TransUnion senior vice president and automotive business leader Jason Laky indicated auto refinancing still is a “small” portion of all new quarterly originations. However, start-up companies such as SpringboardAuto.com are aiming to boost the volume figure by creating online opportunities for consumers to apply for refinancing anywhere, anytime and receive a response in seconds.
During a conversation earlier this week with SubPrime Auto Finance News, Laky estimated that auto refinancing composes about 5 percent to 10 percent of quarterly originations.
“But we’ve seen it grow year-over-year since 2010,” Laky said. “We believe that this is a combination of both a favorable interest rate environment as well as more lenders seeing auto refinancing as an opportunity to create value for consumers, especially when consumers have long-term loans.”
Long-term contracts certainly are the norm nowadays. Experian Automotive’s first-quarter data indicated the average term for a subprime borrower who financed a new vehicle came in at 72 months. If a subprime buyer made a financed purchase of a used vehicle at a franchised dealer during Q1, the term was 67 months. If the subprime used-vehicle transaction took place at an independent store, the average term was 56 months.
Perhaps if those subprime borrowers improved their credit standing after a time, they might seek refinancing options to reduce their monthly payment. Laky explained how TransUnion can keep track of originations that are, in fact, refinancing deals.
“One of the criteria is a different lender,” Laky said. “This isn’t modifying a loan for an existing consumer as much as it is this conquest piece.
“When we see it, it tends to be certain finance companies that specialize in auto refinance as opposed to offering it side-by-side with an indirect program. It can be hard to do both,” he continued.
Companies such as SpringboardAuto.com are trying to reduce the difficulty of obtaining financing altogether.
Unlike the traditional refinancing process that only has static single terms (such as a fixed interest rate and payment), SpringboardAuto.com insisted that it can put the consumer in control of displayed loan term options. The application process is automated, transparent and can be done 24/7 from anywhere using a smartphone or computer.
SpringboardAuto.com chief executive officer Jim Landy explained that approved consumers configure selected financing terms to meet their individual objectives, which can be to lower an existing monthly payment or reduce the amount of interest paid. Landy also stressed there’s no obligation to commit and no impact on a consumer’s credit score to receive an offer.
“Refinancing an auto loan shouldn’t involve any smoke and mirrors. We educate buyers up front on interest rate, loan duration and even include a slider tool to help them see how more or less money down changes the terms of the loan,” he said.
“The bottom line: We will either be able to give a consumer a loan that better meets their needs or not,” Landy continued. “If not, there’s no harm to the consumer’s credit score and no obligation.”
During the refinance process, SpringboardAuto.com can provide a side-by-side presentation of the consumer’s estimated current loan compared to their new loan term preferences; and, because there is full transparency, the consumer knows if the loan is beneficial or not.
“The reasons to refinance are unique to every individual — it might be that you’re about to become a new parent and the costs associated with the new baby mean you really need a lower monthly payment, or perhaps you’re ready to shorten the loan duration and pay the vehicle off faster. Whatever the need, our tool lets you easily configure the loan to fit,” Landy said.
SpringboardAuto.com’s refinancing auto loans are available via website or smartphone. The company leverages technology, data and analytics to expedite and secure the entire financing process.
Once approved and the contract configured, SpringboardAuto.com can guide the borrower through the rest of the refinance process and the loan agreement is signed online for everyone’s convenience.
Equifax and Moody’s Analytics recently suggested commercial banks should consider borrowers who might fall in the non-prime or even subprime tiers to enhance their auto-finance opportunities. Evidently, officials from the Office of the Comptroller of the Currency (OCC) disagree stemming from what they shared in their Semiannual Risk Perspective released this week.
The report indicated auto finance risk is increasing because of “notable and unprecedented growth” across all types of institutions. The OCC’s concern stems from auto delinquencies beginning to increase as used-vehicle values have started to decline.
“As banks have competed for market share, some banks have responded with less stringent underwriting standards, or both, for direct and indirect auto loans,” OCC officials said in the report. “In addition to the easing of underwriting standards and potential layering of risks (higher loan-to-value ratios combined with longer terms), concentrations in auto loans have been increasing.
