending...benefits & risks of indirect dealer lending...
TRANSCRIPT
![Page 1: Benefits & Risks of Indirect Dealer Lending...Benefits & Risks of Indirect Dealer Lending cunastrategicservices.com . October 13, 09 | page 2 Agenda • Company Introductions • Automobile](https://reader034.vdocuments.us/reader034/viewer/2022051902/5ff1d4ac8da70d7cf86632d4/html5/thumbnails/1.jpg)
Benefits & Risks of Indirect Dealer Lending
cunastrategicservices.com
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Agenda
• Company Introductions • Automobile Market Update • Risks, Policies and Monitoring Quality • Identifying Risks and Evaluating
Effectiveness • Analyzing Loan Pricing • Identifying Problem Loan Types
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Certified Public Accountants with Over 60 Years
Collective Experience
Well Over $100 Billion in Loans Evaluated
Work Exclusively with Credit Unions
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• Loan Level Risk Analysis – Provides a "Credit Quality Grade" to each loan based on current
characteristics of the borrower and their collateral. This risk-based approach is widely accepted by the NCUA and has been proven to pinpoint a high percentage of charge offs (70%-90%) in a small percentage of loans (8%-12%)
• Portfolio Stress Analysis • Collateral Confirmation for Consumer Loans (Black Book) • Collateral Confirmation for Real Estate (AVM) • Loan Allowance Validation
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Founded in 1955 in Gainesville, GA
Owned by The Hearst Corporation since 1981
Independent source with the most timely updates and most accurate values
Over 3K lenders and 1K Credit Unions use Black Book as their Trusted Values
Originate loans at more accurate LTVs
Lost Business Analysis
Collection and Forecasting Models
Remarketing with the most accurate floors
41 of the top 50 auto finance providers use Black Book
Over 18,000 dealers in the US and Canada use Black Book values
Timely, Independent and Accurate™
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Our Markets
» Cars, Trucks, Vans, SUVs » PowerSports - Motorcycles, Personal Watercraft, Snowmobiles » CPI – Collectibles and Exotics » MD & HD Trucks & Commercial Trailers » New Car Pricing and Specifications » Residual Value Projections » US & Canada
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Timely, Independent and Accurate™
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Where have we been in 2012? Increasing new car sales Jan – April: SAAR 14M+ May – 1st month of 2012 under 14.0M June – Surprised everyone
Excitement is back in the industry! New and redesigned models Better then expected new car sales increases More alternative fuel options Traditional fuel getting 40 mpg
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Overall Average Used Values
A good market with reasonable retention
Adjusting to make room for the 2013’s
More supply in the market from increased new sales in 2012
Trade-ins are getting older and with higher miles.
No need to be alarmed
Retention levels won’t support early pull from lease and fleet
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Indirect Dealer Lending Overview
• Benefits – Grow Your Portfolio – Grow Your Membership
• Risks – Less Control – Underwriting – Loan-to-Value
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Risk Environment
• You Are Not the Underwriting/Originator – Your Best Interests
• Loan Growth • Member Growth • Well-Priced Loans Based on Risk
– Dealer’s/Salesman’s Best Interests • Making the Sale • Making the Sale • Making the Sale
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Underwriting Policies
• What Bureau Are Scores Received From • What Factors Can Dealers Use to Mitigate
Insufficient Credit History – Income – Employment History
• Set Standards and Stick with Them • How Are Evaluations Recorded/Reviewed
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Underwriting Policies (continued)
• Loan-to-Value – Three Different Prices – Sales Price* – Dealer Value – Off-The-Lot Value
*(Incl. Admin, Add-Ons, Warranties)
0%
20%
40%
60%
80%
100%
120%
140%
100% LTV 80% LTV Off-The Lot 100%
Sales Price* 23,000 Dealer Value 20,000 Off-The-Lot Value 17,000
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What Could Go Wrong?
• Fraudulent Borrowers – Fictitious Income – Signing for Someone Else (Not Co-Signing)
• Inflating Borrowers Qualifications • Inflating the Value of Collateral
– Including Non-Existent Upgrades/Add-Ons – Outright Lying
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What’s Different Today? Things we look for
Year, Make and Model
Trim
XL vs Lariat Altima: Base to S to SL Not always VIN identified
Content/Equipment
Condition matters: XC, C, A, R
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What’s Different Today?
Things we look for (continued) Adds/Deducts
Mileage Less detrimental in a tight market
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Vehicle Example
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Would you buy stock based on last month’s WSJ listings?
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Mitigating Risk
• Monitoring Credit Bureau Fraud Alerts – Remember: Only 22% Report
• Buyer Training – Information on What Constitutes Fraud
• Lending in Your Area • Verifying Basic Information
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Hierarchy of Reliability and Evidence
• Most Reliable Evidence – External Documentation Received From Source
• BlackBook Valuation • Credit Report
– External Documentation Received From Dealer – Internal Documentation Received From Dealer
• Dealer Valuation • Dealer Documentation of Credit Review
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Mitigating Risk (continued)
• Maintaining Dealer Relationships – Train Dealers on Fraud Prevention – Visit Your Dealers, Understand Their Business – Remind Them of Value You Bring
• Scrutiny of Dealer Practices – Eases Your Mind on “Safety and Soundness” – Makes Them Uneasy
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Detecting Fraud
• First/Early Payment Defaults • Approval/Denial Ratio • Significant Overall Downward Migration
(Compared to Other Dealers and Direct Loans) • Exposure in Excess of Expectations
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Credit Score Migration Analysis
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Don Ready Ford Gibby NewsomeDodge
Ben SelleckChevrolet
Brent GageHonda
Babs MerrickToyota
Paxton HardingBMW
Improvement 0 - 40 Decline 40 - 80 Decline 80 - 120 Decline > 120 Decline
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Loan-to-Value Analysis
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
2005 2006 2007 2008 2009 2010 2011
Don Ready Ford Gibby Newsome Dodge Ben Selleck Chevrolet
Brent Gage Honda Babs Merrick Toyota Paxton Harding BMW
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Pricing Analysis
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Pricing Analysis (Net of Charge-Offs)
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Changes in Risk
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THANK YOU!
Dan Price Manager
352.634.0042 [email protected]
Ricky Beggs VP, Managing Editor
770.533.5221 [email protected]