3 reasons why RouteOne hit 7.5M booked eContracts


This week, RouteOne highlighted that its eContracting platform reached a new milestone with 7.5 million booked eContracts. The threshold resulted in more than $200 billion in funded deals.

RouteOne indicated the growth can be attributed to the rising adoption by:

• More than 6,000 active eContracting Dealers

• 36 live and in-pilot eContracting finance sources

• 12 eContracting integrated dealer management systems

RouteOne said today’s digital retail environment is driven by evolving consumer expectations and demands the delivery of a better experience, convenience, and transparency. The company noted eContracting plays an integral part of this rapidly evolving landscape. It can provide consumers the convenience of faster funding, which saves dealers money on floor plan and courier fees. It increases efficiencies between dealers and finance sources by automating critical checkpoints and validating data upon entry.

This process can result in reduced bounced or held contracts. The digital workflow and benefits eContracting can provide to all parties is becoming a standard, and is more and more how business is done.

To support growth and further streamline dealer processes, RouteOne emphasized that it is continually enhancing the features offered to dealers who utilize eContracting, including:

• Remote document delivery, which can give consumers secure electronic access to their eContracted documents.  At the same time, it can reduce printing costs and paper shuffling for dealers.

• Aftermarket rating and contracting, which can provide direct integration for dealers to their aftermarket providers, allowing them to retrieve product rates, register a product sale and execute a contract for an aftermarket product as part of the eContracting process and eSigning ceremony.

• Mobile signing application, which can allow dealers to present contracts to customers and capture their signatures on a tablet device, de-tethering the signing process to allow dealers to support consumers anywhere they wish to do business and reducing reliance on proprietary devices.

The company added finance sources are also benefiting from recent enhancements, including:

• Complete electronic validation and processing, which can provide finance sources a more robust funding package to enable automatic booking of eContracts with no human interaction. It can offers dealers faster funding by alleviating the need for manual review of contracts.

• eContracting certification for loan origination systems, which can help ensure that the technical implementation for finance source customers who choose eContracting, is a fast and easy process. It establishes standard functionality requirements that Loan Origination Systems must meet.

“RouteOne is very pleased to have accomplished these eContracting milestones in partnership with our owners and customers,” RouteOne chief executive officer Justin Oesterle said.

“We are committed to making the investments needed to support and lead the industry’s continued adoption of eContracting. It is becoming the standard for RouteOne users to the benefit of dealers, finance sources, and consumers,” Oesterle went on to say.

Dealers or finance sources interested in optimizing their F&I experience by implementing eContracting can contact RouteOne at (866) 768.8301 or www.routeone.com.

Q1 data disputes ‘subprime bubble' talk again


Experian Automotive tried again this week to pop the talk about a “subprime auto loan bubble.”

Analysts said, “There’s always someone who claims that the bubble is bursting. But a level-headed look at the data shows otherwise.”

According to Experian’s State of the Automotive Finance Market report, 30-day delinquencies dropped and subprime auto financing reached a 10-year record low for the first quarter. Analysts indicated the 30-day delinquency rate dropped from 2.1 percent in Q1 2016 to 1.96 percent in Q1 2017, while the total share of subprime and deep-subprime installment contracts dropped from 26.48 percent in Q1 2016 to 24.1 percent in Q1 2017.

“The truth is, lenders are making rational decisions based on shifts in the market. When delinquencies started to go up, the lending industry shifted to more creditworthy customers. This is borne out in the rise in customers’ average credit scores for both new and used vehicle loans,” analysts said.

Experian noted that the average customer credit score for a new-vehicle contract rose from 712 in Q1 2016 to 717 in Q1 2017.

The company added the average customer credit score for a used-vehicle loan rose from 645 in Q1 2016 to 652 in Q1 2017.

In what Experian called “a clear indication” that finance companies have shifted focus to more creditworthy customers, super prime was the only risk tier to grow for new-vehicle financing from Q1 2016 to Q1 2017. Super-prime share moved from 27.4 percent in Q1 2016 to 29.12 percent in Q1 2017.

All other risk tiers lost share in the new-vehicle financing category:

• Prime: 43.36 percent in Q1 2016 to 43.04 percent in Q1 2017.

• Nonprime: 17.83 percent in Q1 2016 to 16.96 percent in Q1 2017.

• Subprime: 10.64 percent in Q1 2016 to 10.1 percent in Q1 2017.