“These factors create the potential for increasing levels of embedded credit risk in auto loan portfolios,” they continued. “The elevated risk results in higher probable credit losses and may warrant additional provisions to the allowance for loan and lease loss or higher capital allocations.
“Supervisory work to date has noted that some banks’ risk management practices have not kept pace with the growth and increasing risk in these portfolios,” OCC officials went on to say in the report, which can be downloaded here.
During a recent webinar hosted by the Consumer Bankers Association, Equifax auto finance leader Lou Loquasto emphasized how a healthy mix is important for any part of the credit market, especially automotive.
“If our industry makes all of the loans at 800 credit, losses are going to be super low. But if they make them all at 500 credit, losses are going to be super high,” Loquasto said.
“If you look at the mix over the past five years, we have been really steady since 2011,” he continued. “What that tells us — because auto loans are short term and losses, when they come, may come sooner rather than later in the loan term — we at Equifax expect the future performance of the recent pools of business to look very similar to what happened in 2014 and 2015. That’s one of the reasons we’re very optimistic about where we’re going.”
After releasing the Semiannual Risk Perspective, Comptroller of the Currency Thomas Curry acknowledged the challenge banks have, but he still took a cautious approach.
“The banking environment continues to evolve, with growing competition among banks, nonbanks, and financial technology firms,” Curry said. “Some banks are struggling to find viable business models, while others are increasingly adopting innovative products, services and processes in response to evolving customer demands and the entrance of new competitors.
“Doing so often involves assuming unfamiliar risks, including expanded reliance on third-party relationships,” he continued. “Banks may face heightened strategic planning and governance risk if they do not use sound risk management practices that align with their overall business strategies. It’s at this stage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk.
“While the OCC strongly encourages responsible innovation that provides fair access to financial services and fair treatment of consumers, we have also stressed that banks should have effective risk management to ensure such innovation aligns to their long-term business strategies,” Curry went on to say.
Santander Consumer USA Holdings made its fourth significant executive leadership change in the past 12 months as Blythe Masters resigned from the finance company’s board of directors on Tuesday to take on a new role with Banco Santander.
While Masters departed her leadership role with SCUSA after about a year, the finance company elevated William Rainer to be its new chairman. Rainer already was a member of the board as well as chairman of SCUSA’s audit and regulatory and compliance oversight committees.
Masters will take on the role as group senior advisor on blockchain and also join Banco Santander’s international advisory board as well as the board of its online-only bank, Openbank, once necessary approvals are final.
This week’s moves extend a string of top-executive changes since last July when founder Thomas Dundon chose to resign as chief executive officer while remaining a member of the SCUSA board of directors and as a senior advisor.
Taking Dundon’s place as the company celebrated the Fourth of July was current president and CEO Jason Kulas, who praised the latest changes SCUSA revealed.
“Blythe has been an excellent chairman of the SC board, and I thank her for her leadership and partnership over the last year. I am pleased that she will continue to be a part of Santander,” Kulas said.
“I am also pleased that Bill has accepted the role of SC chairman. His deep knowledge of SC as an active board member provides continuity for our board, which will result in a seamless transition,” Kulas continued in a news release.
SCUSA’s other top-executive moves included the naming of Ismail “Izzy” Dawood as chief financial officer. Dawood came aboard in December after most recently serving as executive vice president and chief financial officer of the investment services division of The Bank of New York Mellon Corp.
Then earlier this year, Jason Grubb, who was president and chief operating officer of originations, and Brad Martin, who was chief operating officer of servicing, both departed SCUSA for high-profile roles at Exeter Finance. Santander Consumer USA then gave the president post to Kulas and promoted Richard Morrin to be COO.
Rainer’s promotion to be SCUSA’s board chair extends a decorated business career.
Rainer served as chair and chief executive officer of OneChicago from 2001 to 2004, prior to which he was chairman of the U.S. Commodity Futures Trading Commission from 1999 to 2001, and chairman of the United States Enrichment Corp. from 1994 to 1998. He founded Greenwich Capital Markets in 1981.
