Underwriting

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.”

Ford Motor Credit leverages machine learning to enhance underwriting, reduce risk

LOS ANGELES - 

Ford Motor Credit and ZestFinance recently announced the results of a study that measured the effectiveness of machine learning to better predict risk in auto financing and potentially expand auto financing for millennials and other Americans with limited credit histories.

As a result of the study’s success, Ford Credit said it is developing plans to implement machine learning credit approval models to further enhance its consistent and prudent lending practices across the credit spectrum.

“At Ford and Ford Credit, our primary goal is to serve our customers,” Ford Credit chairman and chief executive officer Joy Falotico said. “For this study, we worked with ZestFinance to harness the capability of machine learning to analyze more data and to analyze our data differently.

“The study showed improved predictive power, which holds promise for more approvals, enhanced customer experiences and even stronger business performance, including lower credit losses,” Falotico continued.

The captive explained that Ford Credit’s proprietary models have performed well for decades. The machine learning study compared results from a Ford Credit scoring model with a machine learning model developed by ZestFinance, using its underwriting platform to do deeper analysis of applicant data.

Ford Credit and ZestFinance found that machine learning-based underwriting could reduce future credit losses significantly and potentially improve approval rates for qualified consumers, while maintaining its consistent underwriting standards.

According to the Consumer Financial Protection Bureau, 26 million American adults, or about one in 10, have no credit record, making them difficult and often impossible to underwrite using traditional methods. This includes millions of millennials who are also part of the fastest-growing segment of new car buyers.

Although these consumers may have steady jobs, officials insisted their creditworthiness is heavily based on credit history. This makes it more difficult for companies to provide financing, and they could miss an opportunity for revenue growth.

Last year, the captive pointed out that new vehicles purchased by millennials represented 29 percent of all U.S. sales, and that number is expected to grow to 40 percent by 2020.

“Machine learning-based underwriting will be a game-changer for lenders, opening entirely new revenue streams. Millennials offer the perfect example. They are typically a good credit risk and are expected to command $1.4 trillion in spending by 2020, but many lack the financial history needed to pass a traditional credit check,” ZestFinance founder and CEO Douglas Merrill said.

“Applying better math and more data to traditional underwriting illuminates the true credit risk and helps forward-looking companies like Ford Credit continue to grow their businesses while predictably managing their risk,” Merrill added.

The companies also highlighted that machine learning tools can analyze data more deeply and in more detail. They also are capable of “learning” over time, for example, by proposing changes to variables as patterns evolve or emerge, or by recognizing and incorporating macroeconomic changes into their assessments.

ZestFinance is now offering the Zest Automated Machine Learning (ZAML) Platform, which it developed specifically for credit underwriting. ZAML uses complex algorithms to analyze thousands of data points to provide a richer, more accurate understanding of all potential borrowers, delivered in an easy-to-use Web interface.

The ZAML Platform consists of three components: data collection and assimilation, machine learning modeling tools and transparency tools that enable companies to explain credit decisions.

“The work with ZestFinance exemplifies the innovation efforts at Ford Credit to support Ford Motor Company and its customers,” the captive said.

“Financial technology is key to many of these efforts, as fintech can contribute to an even more seamless and better personalized vehicle financing experience for consumers,” the company went on to say.

How finance companies dabble with psychographic analysis

ATLANTA - 

Psychographic analysis involves the study of how people live, what interests them and what they like, according to the American Marketing Association.

Equifax auto lending sales leader Craig Sims acknowledged finance companies are leveraging psychographic personas in order to target specific consumers with appropriate offers to use on their next vehicle purchase. But when it comes to using psychographic information during the underwriting process, Sims explained most finance companies are stopping short of making it an integral cog of their scorecards.

At least for now.

“My understanding of psychographics is that it’s different from the traditional demographics, who you are, where you live and where you work, but instead looks to quantify why you do the things you do, your attitudes and opinions and values,” Sims said during a recent phone conversation with SubPrime Auto Finance News.