For used-vehicle financing, Experian spotted a similar upward shift in creditworthiness.

Prime and super-prime risk tiers combined for 47.4 percent market share in Q1 2017, up from 43.99 percent in Q1 2017.

At the low end of the credit spectrum, subprime and deep-subprime shares fell from 34.31 percent in Q1 2016 to 31.27 percent in Q1 2017.

“The upward shift in used vehicle loan creditworthiness is likely caused by an ample supply of late model used vehicles,” Experian analysts said. “Leasing has been on the rise for the past several years (and is at 31.06 percent of all new vehicle financing today).

“Many of these leased vehicles have come back to the market as low-mileage used vehicles, perfect for CPO programs,” they went on to say.

Experian also mentioned another key indicator of the lease-to-certified pre-owned impact is the rise in used-vehicle financing share for captives. In Q1 2017, captives had 8.3 percent used-vehicle share, compared with 7.2 percent in Q1 2016.

In other findings:

• Captives continued to dominate new-vehicle financing share, moving from 49.4 percent in Q1 2016 to 53.9 percent in Q1 2017.

• 60-day delinquencies showed a slight rise, going from 0.61 percent in Q1 2016 to 0.67 percent in Q1 2017.

• The average new vehicle contract reached a record high of $30,534.

• The average monthly payment for a new vehicle installment contract reached a record high of $509.

How NAF Association embraces ‘tribal culture’

PLANO, Texas - 

Mark Floyd is the current and Steve Hall is the immediate past president of the National Automotive Finance Association.

In their own ways, both Floyd and Hall conveyed to the attendees of the NAF Association’s 21st annual Non-Prime Auto Financing Conference how the organization resembles a community with members who are more like friends than just industry participants or even competitors.

“I always considered Steve one of the thought leaders in our organization,” Floyd said during the opening segment of Thursday’s conference activities. “I didn’t always agree with him, but he’s someone who I would consider that makes us think outside the box.”

While Hall couldn’t attend this week’s gathering, he shared a note with NAF Association leadership that Floyd shared in part. Hall used some terminology that triggered this reaction Floyd acknowledged: “When I first read that I thought, ‘Really, Steve?’ … Then I thought, he’s got something here.”

What Floyd initially questioned was Hall trying to convey that the NAF Association should generate a “tribal culture.” Hall’s reasoning stemmed from what members are facing nowadays — particularly finance companies that operate in the non-prime and deeper portions of the credit spectrum. The trials include rising delinquencies, a potential reduction in capital availability as well as the ongoing pressure to perform by stakeholders and regulators.

Floyd turned back to Hall’s note, telling several hundred attendees, “As we think about some of the challenges we’re facing today, we’ve seen most of them before. So we should be thinking about what tools, analytics, educational programs and content we can give our members to help them be successful, which (NAF Association executive director Jack Tracey) and the team have done a really great job of.”

Floyd continued with Hall’s sentiment, saying, “I think there is an opportunity to create a tribal culture within our membership where people feel a part of group that has common values, beliefs, customs and rituals — interesting choice of words — about how the subprime industry should function. We can create a community where people come together to help each other be successful. That’s really what we do here.”

While the NAF Association has hosted this event filled with training and updates on regulatory matters, industry trends and networking for more than two decades, Floyd recalled the first time he attended this conference.  

“I think it was 1996,” Floyd said as he gestured from behind a lectern adding, “We could fit everybody in half of one of these sections; it was about 25 or 30 people.

“I remember thinking I’m not really sure I want to be part of this group,” Floyd continued. “And I’m glad I’ve been part of the group. We’ve grown friendships and we’ve grown a community. It’s really a nice group to be a part of.

“I feel like the conversations I have with everybody, we really are looking out for each other. That’s that tribal community Steve was talking about. I feel that and that’s a genuine feeling. I feel that from people I talk with in the industry,” Floyd went on to say.

Thursday’s activities included a back-and-forth conversation involving Calvin Hagins, deputy assistant director for originations at the Consumer Financial Protection Bureau, and Michael Benoit, who is chairman at Hudson Cook. Panel sessions about capital availability and a major accounting change associated with reserving for potential losses as well as the final conference presentation by retiring Cox Automotive chief economist Tom Webb filled the day.