“I appreciate this opportunity to serve as chairman of SC’s board of directors. I especially look forward to continuing to work closely with my colleagues on the board, Jason and the entire management team,” Rainer said.
“I also want to thank Blythe for her contributions to Santander Consumer USA during her leadership as chair and wish her the best in her new and broadened role at Santander,” Rainer continued.
Masters is the CEO of Digital Asset, a technology company that builds distributed, encrypted, straight-through processing tools to improve efficiency, security, compliance and settlement speed. Prior to Digital Asset, she spent 27 years at JPMorgan Chase, where she served in numerous senior positions including head of global commodities, and was CFO of J.P. Morgan’s investment bank.
“I am excited to have this opportunity to work with Banco Santander more expansively,” Masters said. “I would also like to thank Bill Rainer; SC CEO, president and board member, Jason Kulas; and the SC team for their partnership and tireless work to strengthen SC’s business.”
Banco Santander executive chairman Ana Botín offered her assessment of the latest moves, stating, “I am very excited that Blythe and Bill have agreed to take on new roles for Santander.
“Blythe will bring her expertise in banking, business and blockchain where it will have significant impact to our digital bank, international advisory board and strategy team,” Botín continued. “She has done an outstanding job for SC, and I'm looking forward to her focusing on our global efforts in digital banking.”
“Bill knows SC's business well, having ably served as an active and engaged SC committee chair and board member,” Botín added. “I know he will be an outstanding representative for SC's shareholders, and will help the business strategically and commercially.”
Santander Holdings USA chairman Tim Ryan also offered his perspective.
“I am thrilled that another experienced business leader with a diverse set of skills has agreed to chair the SC board,” Ryan said. “Bill has a long record of excellence in banking and financial management, and has been an excellent chairman of the SC audit and regulatory and compliance oversight committees.
“I want to thank Blythe for her hard work and dedication over the past year,” Ryan went on to say.
Continuing a string of developments that have included a new client and an integration with another industry service provider, loan origination system (LOS) provider defi SOLUTIONS recently announced that the company will be expanding its product offerings to include a full-service analytics and reporting platform.
Stephanie Alsbrooks, chief executive officer and founder of defi SOLUTIONS, acknowledged that finance companies face many challenges as they attempt to gain insight from data. For many, extracting, standardizing and storing data from different systems requires a significant investment. Add to that the vast array of external data sources and analytic products, and the problem increases exponentially.
defi SOLUTIONS claims that it revolutionized the LOS industry by putting power in the hands of the finance company, and so the provider is looking to build on that success by doing the same thing with data and analytics.
defi ANALYTICS will bring big company analytics and strategic insight to all finance companies at what defi SOLUTIONS contends is an “affordable price.”
The analytics platform can offer finance companies a configurable reporting feature that lets them track their loan originations and eventually credit risk performance and profitability. Finance companies also can access powerful data and business solutions from defi’s many industry-leading business partners.
In addition, defi ANALYTICS will partner with Integrated Fintech to offer risk management and strategic consulting to finance companies.
“Our goal is to deliver a platform to our clients that gives them the freedom to access the data they need easily,” Alsbrooks said.
“For years lenders struggled with the expensive technical challenge of getting their LOS to function the way they needed it to,” she continued. “defi changed that by creating a system the lender could control. Today lenders have a similar problem related to data and analytics that will be solved with the expansion of our platform.”
While many large finance companies have made a significant capital investment into reporting, risk management and analysis, Integrated Fintech co-founder Daniel Parry pointed out that many other institutions have not.
“It takes a very long time to build out quality analytic teams, as well as a reporting infrastructure,” Parry said. “Just as defi was built from the lender’s perspective, we have a long history of developing these tools from a lender’s perspective from a startup to a multi-billion dollar portfolio size.
“We are very pleased to partner with defi to help make data-driven insight more accessible,” continued Parry, who added that finance companies using the defi LOS will have immediate access to the services provided in partnership with Integrated Fintech.
The executives mentioned the initial release of the defi ANALYTICS platform is scheduled for the end of the year and will include a base reporting module. They noted additional modules, along with special lender programs, will continue to be added throughout 2017.