“The place we seeing it show up most of the time in auto finance is really on the marketing side of things as we look at who they’re targeting for a particular product,” he continued. “I think it’s becoming increasingly relevant in auto finance as we seek to understand who folks are and what their attitudes are about things like their car payment.”

And where that attitude could surface is through a consumer’s activity on social media sites such as Twitter or Facebook. But Sims noted a place where it might even more relevant — and verifiable — is when the applicant states income and employment information.

Whether potential deception is intentional or not, Sims mentioned that how close to accurate that income and employment information is that the consumer shares could be a predictor of repayment.

“I think auto lenders are beginning to dabble in it a little bit,” Sims said. “Where you work and how much money, you make might fall into that more demographic type that we’re used to looking at from an auto perspective. But one of the things we find out is people who overstate their income on an application turn out to be higher risk. What does that also tell you about their behavior and attitudes?

“We’ve certainly seen some anecdotal studies that people who either overstate their income or overstate their tenure are higher risk compared to people who are truthful about these pieces of information,” he continued.

Sims indicated that Equifax’s volume of business involving income and employment verification is up by 24 percent since 2015. And the 2017 pace is on track for 32 percent growth.

But while income figures might be hard data finance companies can verify and use, Twitter hashtag frequency doesn’t exactly fall into current regulatory categories established by federal agencies.

“Particularly given the regulatory era we live in, folks tend to be pretty conservative when bringing these new data elements in,” Sims said. “The jury is still out on whether it’s going to lead to fair lending concerns and things like that. Who knows what happens if you were to look at someone’s Twitter feed and considering that as a part of the underwriting decision? Folks seem to be sticking with the more traditional demographic data points. But these behavioral indicators could show if people are being truthful on the application.

“Some of these things that you might consider psychographic are details that lenders in the underwriting space have been doing for a long time,” he went on to say. “They look at someone’s bureau and the resident history and employment history and try to formulate a picture of how this person behaves and how they might continue to behave in the future.”

No matter what data and information finance companies leverage, speed to a decision is paramount, according to Sims, especially with consumers want to complete delivery as quickly as possible.

“We hear this recurring theme from lenders and dealers that decision time is a key metric for everybody because we’re trying to streamline the process, get customers in and out the door in an hour or less,” Sims said. “The more pieces of data and the less human intervention we need in underwriting, the quicker you can turn around and hopefully more painless for the consumer.”

While the industry might not be there yet, more frequent use psychographic analysis beyond marketing campaigns could land in underwriting and originations.

“Lenders are looking for how to paint this whole picture of this consumer,” Sims said. “How can I get past just the credit bureau to really understand how someone will behave if you were to extend that auto loan? It’s just a question of how confident are they that the things they’re looking at aren’t going to run afoul with the regulators.”

Lobel Financial boosts underwriting with FactorTrust data

ATLANTA - 

On Friday, FactorTrust announced the addition of Lobel Financial to its growing list of financial service companies implementing its alternative credit data into their credit decisioning process.

Lobel Financial, a finance company specializing in purchasing and servicing vehicle installment contracts from independent and franchised dealers, is using FactorTrust data in a custom scorecard to augment other in-house credit strategies.

The company selected FactorTrust to implement its alternative credit data to help them achieve more lift and better separation of good and poor credit performers.

“We looked closely at what FactorTrust could offer, and decided that its many attributes, delivered in real-time, would help us best reach our goal of establishing enhanced segmentation for the development of our new internal scorecard,” Lobel Financial president Harvey Lobel said.

Lobel Financial joined finance companies such as National Auto Lenders leveraging FactorTrust’s information.

“Using alternative credit data is a proactive choice for industry leaders like Lobel Financial, who are faced with the challenge of effectively and intelligently managing risk on the underbanked market,” FactorTrust chief executive officer Greg Rable said.

“The addition of FactorTrust’s proprietary data opens up their options in determining the best credit performers for their business. It allows a complete picture of consumers, who are often considered credit invisible, but are really just credit inaccurate due to lack of data,” Rable added.