Floyd agreed with the closing portion of Hall noted when he shared that the NAF Association is “where people feel they are a part of a group of like-minded and valued leaders who are committed to helping each other pursue greatness in their businesses.”

Editor’s note: More expert analysis from the 21st annual Non-Prime Auto Financing Conference will be included in future reports distributed through SubPrime News Update.

5 tips to verify candidate’s competency


Automotive Personnel chief executive officer Don Jasensky acknowledged one of the most difficult challenges during the candidate-evaluation process is to determine whether the individual seeking the position at your firm actually can handle all of the demands and responsibilities asked of the post.

Harkening back on nearly three decades of experience, Jasensky arrived at five suggestions hiring managers and other company decision-makers can use to decipher what the candidate might truly be like.

“In 28 years of executive search, no one has ever asked us for an average candidate,” Jasensky said in a recent note to SubPrime Auto Finance News. “Clients come to us when they are looking for a ‘high performer.’ The higher level the position the more important their competency is.

“As an example, a director of credit impacts a company much more than one credit underwriter,” he continued. “The higher up the food chain the more critical competency becomes.”

Jasensky insisted that the best indicator of future behavior is past behavior.

“Human behavior is fairly consistent throughout our adult lives,” he said. Winners show themselves early and consistently throughout their careers. Laggards do, too.

While learning about competency is part of the interview, evaluation and reference-checking process, Jasensky noted that companies should keep these five factors in mind:

1. What are your performance standards with your current position?

2. How are they measured?

3. How are you doing with them?

4. Show me: awards, commission checks, reference letters, etc.

5. References: trust but verify

“Knowing what you are looking for at the start of your search will add direction and confidence in your decision making,” Jasensky said.

Jasensky plans to discuss this topic and more during a presentation during the National Automotive Finance Association’s 21st annual Non-Prime Auto Financing Conference.

This year’s event, which carries the theme, “Optimizing Non­Prime Performance,” is scheduled to run from May 31 through June 2. The event again is to unfold in Plano, Texas, but at a new facility — the Hilton Dallas/Plano Granite Park.

Some of the conference sessions include the release of the 2017 Non-Prime Auto Financing Survey as well as a discussion about how finance companies can raise capital. Another segment has the title, “CFPB in Their Own Words.”

Among some of the notable conference speakers scheduled to appear are:

■ Rep. Jeb Hensarling, a Texas Republican and chairman of U.S. House Financial Services Committee

■ Tom Webb, retiring chief economist at Cox Automotive

■ Amy Martin, senior director of the structured finance ratings group at Standard & Poor’s

Complete registration details for the 21st annual Non­Prime Auto Financing Conference can be found at www.nafassociation.com.

Auto finance helps to push total consumer debt to new high


Even as TransUnion noted that auto finance origination volume appears to be losing a little steam, the Federal Reserve Bank of New York’s Household Debt and Credit Report released on Wednesday showed how the balances consumers are absorbing for their vehicles helped to push total consumer debt above the highest level ever recorded.

The report indicated that total household debt reached $12.73 trillion in the first quarter, surpassing the peak of $12.68 trillion reached during the recession in 2008.

“Almost nine years later, household debt has finally exceeded its 2008 peak but the debt and its borrowers look quite different today. This record debt level is neither a reason to celebrate nor a cause for alarm. But it does provide an opportune moment to consider debt performance,” said Donghoon Lee, research officer at the New York Fed.

“While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types,” Lee continued. “Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high.”

TransUnion put the latest delinquency rate at 1.30 percent, up from 1.16 percent in Q1 of last year, driven in part by poorer payment performance in the subprime and near-prime segments.

The New York Fed noted that the outstanding auto finance balance stood at $1.17 trillion, up by $96 billion compared to the first quarter of last year and $10 billion higher on a sequential basis.

However, Brian Landau, senior vice president for financial services and automotive business leader for TransUnion, didn’t make any projections about the auto finance industry approaching $2 trillion any time soon during a phone conversation with SubPrime Auto Finance News. After TransUnion’s Industry Insights Report offered clear evidence that auto finance originations are slowing, especially in the subprime space, Landau mentioned that he’s been answering lots of questions filled with ominous tones.

“I don’t think we feel like the sky is falling. In other conversations I’ve had with other reporters, that’s what they think. But I think and many of us at (TransUnion) think this is just a reset of the market,” Landau said.

