Underwriting

TransUnion’s Q4 data shows ‘correction’ in auto finance

CHICAGO - 

Brian Landau, senior vice president and automotive business leader at TransUnion, needed just one descriptive moniker to summarize the auto finance data from the fourth quarter — a correction.

The auto finance portion of TransUnion’s Q4 2017 Industry Insights Report released on Tuesday showed that while auto finance balances grew 5.5 percent between Q4 2016 and Q4 2017, this figure marked the lowest annual growth rate since a 5.3-percent rise in Q2 2012 over Q2 2011.

Despite a slowdown in balance growth, TransUnion observed a marked increase in the number of outstanding auto contracts — growing to 79.4 million in Q4 2017 compared to 75.8 million one year earlier.

“I believe it is a correction, just like whatever others in the industry might call it, because we’re starting to see not necessarily a sharp change happening with regard to originations or balances,” Landau told SubPrime Auto Finance News ahead of the report release. “It’s more of a slowdown in some parts of the credit spectrum. That to me means it’s a controlled tightening if you will.”

The TransUnion report showed originations also declined on a yearly basis for the fifth consecutive quarter, falling 4.8 percent in Q3 2017. The decline in originations was driven by an 8.2 percent yearly drop for the subprime, near prime and prime credit risk categories, though that was partially dampened by only a 0.2-percent annual decline in the prime plus and super prime risk categories.

TransUnion reiterated that originations are viewed one quarter in arrears to account for reporting lag.

Another important trend mentioned in the report included TransUnion determining that serious auto loan delinquency rates per borrower — contracts 60 days or more past due — also remained stable. The Q4 reading improved 1 basis point to 1.43 percent.

“It’s still a little too early to say whether or not we’re going to continue to see that trend. But it is a positive indicator that a correction is happening,” said Landau, while referencing that the latest rate is more than 20 basis points lower than the reading spotted during the worst of the Great Recession of 2008 and 2009.

So while some stock traders on Wall Street might cringe at the thought of a correction, Landau reiterated how in this case with respect to auto finance it’s an overall positive development.

“As we all know, finance companies have a number of different levers they can pull to match risk,” Landau said. “They can pull back on term. They can require a larger amount down at the point of purchase to reduce that (loan-to-value ratio). They can also adjust APR and the buy rate through the dealer to offset the credit risk that’s constantly changing. They’re always calibrating and recalibrating accordingly.

“The market is pretty resilient as I’ve said before,” he went on to say. “We have a number of people in the industry who have gone through a number of cycles to know what to anticipate. They’re being very proactive to any of the underlying trends they’re seeing. That’s why you’re seeing a slight tightening of underwriting policies and pricing.”

Q4 2017 Auto Finance Trends
Auto Finance Metric Q4 2017 Q4 2016 Q4 2015 Q4 2014
 Number of Auto Loans  79.4 million  75.8 million  71.1 million  65.2 million
 Borrower-Level Delinquency Rate (60+ DPD)  1.43%  1.44%  1.27%  1.19%
 Average Debt Per Borrower  $18,597  $18,391  $18,004  $17,456
 Prior Quarter Originations*  7.1 million  7.5 million  7.5 million  7.0 million
 Average Balance of New Auto Loans*  $20,909  $20,743  $20,245  $19,710

*Note: Originations are viewed one quarter in arrears to account for reporting lag. Source: TransUnion

Overall credit trends

TransUnion highlighted that the consumer credit market concluded 2017 on a high note with strong performance across multiple credit products, according to TransUnion’s Q4 2017 Industry Insights Report powered by Prama analytics.

Analysts found that most indicators point to a healthy credit market, though there are a few signals that lenders are being more active in rebalancing portfolio risk.

“Consumers continue to gain access to more credit, and balances are generally rising at a healthy clip,” TransUnion vice president of research and consulting Matt Komos said in a news release.

“For the most part, consumers are paying their debts in a timely fashion, which has been especially evident for mortgages and personal loans,” Komos continued. “This is likely a result of the strong economy, which has helped consumers manage their personal balance sheets and build confidence.”