Why CPS is going through a ‘painful process’

LAS VEGAS - 

Consumer Portfolio Services chairman and chief executive officer Brad Bradley described how the subprime finance company is going through what he called a “painful process.” While the company’s originations are down from last year, its delinquencies didn’t spike to alarming levels.

Rather, Bradley is leading CPS with patience even though Q2 originations edged up slightly on a sequential comparison but softened by nearly $100 million compared to a year earlier.

During the second quarter, CPS reported that it purchased $233.9 million of new contracts compared to $229.6 million during Q1 and $319.1 million during the second quarter of last year. The company's managed receivables totaled $2.343 billion as of June 30, an increase from $2.323 billion as of March 31 and $2.254 billion as of the end of last June 30.

“I think people probably at this point understand what we’re trying to do,” Bradley said during closing comments of CPS’ latest conference call. “I mean people who know the company and certainly know me know that we would rather be aggressive. We would rather be actively growing the company and moving forward in the world. So this is a bit of a painful process for us right now.

“But to the extent you go back to 2007 when we had a huge problem, these times that are being a little more conservative might give you a huge home run later,” he continued. “And so what we don't want to do is stick our neck out with the rest of the folks and have a problem. So we've been pretty good at avoiding them. We think we've done a lot of things right now. As we mentioned in the call, it may take a few minutes or little while to prove that out. But we have some time to do it.

“And with any luck, we’ll position ourselves very well for the next couple of years, if we just staying in there patiently for the next few quarters. And that’s what we’ve been trying to do, and certainly we are achieving that goal today. Painful hurt, maybe for some of us, who like to see the company moving surging forward rather sitting in idle. But that’s the course we’ve chosen, and we think it’s a life course, and we’ll see what happens in the next few quarters,” Bradley went on to say.

CPS generated nearly a 5 percent year-over-year increase in revenue as it rose by $5.1 million to $110.1 million. However, the company’s total operating expenses jumped 10.3 percent or $9.5 million to $102.1 million. As a result, CPS watched its Q2 earnings drop to $4.6 million, or $0.17 per diluted share, down from $7.3 million, or $0.25 per diluted share a year earlier.

While all of those metrics shifted, CPS still managed to posts its 24th consecutive quarter of positive earnings.

Overall industry view

As he often does, Bradley shared his candid assessment of how the market is behaving. His view of competition focused a bit on the strides credit unions have made in gaining market share, especially as some finance companies are backing off their origination aggression.

According to the latest information from Experian Automotive, credit unions held 20 percent of the total auto finance market after the first quarter, up from 18 percent a year earlier.

“Credit unions have done a big job of moving into the spaces in the bottom of the spectrum, and been relatively competitive in growing in this sector in the last year or two,” Bradley said. “Some of the companies are pulling back,. Some of the companies are slowing down, and a lot of that gap is being filled by some of these credit unions.”

Another topic Bradley touched on was income verification. He emphasized that CPS’ underwriting department checks consumers’ income sources before finalizing the contract.

“We do verify income in every single deal,” Bradley said. “Job verification or income verification obviously was a hot topic in the news last few quarters. It’s ironic that that isn’t more the norm in the industry, but for us it is. It’s not bad when people ask questions, and we have a really good answer.”

Other company metrics

In other parts of CPS’ latest financial statement, the company reported annualized net charge-offs for the second quarter were 7.62 percent of the average owned portfolio as compared to 6.94 percent a year earlier.

CPS also reported delinquencies greater than 30 days (including repossession inventory) stood at 9.64 percent of the total owned portfolio as of June 30, up from 8.58 percent on the same date in 2016.

And if contracts do not mature, Bradley mentioned the loan-to-value ratios CPS is pushing into its portfolio are improving. After hitting a high of 115 percent, Bradley mentioned the stat dipped to 112.74 percent in Q2.