The credit bureau’s report, powered by Prama analytics, indicated that auto finance originations, viewed one quarter in arrears, declined to 6.66 million to end 2016, down 0.2 percent relative to fourth quarter of 2015. This movement marks the second consecutive quarter in which total originations were down year-over-year.

Analysts found that subprime originations posted the steepest decline in originations, dropping by 5 percent.

“You have to take things in the proper context. We’ve had seven consecutive years of growth,” Landau said. “We have not witnessed that probably since the dawn of the auto industry. A lot of that was due is there was a great buildup of pent-up demand stemming from the financial crisis.

“You’re seeing right now that the industry is resetting and recalibrating to account for the slight uptick in subprime and near-prime delinquencies,” he continued.

In a separate blog post, Lee described how analysts are reviewing the financial crisis from a different perspective in light of what the recent data is showing.

“The Great Recession led to a household borrowing situation in America that was very different from what we’d seen historically, but in 2007 when the financial crisis began to unfold, there was much less data available to economists on the state of household balance sheets,” Lee wrote.

“With better information now, we will continue to share new developments and analysis in the area of household debt,” he continued.

And the team over at TransUnion is watching the credit world closely, too, especially in the auto finance space, where Landau considered what strategy providers could leverage as part of a pullback in originations.

“One of the levers that can pull immediately is a pullback on extended terms,” Landau said. “We’ve seen terms on average ticking up over the last several years; 84 months was never something you heard about in the normal state of auto lending. Now, it’s becoming more of a common term used.

“Another lever is asking customers to put down a higher down payment on their vehicle purchase. That would improve loan-to-value ratios going forward,” he went on to say.

SCUSA explains how it’s handling ongoing risk


So far this year, a wide array of investment analysts are asking finance companies that bring in any non-prime or subprime paper about their current risk appetite. Another occasion came when Santander Consumer USA hosted its quarterly conference call recently, in which the finance provider reported a total year-over-year origination volume drop of 21 percent in the first quarter.

While SCUSA originations came in at $5.4 billion, the company took action to compensate itself for risk since the average FICO score of the contract holder attached to the originated paper it retained ticked down to 593 from 601 a year earlier. As a result, SCUSA pushed the average APR on those contracts up to 17.0 percent, up from 15.3 percent.

President and chief executive officer Jason Kulas explained during his opening remarks that SCUSA Q1 originations with FICO scores below 640 in its core and Chrysler Capital channels decreased 16 percent and 33 percent, respectively, versus the prior-year quarter.

Part of what triggered concern from Wall Street was SCUSA’s nearly $26 million regulatory punishments involving the attorneys general in Massachusetts and Delaware. Kulas referenced the company’s presentation that mentioned more than 800 dealerships have been terminated for performance-related issues.

The company went on to say it “further enhanced dealer oversight to include qualitative metrics such as negative media, false documents and consumer complaints. If dealers breach any of the qualitative or quantitative metrics and performance does not improve, SC may terminate the dealership.”

Kulas added, “As the industry continues to focus on this area, we are committed to be leaders in dealer management, moving beyond the traditional methods of monitoring credit performance.”

Furthermore, Kulas was asked to explain if the paper SCUSA is now accepting — especially in the lower credit tiers — should perform better than what the company originated in 2015 within similar credit segments. Multiple conference call participants made the comparison, insinuating how that 2015 vintage isn’t performing up to expectations.

The company did acknowledge that its net charge-off and delinquency ratio for its retail installment contracts increased to 8.8 percent and 3.9 percent, respectively, for the first quarter of 2017 from 7.6 percent and 3.1 percent, respectively, a year earlier. SCUSA noted the increases in the net charge-off and delinquency ratios, and in troubled debt restructurings (TDR) balances, were driven by the aging of the more non-prime 2015 vintage and slower portfolio growth since the prior year first quarter.

“We always want to maximize our capture with all applications that we get. The issue we always have is that many times at different parts of the credit spectrum at different times what we think is the right pricing structure, the market may have a different view so we get less,” Kulas said when asked about those metrics during the call.

“Our cash rate to non-prime, even though they’re up sequentially, are still in the high single digits, which historically is the range we’ve been and that’s the range that has served us well through several cycles,” he continued. “So, for us, we track competitive factors, we track market share, we look at volume, but what we really want is the right risk adjusted return for every single asset we book, and that’s where we’re going to be focused; not on doing more or less of any certain part of the credit spectrum.”