Subprime Analytics recently reported the largest reduction in subprime auto finance down payments since 2011. Subprime auto finance down payments experienced a 15 percent year-over-year decrease in 2015. While down payments are down, the amount financed is up. According to Experian Automotive, the average used-vehicle loan amount for franchised and independent dealers increased to $18,424 in Q1 of this year.
With the combination of these two trends, it’s no wonder that average subprime loan terms have increased by 4.5 percent year-over-year since 2012, according to Subprime Analytics. Now lenders are looking to extend loan terms to 84 months.
What do these trends mean for the long-term? For the last year, industry analysts have been telling everyone to wait and see. But, when does waiting and seeing turn into putting our heads in the sand?
Rather than waiting for the market to turn, and reacting to the circumstances that arise, smart lenders are taking proactive steps now to protect their lending portfolios from potential market changes.
Now, you might think, “I don’t want to be the first lender to start tightening lending requirements and lose loan volume and market share.” The good news is you don’t have to jump the gun. Rather, take a step back and look outside the box for solutions that can protect your portfolio and increase loan volume.
One such “out-of-the-box” approach is the use of consumer protection products, like a vehicle service contract or vehicle return protection. Loans that offer complimentary consumer protection products can help you address the challenges of differentiating yourself from the competition and managing delinquency rates, while also providing additional streams of revenue.
As far as dealers are concerned, whether you provide complimentary products or not, they will want a lender that funds enough money for them to either increase their profit through upgrades or selling their own F&I products. Offering loans to dealers that help them achieve their goals has the potential to make you their preferred lender, meaning increased auto loan volume.
From the consumer side of things, subprime buyers tend to struggle with budgetary constraints. For example, when a significant mechanical breakdown occurs, these consumers often have to choose between paying for the repair or paying a monthly bill like their auto loan. A complimentary vehicle service contract or other related program could alleviate that cost, and potentially protect the loan from delinquency, thereby protecting your loan portfolio.
By providing dealers and consumers what they need, you can essentially set yourself up for long-term success. It’s a win, win, win! Rather than waiting to see what the market brings, take control of your financial future with consumer protection products.
Steve Roennau is the vice president of compliance EFG Companies. This commentary originally appeared on the company’s website.
Sword Apak announced on Friday that Jeff Bunch — whose professional career includes time with Manheim, Black Book, Auction Credit Enterprises and America’s Auto Auctions — is now with the wholesale floor planning software provider as its vice president of global sales.
The company indicated that Bunch’s role will focus on managing key strategies for the global sales team and the continued expansion of the business worldwide, and will build on the relationships with Sword Apak’s client base and network.
Sword Apak highlighted Bunch brings with him a wealth of industry knowledge obtained over a career that spans more than 20 years. Bunch has extensive experience working for automotive finance companies as well as a strong insight into global strategy, business development and customer relationship management.
“We are thrilled to have Jeff join us at such an important time for the company,” Sword Apak president and chief executive officer Tony Allen said. “Jeff has a remarkable wealth of knowledge and experience that can help support our new and existing clients as they grow and can contribute to Sword Apak’s continuing global success.”
Sword Apak pointed out Bunch joins the company at a time when it is experiencing exceptional growth. The business continues to expand over global geographies and the team has grown significantly to support new and existing clients as business demand increases.
“I’m very excited to join the team of experts at Sword Apak and help the business continue to flourish globally,” Bunch said. “It’s highly important to ensure we help our clients achieve excellence and use our wealth of industry knowledge across the business to make our clients, and in turn our company, successful.”
During the past month, Reynolds and Reynolds added three more states to its network associated with Reynolds Document Services. Joining the ranks are New Mexico, Idaho and Kentucky.
Dealerships in 22 states can now access a comprehensive catalog of standardized, legally reviewed finance and insurance (F&I) documents.
“Based on industry trends during the first half of 2016, we expect automotive retailers will continue to be challenged by the increased demands of regulation,” said Jerry Kirwan, senior vice president and general manager of Reynolds Document Services.