CPS chief financial officer Jeffrey Fritz also mentioned the company enjoyed a slight year-over-year improvement in its recovery rate through its wholesale endeavors after repossession, watching the rate tick up to 35.6 percent from 35.2 percent.

In the second quarter, the company’s board of directors approved an increase to the aggregate authorization to repurchase outstanding securities by $10 million. In Q2, CPS purchased 540,793 shares of stock in the open market at an average price of $4.54. Through the first six months of the year, CPS purchased 1,102,410 shares at an average price of $4.74.

New credit tool from CoreLogic & Equifax aims to enhance dealers’ leads

IRVINE, Calif. - 

Both consumers and dealers likely want to know potential buyers’ credit standing in order to facilitate delivery, and a new product fueled by CoreLogic and Equifax rolled out on Wednesday aims to accomplish that objective.

Analytics and data-enabled solutions provider CoreLogic launched BuyerConnect; a solution powered by Equifax that can be posted on a dealer’s website to help convert anonymous web traffic into qualified leads.

BuyerConnect can allow consumers to receive a free Equifax Risk Score directly from a dealer’s website and instantly see if they likely meet minimum credit requirements for auto financing.

To start the credit scoring process, the consumer only enters their name, address, email and phone number — no social security number. This basic information is sent to the dealer as a lead generation tool, whether or not the consumer completes the process.

Once the consumer receives their score, they can decide if they want to send their credit score range to the dealer to facilitate the shopping and financing processes by simply consenting to share the information. This process posts a soft inquiry to the consumer’s credit report so there is no impact to the consumer’s credit score, according to the companies.

In addition, the dealer’s website administrator can attach information regarding the page where the customer engaged with BuyerConnect. This information can include what vehicle the consumer is interested in, what advertisement the consumer responded to, or information about trade-ins.

“As more and more consumers do their research online, automotive dealers need a tool that gives them a competitive advantage by helping them convert website traffic into showroom floor traffic,” said Andrew Price, vice president of transportation services at CoreLogic.

“BuyerConnect helps dealers not only better engage with these potential customers, but also verify the identity and credit range of prospects that visit their website, so they know they are contacting leads that are interested and super-qualified.”

Equifax vice president dealer services John Giamalvo, “With auto finance incentives at all-time highs, driving new-car sales and continuing to accelerate in used and CPO programs, CoreLogic’s BuyerConnect gives dealerships the ability to engage customers by offering them an Equifax Risk Score, which provides an early gauge of meeting those credit requirements.”

700Credit to offer instant income and employment verification solution

SOUTHFIELD, Mich. - 

With contract holders’ ability to pay paramount, 700Credit now is offering Income PreCheck, an instant income and employment verification solution that can help dealerships verify buyers' stated income and employment.

The verification is derived by accessing The Work Number, a database of employer-provided income and employment information from Equifax Workforce Solutions.

To help dealers gain a more accurate understanding of a customer's financial standing, 700Credit explained instant income and employment verifications provide information such as employer name, employment status, job title and an annualized income calculation.

The Work Number, which includes payroll records from more than 8,500 employers nationwide, including more than 82 percent of the Fortune 500 and the majority of federal government civilian employers, is a proven verifications solution in the auto industry.

“Being able to verify income and employment information at the front end of the finance process improves the consumer experience by making the transaction process seamlessly with fewer roadblocks to financing,” said Ken Hill, managing director of 700Credit.

“Knowing a consumer’s exact income helps determine their eligibility for financing. A dealership's F&I Manager can work with the buyer to come up with the appropriate terms and conditions of a loan that meet lender guidelines and fit the buyer’s budget,” Hill added.

In addition to confirming basic income and employment information, dealers can use verifications to view job tenure, which can provide additional insight into repayment risk beyond what a credit score alone reveals. Equifax research shows that consumers whose job tenure is one year or less are almost twice more likely to go delinquent on a vehicle installment contract than consumers who have a job tenure of 10 or more years.