During 2017, TransUnion observed 20.3 million more accounts spanning auto, credit card, mortgage and unsecured personal loans. Analysts contend the growth is likely due to continued declines in the unemployment rate, which decreased to 4.1 percent in Q4 2017 compared to 4.7 percent in Q4 2016.

Additionally, the University of Michigan’s Index of Consumer Sentiment — a measure of consumer confidence — stood at 95.9 in December 2017, up 2 percent from December 2016.

“This demonstrates consumers have positive expectations regarding the overall economy, and we anticipate this will lead to higher consumer credit activity in the near future,” Komos said.

“While most indicators point to a fluid consumer credit economy, we are monitoring the market closely for any potential shifts,” Komos continued. “Material upticks in delinquency, interest rate increases beyond what is expected, or other unanticipated economic shocks could certainly impact the market adversely.”

TransUnion’s special website here contains more charts and details about the Q4 2017 Industry Insights Report.

Credit report research project results in ProMax’s latest dealer tool

DAVENPORT, Iowa - 

Here’s another example of data and research leading directly to development of a solution aimed at smoothing out underwriting, which in turn helps finance companies book more paper and dealerships turn more metal.

Dealer Marketing Services, the makers of ProMax, recently released what the company dubbed Multi-Bureau Solution for its dealer customers.

ProMax explained the Multi-Bureau Solution is a multifaceted strategy for dealers that centers around pulling multiple credit reports for each customer in order to leverage the best credit score and tier into a better and more profitable deal.

The Multi-Bureau Solution comes as a result of a massive study conducted by ProMax over a six-month period in 2017. Using a sample of more than 700 franchised and independent dealerships nationwide, more than 650,000 showroom visitors with more than 1 million credit bureau reports pulled, and over 180,000 vehicle sales were analyzed.

“The analysis of this massive data set was conclusive and unmistakable,” ProMax founder and chief executive officer John Palmer said.

“Pulling multiple credit reports per customer increases both the number of sales and back-end profits,” he said. “It’s that simple. So, we designed an easy to implement solution incorporating everything the study showed us.”

Palmer explained that the study yielded two big innovations in the credit pulling process that are key to the Multi-Bureau Solution: a brand new multi-bureau credit report and major additions to ProMax’s Lender, Review, & Submit functionality.

The new bureau design improves both the look and effectiveness of traditional credit report displays, enabling dealers to compare multiple bureaus side-by-side and get all the information they need at a glance.

The updated Review & Submit screen makes it easier than ever for dealers to configure lenders for maximum effectiveness.

“The Multi-Bureau Solution doesn’t just draw on the landmark six-month study, but on ProMax’s 20-plus years of experience,” ProMax chief technology officer Darian Miller said.

“Credit and compliance have always been two of our greatest strengths. ProMax gives dealers the technology to compare and analyze credit reports and submit the best deals to lenders,” Miller continued.

ProMax pointed to studies that show up to 75 percent of vehicle buyers have credit scores that vary by more than 20 points across all three bureaus. The Multi-Bureau Solution can take advantage of this situation by always finding the best score and tier for the customer.

“Savvy F&I managers know that pulling more than one bureau can bump a prospect’s score and more importantly their tier,” ProMax chief operating officer Shane Born said.

“Even a bump of 20 points can mean the difference between closing the deal or losing the deal; 20 points could be the difference between a better deal or leaving gross profit on the table,” Born concluded. 

LAUNCHER.SOLUTIONS integrates with Equifax Workforce Solutions

JACKSONVILLE, Fla. - 

An important component in subprime auto finance underwriting is gauging the potential contract holder’s ability to make installment payments.

LAUNCHER.SOLUTIONS and Equifax are teaming up to help finance companies with that stipulation.

This week Equifax and LAUNCHER.SOLUTIONS, a technology provider specializing in subprime automotive originations, announced an integration of Launcher’s appTRAKER Loan Origination System with The Work Number database and its repository of payroll data, provided by Equifax Workforce Solutions.

Executives highlighted the appTRAKER Loan Origination System was designed specifically for subprime and near-prime finance companies. Integrating The Work Number with appTRAKER LOS can allow finance companies utilizing appTRAKER LOS to automatically access employment and income information, helping to reduce time and errors that can occur in a manual process.

More than 10,000 employers nationwide are included in The Work Number database of income and employment records, including the majority of federal government civilian employers and 82 percent of the Fortune 500.