Kulas then addressed the specificity of the newest vintage against what came into its portfolio so far this year.

“I will say, being specific about comparing 2015 to what we’ve originated so far in 2017, there are some very key differences,” Kulas said. “We feel like our — going back to the other comments about the trade-off in risk adjusted yield versus loss — we feel like there’s a much better trade-off in our early 2017 vintages on those two factors than what we had in 2015. There are certain pockets of what we originated in 2015 that we are no longer originating. So, just by definition in terms of our approach to the market, it’d be different.

“We saw that same thing, by the way, when we went through 2006 and 2007,” he continued. “When you go through those types of situations, you learn from them. You leverage your data, you make decisions based on what you’re seeing and some things you never do again and some things you just make sure you price for.

“For us, it’s a little bit of both. That’s what we’re doing,” Kulas went on to say. “We’re learning from what we see. We’re factoring it into the new originations and we would expect that, for example, if we were sitting here on our second quarter call talking about incremental growth in non-prime originations, that we would be getting more than paid for those originations and we’d feel very good about them, or we won’t do them.”

All of the Q1 activity left SCUSA with $143 million in net income, down from $208 million a year earlier.

“We believe there’s a direct connection between strong consumer practices, a culture of compliance and the creation of shareholder value,” Kulas said near the end of his opening remarks. “Simply stated, the companies that embrace and execute on these concepts will be more successful than those who do not.

“In 2017, SC will drive value through enhancing compliance controls and consumer practices, continued credit discipline, diverse and stable sources of liquidity, industry leading efficiency and technology, a focus on recognizing upside in Chrysler Capital through dealer VIP, floorplan and the Santander flow program, and finally, being simple, personal and fair with our customers, employees in all constituencies,” he went on to say.

Credit Acceptance’s risk appetite generates $20M net-income rise


Credit Acceptance Corp. appears well aware of the risk the finance company is taking as installment contract dollar amounts as well as terms keep growing.

But that risk is certainly paying off — literally — as the company’s first quarter consolidated net income jumped by nearly $20 million year-over-year.

Credit Acceptance reported that Q1 consolidated net income came in at $93.3 million, or $4.72 per diluted share, up from $74.4 million, or $3.63 per diluted share, in the year-ago quarter.

The company added that adjusted net income, a non-GAAP financial measure, for the three months that ended March 31 totaled $92.3 million, or $4.67 per diluted share, compared to $82.3 million, or $4.02 per diluted share, for the same period in 2016.

Credit Acceptance indicated its origination unit volume declined 6.6 percent as the finance company added 94,809 installment contracts. Driven by multiple factors, Credit Acceptance mentioned dollar volume associated with those originations grew 6.4 percent during the first quarter.

Management reported the number of active dealers in its network rose by 4.8 percent to 7,851, but the company acknowledged average volume per active dealer declined 11.0 percent.

“Dollar volume grew while unit volume declined during the first quarter of 2017 due to an increase in the average advance paid per unit,” Credit Acceptance said. “This increase was the result of an increase in the average size of the consumer loans assigned primarily due to an increase in the average initial loan term and an increase in purchased loans as a percentage of total unit volume, partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned.

“Our progress in growing unit volumes has slowed considerably over the last five quarters,” the company continued. “For the most recent two quarters, unit volumes declined as compared to the same periods of the prior year. This trend reflects the difficulty of growing the number of active dealers fast enough to offset the impact of the competitive environment on attrition and per dealer volumes.

“In addition, in response to the decline in forecasted collection rates experienced in 2016, we adjusted our initial collection forecasts downward during 2016. While the adjustments have been modest, we believe these adjustments have had an adverse impact on unit volumes,” Credit Acceptance went on to say.

During the company’s conference call with investment analysts, Credit Acceptance chief executive officer Brett Roberts mentioned that the finance provider average term for contracts written in Q1 averaged 54 months. However, Roberts declined to give loan-to-value metrics when asked about the company’s risk appetite and mitigation.

“The loan term is disclosed. You can see we’ve got a little bit longer this quarter. We don’t disclose loan-to-value. But as we’ve talked about with the term, it’s a mix issue,” Roberts said.