For more information about instant income and employment verifications, visit www.700credit.com.

PointPredictive secures funding to enhance fraud solution

SAN DIEGO - 

With interest gaining steam toward combating fraud, PointPredictive landed funding from Mosaik Partners, an expansion-stage venture capital fund, to enhance its efforts as a provider of fraud solutions to banks, lenders and finance companies.

PointPredictive announced on Wednesday that the company finalized the successful closing of Series A funding earlier this month. While no specific figures were disclosed, Mosaik Partners led the funding round as part of its initiative to invest in commerce-enabling technology companies.

“With fraud losses reaching historically high levels here in the U.S., we believe PointPredictive’s technology and consortium approach will become the standard in lending fraud detection,” said Miles Kilburn, a partner at Mosaik.

“What interested us in PointPredictive is that they have a proven management team, differentiated technology, a working solution that delivers a compelling ROI to their clients, and explosive growth potential with lenders lining up to participate. This fits right in with our investment profile,” Kilburn continued in a news release.

As part of the funding, Mosaik will take a minority interest in PointPredictive. Additionally, Kilburn will join the board of directors of PointPredictive to help the company continue to grow strategically.

PointPredictive will use the funding to respond to the growing demand for Auto Fraud Manager and Dealer Trace — solutions that can help finance companies uncover fraud patterns through a collaborative data consortium and machine learning. PointPredictive estimates between $4 to 6 billion in auto loan applications may have misrepresentations that lead to default and chargeoff. Auto Fraud Manager and Dealer Trace can help curb those losses by leveraging sophisticated algorithms that scan and score applications prior to loans being funded.

“Auto lenders want to collaborate to stop fraud,” PointPredictive chief executive officer and president Tim Grace said. “In the last six months, we’ve seen tremendous interest in our solution and we need to respond now to help lenders stop auto lending fraud. 

"Mosaik Partners is the perfect investor — they understand our technology and have worked in our space for years,” Grace continued. “We’re using the funding to increase our team of fraud scientists, fraud experts and industry thought leaders that will help us revolutionize fraud detection in auto lending and beyond.”

Carfax & MeridianLink partner to enhance vehicle history report accessibility

CENTREVILLE, Va. - 

Carfax and MeridianLink recently teamed up to make it easier for auto finance companies to get Carfax Vehicle History Reports.

Using MeridianLink’s LoansPQ loan origination system (LOS), officials highlighted this week that thousands of auto finance companies now can order Carfax reports with one simple mouse click. With direct access to valuable Carfax information such as title brands, mileage readings and service history, plus the new VIN-specific Carfax History-Based Value, finance companies can more accurately assess vehicles as collateral.

“Simplifying and streamlining loan processing for our clients is our top priority,” said Doug Glagola, vice president of enterprise solutions at MeridianLink.

“This integration with Carfax is a much-anticipated benefit that makes critical vehicle history and value information impacting a loan available without having to leave the LoansPQ platform,” Glagola continued in a news release.

Carfax information can help finance companies identify vehicles with potential problems that affect their safety and value. Issues such as accidents and flood damage, or scams like odometer fraud and title washing can reduce vehicle values by as much as 50 percent, lead to more costly repairs and increase the risk of contract default.

Using Carfax Reports and the Carfax History-Based Value — a price based on a vehicle’s unique history — finance companies can adjust their loan-to-value ratio.

“We’re constantly developing innovative solutions that help protect members of the financial services industry and their customers,” said David Lackey, general manager of the Carfax banking and insurance group.

“Most often, auto lenders look primarily at the individual requesting a loan, but evaluating the specific vehicle on a lending application is a truly novel concept,” Lackey continued. “Working with partners like MeridianLink, we’re transforming the way lenders approach the loan approval process.”

Carfax is a leading provider of vehicle history information and solutions to auto finance providers, serving thousands of banks and credit unions nationwide. Carfax information can help finance companies in underwriting, fraud detection, title research, skip-tracing and remarketing.

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.