Data within The Work Number database updates every payroll cycle.

“Our integration with The Work Number adds value to appTRAKER LOS for our lenders,” said Nikh Nath, president of LAUNCHER.SOLUTIONS.

“The verifications provided by The Work Number can be run automatically or manually, during the underwriting phase or the verification phase,” Nath continued. “The integration allows the quality and flexibility needed to book loans quickly and efficiently.”

Lou Loquasto, vice president, dealer and auto finance leader for Equifax, mentioned that the company expanded The Work Number database substantially in 2017.

“Auto lender confidence in the availability of The Work Number data could reduce consumer requirements to provide income and employment documentation and soon become a table stake for the industry,” Loquasto said.

Survey reinforces value of online auto financing applications

IRVINE, Calif. - 

Eddie Castillo, general sales manager for the subprime division for Pine Belt Cadillac in Toms River, N.J., described how much a customer who has completed financing online prior to coming to the dealership improves the entire delivery experience — especially for consumers with soft credit histories.

Castillo relayed his experience as SpringboardAuto released results of a new survey that determined consumers want to finance their vehicle online and doing so significantly improves their overall car buying experience and perception of the dealership where they take delivery.

The survey, conducted among consumers who have recently financed a vehicle online with SpringboardAuto for the purchase of a vehicle from a dealership, provides a snapshot of how consumers’ impressions of dealerships improve when they can complete financing online before setting foot into the dealership and shows a significant positive impact on CSI and retention.

When consumers go online to get the financing wheels in motion, Castillo said, “You don’t go back-and-forth with the customer going over their credit or some of the very sensitive areas that sometimes can affect the situation. So now, they look at the car, they like the car, we agree on a price — and it’s an easier and more comfortable experience.”

The survey, conducted online in November and December, asked consumers to compare their perceptions of completing financing at the dealership versus completing it online prior to purchase. The result?

Customer satisfaction with the dealership increased on average by more than 100 percent when they completed their financing online as evidenced by them being likely/highly likely to:

  Financed online Financed at the dealership
 Give a high CSI score  63%  27%
 Recommend dealership to friends  55%  28%
 Return for service  49%  28%
 Return to dealership for next purchase  47%  21%
 Post a positive review  40%  18%

 

The majority of those surveyed also reported that the finance experience online was easier and more pleasant and hassle-free than what they had experienced previously at a dealership.  They stated that what they liked best is the ability to do it all online, followed by not being rushed and having more control over personalization. 

The survey also made clear that these consumers have been hampered by fear when heading to a dealership for financing, and that fear is fueled by lack of information and feeling disempowered.

“It comes as no surprise that consumers want to feel more empowered and more informed during the auto financing process — and that they want to do it at their own pace. What is especially striking is that if they have that opportunity, their positive feelings about their dealership skyrockets,” said Jim Landy chief executive officer and founder of SpringboardAuto. 

“With today’s technology providing multiple platforms that enable consumers to complete financing online and, in many cases, qualify for financing they may not otherwise be able to get through a dealership’s F&I process, the opportunity for dealerships is significant — especially if that platform is seamless, and easy-to-use,” Landy continued.

“Dealerships gain where it counts most to their bottom line: in service visits, loyalty, positive word of mouth — and that critical CSI score, all while saving time spent on financing paperwork,” Landy went on to say.

SpringboardAuto shared several other data highlights from the survey, including:

• Overall, customer perception of dealership increased in favorability by 115 percent as measured by likelihood to return to dealership, give a 5-star rating and recommend to friends.

• The financing preference of the vast majority surveyed is to go online prior to visiting the dealership: 86 percent versus 5 percent who want to do it in the dealership.

• These are not finance newbies: Eighty-one percent have financed via the dealership in the past.

• Eighty-four percent found the dealership financing experience frustrating and time-consuming, while only 16 percent found the experience hassle-free and convenient.

• Ninety-two percent said that working with an online financing platform was easier, more pleasant and hassle-free than their previous dealership finance experience.

• Respondents cited being able to complete financing online (82 percent) as the thing they liked most about the process, closely followed by not feeling rushed and being able to proceed “at my own pace” (80 percent) and more control over personalizing the contract (72 percent).