“We write loans with terms of 24 months up to 72 months. For about 80 percent of the loans we write, we have a full amortization period behind us. We’ve got a full history on how those loans will perform,” he continued. “And for the 66-month and 72-month loans, we don’t have a full history. I think we’re about 75 percent of the way through the 66 months. So, we have 48 to 50 months of history there. And on the 72, we have about between 24 and 30 months of history on those. So, we feel like for most loans we write, we’ve got good data to back it up.

“For the 72-month loans, we have to do a little bit of estimation, so there’s a little bit more risk there,” Roberts added. “But because we’ve got a lot of 60s and lot of 66-month loans on which to base it, we don’t think it’s a stretch to be able to forecast those with a high degree of accuracy.”

Securitization update

The last securitzation Credit Acceptance finalized came back on Feb. 23 when the company announced the completion of a $350.0 million asset-backed non-recourse secured financing. Pursuant to that transaction, Credit Acceptance contributed contracts having a net book value of approximately $437.8 million to a wholly-owned special purpose entity that issued three classes of notes.

Wall Street observers asked the company for its current impression of the auto ABS market.

“Well, speaking relative to conditions in the capital markets, certainly nothing that we’re seeing at this point that would indicate that the ABS market is less available to the industry than it has been,” Credit Acceptance senior vice president and treasurer Doug Busk said.

“Spreads were very attractive in Q1. They have widened a bit since then, but are still at relatively attractive levels. So, certainly, nothing on the funding side,” Busk continued.

When Busk mentioned spreads, it triggered more inquires during the call as one investment analyst wondered about another finance company posting a “pretty widening spread in the bottom tranches” of its offering.

The call participant asked, “Do you think that’s a one-off situation with the placement of that deal or do you think that’s a trend that we might actually see investors place lower demand on bottom tranches of ABS deals?”

Busk replied, “It’s a good question, and it’s a little bit tough to say because there hasn’t been a lot of subprime auto issuance real deep in the capital stack over the last few weeks. Certainly, spreads have widened out in general a little bit, but the widening has been much more extreme on the BB and BBB tranches than it has on the higher-rated tranches.

“So I think at this point it’s a little bit premature to conclude on that point. We’ll just have to watch subsequent issuances and see what happens,” he added.

Rising cost of doing business

Elsewhere in Credit Acceptance’s Q1 financial report, the company mentioned an increase in salaries and wages expense of $4.2 million, or 13.4 percent. Credit Acceptance also had an increase in sales and marketing expense of $3.5 million, or 30.2 percent, primarily as a result of “an increase in sales commissions driven by higher consumer loan assignment unit volume related to seasonality and an increase in the size of our sales force.”

The company said it also had an increase in general and administrative expense of $1.4 million, or 11.2 percent, stemming mostly from of an increase in “legal fees.”

“We’re in the process of expanding the numbers of salespeople that we have,” Roberts said. “The number at the end of Q1 was higher than the start of Q1 but a lot of those salespeople are new so we haven’t seen much of an impact yet in terms of the unit volume numbers.

“But hopefully as they become more seasoned, we’ll see a positive impact from that,” he added.

TransUnion sees subprime originations drop 5%


TransUnion’s Industry Insights Report offered clear evidence that auto finance originations are slowing, especially in the subprime space.

The credit bureau’s report, powered by Prama analytics and released on Tuesday, indicated that auto finance originations, viewed one quarter in arrears, declined to 6.66 million to end 2016, down 0.2 percent relative to fourth quarter of 2015. This movement marks the second consecutive quarter in which total originations were down year-over-year.

Analysts found that subprime originations posted the steepest decline in originations, dropping by 5 percent.

The latest Industry Insights Report also highlighted that outstanding auto finance balances continued to grow at a more moderate pace in the first quarter of 2017. Total auto finance balances reached $1.12 trillion, up from $1.05 trillion in Q1 2016. 

The year-over-year growth rate in Q1 2017 was 7.3 percent, the lowest level TransUnion has observed since Q2 2012.

Analysts determined the average auto finance balance per consumer rose to $18,386, up 1.8 percent from $18,065.

TransUnion reported the auto finance delinquency rate increased from 1.16 percent in Q1 2016 to 1.30 percent in Q1 2017, driven by poorer payment performance in the subprime and near prime segments.

“Serious auto loan delinquency rates are approaching levels not seen since the recession, but it’s important to understand that delinquencies in the auto market never elevated to levels observed for other key credit products such as credit cards and mortgages,” said Brian Landau, senior vice president for financial services and automotive business leader for TransUnion.