• Eighty-one percent said concerns about their credit score had held them back from financing via dealership in the past.

• The No. 1 reason why was, “I was unsure if I could get approved and I had no idea what my payments would be/what I could afford.” (77 percent)

• More than half said: “I did not want to be embarrassed at the dealership by being rejected.”

• Just more than two-thirds said: “I feel that my low credit rating means a dealer will take advantage of me.”

• Getting the best interest rate and term trumps all else, including experience, for top priority in auto financing, with pleasant and hassle free coming in second.

Landy added that, while there will always be consumers who want to finance in the dealership, today’s customer is increasingly looking for more control and personalization in the experience and to do it digitally — and that this is particularly true among millennials.

Black Book’s newest tool sharpens valuations based on vehicle history

LAWRENCEVILLE, Ga. - 

Auto finance companies and dealerships integrally involved in underwriting might have some kind of vehicle-history component embedded into their scorecards and other tools.

However, Black Book on Tuesday rolled out what the vehicle valuation company believes is its most precise tool yet — it’s VIN-specific History-Adjusted Valuations, an analytics-driven process for determining the impact a vehicle’s history has on its value.

Today when valuing a vehicle, Black Book contends that automotive industry professionals check the vehicle’s history report and make an “unscientific, educated guess” as to its impact on the vehicle’s value.

“This is subjective and problematic, as it often leads to mistakes in valuation,” Black Book said. “Making an inaccurate estimation on appraisal values can decrease margins for a dealer, as well as increase losses for auto lenders.”

Black Book has leveraged its advanced analytics capabilities and deep editorial expertise to bring insight into precisely how a vehicle’s historical events impact its value. The company insisted this development is critical since a recent survey of automotive professionals indicated that 96 percent of respondents feel a vehicle’s history has a moderate to significant impact on the value of a used vehicle.

Black Book’s creation of History-Adjusted Valuations analyzes multiple factors and events in a vehicle’s history such as number of owners, vehicle usage, accident and accident severity, title issues, flood/hail/fire damage, CPO history, and other variables that are not obvious when physically inspecting a vehicle.

 “We are providing our customers  a competitive advantage by precisely valuing a vehicle based on its VIN-specific history," said Jared Kalfus, executive vice president of revenue at Black Book. “Whether appraising a trade-in, bidding at auction or valuing a vehicle portfolio, precision drives profit, growth and customer satisfaction.”

Black Book’s customer promise is to deliver ever more precise valuations. On average, History-Adjusted Values are 31 percent more precise when compared to the auction transaction price than valuations without a history adjustment included.   

“The evolution of data and analytics continues to have a profound impact on the overall auto industry, from dealers and remarketers, to manufacturers and lenders,” said Anil Goyal, executive vice president of operations at Black Book. “Our analytics play a significant role in recognizing the patterns in a vehicle’s history and determining their impact on each vehicle’s value, enabling our customers to make better decisions.”

To learn more about Black Book’s new History-Adjusted Valuations, call (800) 554-1026.

Fiserv and TransUnion partner to integrate alternative data into origination platform

BROOKFIELD, Wisc. - 

On Tuesday, Fiserv finalized a partnership with TransUnion to improve price, decision accuracy and expand the customer base within the automotive finance space.

Officials highlighted integrating the automotive loan origination system from Fiserv with CreditVision Link from TransUnion will help increase precision of scoring and risk modeling.

By including additional data points to evaluate credit applications, Fiserv explained that finance companies can better identify high-risk and high-opportunity consumers, including emerging credit populations often overlooked or denied by lenders due to insufficient data in traditional credit files.

“Understanding the customer is critical not only to making informed business decisions, but to also build and nurture customer relationships and loyalty over time,” said Steve Chaouki, executive vice president and head of TransUnion’s financial services business unit. “Our integration of CreditVision Link trended and alternative data sources into Automotive Loan Origination System enables lenders to score approximately 95 percent of the U.S. adult population.”

CreditVision Link leverages new alternative data sources to its risk scoring analysis, including address stability, checking account history, microloans/ alternative lending and property ownership. Fiserv has implemented a select number of trended and alternative data scores, which include up to 30 months of historical information on each contract with actual payment history and amount borrowed over time.

The companies pointed out that there are currently 60 million underserved consumers who potentially can now be scored, as well as expanding the super prime customer base by 23 million.

“The most successful auto lenders prioritize the needs of their customers while managing risk exposure,” said Shaimaa Elk, chief information officer for lending solutions at Fiserv. “The partnership between Fiserv and TransUnion enables lenders to provide borrower-focused customer service and better optimize profitability, cost reductions and efficiencies.”

More details can be found at fiserv.com.

New roles for 2 executives at Toyota’s captive

PLANO, Texas - 

Among seven executive changes made by Toyota across its North American operations, two involve top leaders at the automaker’s captive finance company.

Effective Jan. 1, the company said in a recent announcement that Scott Cooke will be group vice president and chief risk officer at Toyota Financial Services (TFS), where he will have responsibility for risk management across the Americas region, dealer credit and information security.

Furthermore, the OEM indicated Cindy Wang will be group vice president, treasury, at TFS in Plano, Texas, where she will have responsibility for leading Treasury and Vendor Management Office (VMO) business units within Toyota Motor Credit Corp. (TMCC), including responsibilities for Global and Americas Region Treasury.

The other announced changes include:

—Susan Elkington is named Toyota Motor Manufacturing, Kentucky, (TMMK) president in Georgetown, Ky., where she will have responsibility for all manufacturing and administrative operations.

—Kent Rice is named group vice president quality at headquarters in Plano, Texas, where he will have responsibility for promoting overall North America Toyota Quality direction including Product Quality and Service Support.

—Sean Suggs is named Toyota Motor Manufacturing, Mississippi, (TMMMS) president in Blue Springs, Miss., where he will have responsibility for all manufacturing and administrative operations. He also will assume the role of TMMMS Administration vice president.

The company also highlighted a pair of retiring executives, including:

—Wil James will retire in February after completing more than 30 years of service. He most recently served as TMMK president in Georgetown, Ky.

—Bob Waltz will retire on Jan. 11 after completing more than 32 years of service. He most recently served as group vice president of Product Quality and Service Support (PQSS) in Plano, Texas. He will serve as executive adviser of PQSS until his retirement.

“These appointments will bring new insights into strengthening Toyota’s ability for more collaboration enterprise-wide, helping us respond more quickly to the market and our customers’ needs,” said Jim Lentz, chief executive officer, Toyota Motor North America (TMNA).

PwC to present picture of how robotic technology could impact auto finance

PALM SPRINGS, Calif. - 

Craig Schleicher of PwC sees robotic features having a much greater presence in auto finance in the not-so-distant future. No, C-3PO and R2-D2 from Star Wars likely aren’t taking over underwriting and servicing vehicle installment contracts, but the manager of consumer finance at PwC described how robotic process automation (RPA) can be a good thing. 

Schleicher is set to discuss RPA and other cutting-edge developments during his Used Car Week general session on Nov. 14 as the industry gathers in Palm Springs, Calif., for the annual gathering of thought leaders, operators and executives that touch all segments of the used-vehicle space.

During a phone conversation with SubPrime Auto Finance News earlier this week, Schleicher noted that two technology developments are percolating in auto finance; one within the customer-facing business segment and those connected to finance companies’ internal workings.

“On the customer side, the quality of inventory data and VIN level information has really changed the interaction model for a lot of lenders and allowed for direct to indirect conversion where lenders are presenting vehicle options and financing options on their website and becoming a lead referral source for their dealer partners, which really changes the dynamics of indirect lending,” Schleicher said.

“On the internal side, I see robotic process automation as something that has been adopted significantly in a number of other industries that auto finance is just starting to dip its toes into. To me, it has really significant potential to increase the efficiency of the back-office operations across the entire loan lifecycle,” he continued.

Before you open an online search engine to learn about RPA, check out how Schleicher succinctly explained the technology in two sentences.

“RPA you can think of as software overlay that works a lot like an Excel macro that also works across multiple different programs,” he said. “It combines an easy user interface to design programming with technology like optical character recognition to make it easy to automate repetitive tasks that are highly manual without having to go through a full system integration.”