“Regardless, with flatter sales volumes and higher delinquencies, we anticipate lenders will evaluate their credit policies for subprime and near prime borrowers to calibrate for the uptick in delinquencies,” Landau continued.

As Landau referenced, similar trends are appearing in other credit segments that TransUnion watches as analysts mentioned personal loan balances grew while subprime originations slowed.

TransUnion said the total balance for unsecured personal loans grew 9.7 percent to $102 billion in Q1 2017. One year prior, personal loan balances were $93 million. The year-over-year growth rate slowed compared to prior first quarters, when the yearly growth rate averaged 19.9 percent between 2013 and 2016.

Analysts calculated the average personal loan balance was $7,603 in the first quarter, a slight increase from $7,544 in Q1 2016. In the last five years, personal loan balances have grown by $1,709 from $5,893 in Q1 2012.

“Personal loan balances have increased rapidly in the last five years, but we observed a slowdown in the growth of both total balances and average balances in the first quarter,” said Jason Laky, senior vice president and consumer lending business leader at TransUnion.

“While the first quarter is usually lighter volume for personal loans, as consumers use tax returns or bonuses for purchases and to pay down debts, the beginning of 2017 experienced a larger than normal decline,” Laky added.

At the end of 2016, personal loan originations, viewed one quarter in arrears, declined 10.8 percent from 4.10 million in Q1 2016 to 3.66 million in Q1 2017. Subprime (down 12.6 percent) and near-prime (down 13.5 percent) originations experienced the sharpest year-over-year drops in originations.

TransUnion went on to note the personal loan delinquency rate also ticked up slightly to open 2017. The delinquency rate was 3.72 percent, a 3.6-percent increase from the year-ago reading of 3.59 percent.

GM Financial sets volume record with Q1 OEM deals

FORT WORTH, Texas - 

The metrics and performance of General Motors Financial are showing more distinct characteristics of a traditional captive finance company and less of a provider that used to book a significant amount of subprime paper.

In fact, GM Financial reported that its penetration of originations associated with retail deliveries by the parent automaker reached an all-time high during the first quarter, climbing to 50.4 percent. The level smashed the previous all-time record established a year earlier, which was 37.5 percent.

“GM had some down payment assistance promotions in the market during the quarter, which drove increased penetration of standard loans,” GM Financial president and chief executive officer Dan Berce said.

However, the company didn’t abandon the subprime space completely. Berce pointed out during the company’s recent quarterly conference call that originations through its AmeriCredit channel — the division that works with non-GM dealers and typically takes the subprime paper — grew to $700 million during the second quarter, up by $200 million year-over-year.

All told, GM Financial reported that its retail originations totaled $6.5 billion for the quarter that ended March 31, compared to $4.7 billion for the quarter that closed Dec. 31 and $4.1 billion for the year-ago quarter.

“Credit trends remained stable, positively impacted by our mix shift to prime credit quality assets in U.S.,” Berce said. “And our primary headwind remains used-car values, U.S. disposition proceeds on returned leased vehicles compared to estimates at origination continued to moderate during the quarter.

“We do expect used vehicle prices to decline about 7 percent year-over-year throughout 2017,” he continued.

GM Financial indicated its outstanding balance of retail finance receivables was $36.0 billion as of March 31.

Chief financial officer and executive vice president Chris Choate explained the subprime segment of the company’s portfolio represented approximately 12 percent of its ending earning assets when the second quarter finished, down from 17 percent a year earlier.

“The composition of those earning assets continues to shift to a more prime light credit profile, consistent with some of the mix trends Dan has already discussed,” Choate said.

That additional prime paper helped to improve other GM Financial metrics.

The company reported its retail finance receivables 31 to 60 days delinquent constituted 2.8 percent of the portfolio at the close of the first quarter. A year earlier, it was 3.1 percent.

GM Financial noted accounts more than 60 days delinquent improved to 1.2 percent of the portfolio from 1.4 percent a year ago.

The company added its annualized net charge-offs remained flat year-over-year, holding at 1.9 percent of average retail finance receivables.

Berce also mentioned recovery rates stood at 52 percent for the quarter, down from 54 percent a year ago. He said the rates were “up a bit sequentially due to seasonal reasons, but we do expect recovery rates to continue to trend down year-over-year throughout 2017.”