Schleicher explained that one example where RPA could be impactful in auto financing is how the technology could produce review capabilities of contract documents against what is contained in the loan origination system. And not just a sample, but 100 percent of a portfolio.

PwC delved into the connection of RPA and auto financing through a project that’s available here. Schleicher will be elaborating on the topic more during his session at Used Car Week, and will also cover specific processes where RPA could enhance how finance companies operate.

“I’m really excited for the presentation because I think we’re going to take a strategic lens on some of the elements of auto finance that don’t get the publicity that they deserve,” Schleicher said. “We’re going to take a look at how lenders can start to think strategically about opportunities for innovation across the loan life cycle to improve their performance in the servicing and collections function specifically.

“One of the areas I’m most excited to talk about is I think there is a real opportunity for lenders to change how they think about the collections function from being just a loss-prevention tool to something that’s part of their bigger strategy and supports their overall goals of customer retention, loyalty and satisfaction,” he continued.

When finance company executives have down time, perhaps they can delve into the Star Wars series of motion pictures; maybe  robots can make their institutions more compliant or profitable.

“I also think there is a big opportunity and the need for continued evolution in the technology to improve the customer experience,” Schleicher said. “I expect that the pace of change in auto finance will be much greater over the coming years than it has been.”

2 primary reasons why social media is still not viable for underwriting

COSTA MESA, Calif. - 

No doubt, finance companies are looking for whatever reliable piece of information they can examine while they’re first deciding if they should make an auto finance offer to a potential vehicle buyer and then exploring what terms and down payment should be leveraged.

So what about using someone’s social media profile? After all, Experian cited data from Statista that indicated 81 percent of Americans have a social media profile in 2017, up from 78 percent last year and 24 percent back in 2008.

Before the underwriting department starts to tap Facebook to go along with paystubs, Experian cautioned the industry in a recent blog post about the potential pitfalls of social media profiles ever being used in a credit decision. Analysts’ reasons included:

1. Experian said, “There is that little rule called the Equal Credit Opportunity Act, which states credit must be extended to all creditworthy applicants regardless of race, religion, gender, marital status, age and other personal characteristics. A quick scan of any Facebook profile can reveal these things, and more. Credit applications do not ask for these specific details for this very reason.”

2. Experian added, “Social media data can also be manipulated. One can ‘like’ financial articles, participate in educational quizzes and represent themselves as if they are financially responsible. Social media can be gamed. On the flip side, a consumer can’t manipulate their payment history.”

While using social media information still might not be used in underwriting anytime soon, Experian reiterated that there are other compliant avenues finance companies can take to ensure the best possible paper is coming into their portfolios.

“In the meantime, other sources of data are being evaluated. Everything from including on-time utility and rental payments, insights on smaller dollar loans and various credit attributes can help to provide a more holistic view of today’s credit consumer,” Experian said.

“There is no question social media data will continue to grow exponentially. But in the world of credit decisioning, the ‘like’ button cannot be given quite yet,” Experian went on to say.

DataLab Data Solutions enhances tool with FactorTrust information

ATLANTA - 

FactorTrust finalized a partnership this week with leading analytics-driven marketing consultancy, DataLab Data Solutions (DDS), which couples high-quality, clean data with deep analytics and model development, giving its customers the best opportunity for successful targeted marketing programs.

The addition of FactorTrust’s 275 million transaction records aids the analytics expert in executing that process to identify key prospects.

FactorTrust’s alternative credit data is designed to augment DDS’s existing, robust inventory of data records.

“By adding FactorTrust’s real-time data, we are enriching our inventory and making it even more comprehensive,” DDS chief operating officer David Flam said. “This data provides additional insight not only into consumers with strong credit profiles, but also can help identify new consumers who may not otherwise receive firm offers of credit or insurance; our assets together provide the most complete profile of consumers, enabling our customers to grow their marketable universe.”

Maryland-based DDS uses its network of data points to build response and conversion models to help guide customers in making targeted marketing selections.

“FactorTrust is pleased to side with industry innovators like DDS,” FactorTrust chief executive officer Greg Rable said. “By using FactorTrust’s alternative credit data, DDS is harnessing the unique and predictive capabilities of alternative credit data in their lending processes, and their customers are benefitting and extending proper fitting offers to consumers.”