Looking more positively, customers maintaining their payments helped GM Financial to post net income of $202 million for the quarter, up from $164 million a year earlier.

A few other notable elements to GM Financial’s Q1 report included the call out of its outstanding balance of commercial finance receivables ticking up to $11.8 billion as of March 31.

The company also highlighted total available liquidity of $12.4 billion as of March 31, consisting of $2.7 billion of cash and cash equivalents, $8.3 billion of borrowing capacity on unpledged eligible assets, $0.4 billion of borrowing capacity on committed unsecured lines of credit and $1.0 billion of borrowing capacity on a Junior Subordinated Revolving Credit Facility from GM.

“Our funding platform continued successful execution on many fronts,” Berce said. “We issued $5.5 billion in public secured and unsecured debt securities in the quarter. And subsequent to quarter end, we closed our first U.S. prime loan securitization, which we call GMCAR, for a total of $1 billion.”

Elaborating about securitizations, Choate later added, “Also, as a reminder, we have numerous securitization platforms segregated by asset type and geography. This list is very similar to a list from prior quarters, with the exception, again, that we have now executed our first U.S. prime retail loan securitization under the GMCAR platform.

“Our global senior notes platform funds our operations in the U.S., Canada, Europe and Mexico, where we expect to do five to eight issuances per year,” Choate went on to say. “And our total issuance in 2017 will be increasing this year, most notably because of the launch of our GMCAR securitization program. Otherwise, we expect our cadence to be reasonably similar to 2016.”

13 finance companies assemble to talk fraud


Machine learning and fraud solutions provider PointPredictive recently orchestrated a gathering of six of the nation’s Top 10 and nine of the nation’s Top 20 aimed at tackling the problem of auto finance fraud through collaboration.

As a part of launching what PointPredictive is calling its Automotive Lending Fraud Consortium, officials highlighted a total of 13 different finance companies — representing more than a third of U.S. auto financing originations — participated in the discussions during their Automotive Fraud Roundtable to expand consortium participation.

The event happened last month in Dallas and was hosted by Santander Consumer USA.

PointPredictive chief executive officer Tim Grace reiterated that the firm launched the consortium in response to historically high origination volumes that are fueling an estimated $6 billion in annual fraud losses to finance companies.

Grace explained finance companies that join the consortium agree to share the patterns of fraud in their data and meet on a quarterly basis to share fraud experiences.

“All the lenders in attendance reported that auto lending fraud is a growing concern in their organizations and that they are bolstering their defenses in response,” Grace said. “We are providing a critical missing piece to those lenders’ fraud defenses. 

“With the consortium, we’re enabling lenders to share their patterns of auto lending fraud through predictive application risk scores and dealer risk scores — just like other industries have been doing for years,” he continued. “It’s almost impossible for a lender to make a big dent in their fraud losses working in isolation.”

To kick off this next phase of consortium growth, PointPredictive indicated the finance companies in attendance set in motion a plan for enhanced industry collaboration. They established guidelines and a working plan to move forward aggressively to respond to fraud.

“The best way to stop fraud is together as an industry,” said Rich Morrin, chief operating officer for Santander Consumer USA. “We know that individuals and criminal rings work to defraud banks and financial institutions; it’s time we work together to stop them.”

To support the fraud consortium, PointPredictive noted that it will play a critical and active role through ways such as:

• Collect finance company data

• Build machine-learning predictive application risk scoring and dealer scoring

• Provide Ph.D. scientists and fraud experts to continuously analyze contributed data for patterns of risk and emerging trends across lenders

• Organize quarterly consortium meetings

“Ten years ago, members of the team at PointPredictive established the Mortgage Fraud Consortium,” says Frank McKenna, chief fraud strategist of PointPredictive. “That helped cut fraud in half in that industry within 24 months of adoption. 

“It’s an enormously powerful technique because it not only reduces fraud and early payment default losses, where fraud is often mistakenly classified, but it can detect more fraud while reducing false positives — compared to currently-used tools like bureau alerts,” McKenna continued.

PointPredictive added that the Automotive Lending Fraud Consortium is open to all U.S. auto finance companies.

“We are hopeful that many other lenders will reach out and join the consortium, and that attendance at the next meeting doubles or triples,” Grace said.

For more information about the Automotive Lending Fraud Consortium, contact Kathleen Waid at kwaid@pointpredictive.com.