“This suite of documents is designed to help dealers increase the efficiency of the F&I manager, streamline the F&I process, and create a smoother car-buying process for consumers,” Kirwan continued.
“Documents are regularly reviewed for compliance with the latest automotive regulations by Reynolds' industry-leading forms specialists alongside Reynolds' outside legal partners, helping dealers meet their compliance obligations and reduce their litigation risk,” he went on to say.
Kirwan also noted that this library of standardized documents is written in consumer-friendly language, which helps create a clearer, more efficient F&I process for the consumer. By increasing the efficiency of the F&I process, the overall consumer experience with the dealership can be improved.
In addition, the library also can help facilitate the conversion to laser-printed transactions or e-contracting, since the documents are available in both paper-based and electronic formats. Reynolds Document Services maintains licensing agreements with all major providers of electronic F&I (e-F&I) solutions.
“KADA is proud to be a part of this project with Reynolds Document Services. The LAW Kentucky F&I Library gives our dealer members the opportunity to improve day-to-day operations and customer service and increase overall efficiency in their dealerships," said Gay Williams, CAE, president of the Kentucky Automobile Dealers Association.
“We appreciate the level of expertise and effort Reynolds has put forth in creating this valuable tool. The program will also continue to offer forms that are specific to Kentucky and to KADA,” Williams continued.
Now along with New Mexico, Idaho and Kentucky, Reynolds has libraries for:
—Arkansas
—Arizona
—Oregon
—Colorado
—Tennessee
—Maryland
—North Carolina
—Louisiana
—Alabama
—Massachusetts
—Ohio
—California
—Illinois
—Pennsylvania
—West Virginia
—Washington
—Virginia
—Texas
—New Jersey
Heritage Acceptance hopes to increase its financing efficiency and speed by teaming up with defi SOLUTIONS.
The subprime finance company announced recently that it is now utilizing the defi SOLUTIONS loan origin system (LOS), after going live with the solution on June 4. The company hopes this move will translate into a better experience for its dealership network across the country.
“The system’s flexible design and performance reliability has made it possible for us to start automating our processes without sacrificing who we are as a finance company,” Mike Monaghan, Heritage Acceptance vice president of sales and marketing, said in a news release. “Now we can offer dealers more speed and efficiency as we continue our efforts of providing service excellence for our dealer partners.”
Heritage Acceptance, based in Elkhart, Ind., works with dealers across five states to help their customers obtain auto financing. Heritage is one of many firms to implement the defi SOLUTIONS system.
“The defi LOS is completely configurable because no two lenders are alike,” Stephanie Alsbrooks, defi SOLUTIONS chief executive officer, said in a news release. “We’ve intentionally created our system to complement and enhance a lender’s unique capabilities and value proposition in the marketplace. Lenders get leading-edge LOS technology that works to make them better at what they do best.”
The size of the U.S. subprime population is getting smaller — at least that’s what FICO says. And large finance companies such as General Motors Financial again acknowledged that the segment of its portfolio composed of subprime paper will continue to diminish, too.
However, dealerships that participated in KeyBanc Capital Markets’ monthly survey indicated that they’re still able to obtain financing for their vehicle buyers, even if they fall into the subprime credit tier.
In fact, KeyBanc reported that 100 percent of respondents who participated in the May survey said financing availability remained intact or is even increasing.
“Commentary from the field is that larger players are pulling back on subprime as smaller financing companies are becoming more aggressive and gaining share,” KeyBanc said in its latest survey recap shared with SubPrime Auto Finance News.
“The commentary from the larger lenders, such as Santander, suggests they will not be chasing market share,” KeyBanc continued. “So in the end, who is lending to the subprime consumer is changing, but the auto industry continues to have access to financing.”
Santander Consumer USA shared its stance about subprime volume not only when it announced its first-quarter results back in April, but also when chief executive officer Jason Kulas reiterated the position during the Morgan Stanley U.S. Financials Conference in New York earlier this month.
“We are only concerned about volume to the extent that we want to make sure we get volume that will be profitable through cycles — volume that has the right price and the right structure, the right return,” Kulas said.
Meanwhile, GM Financial noted its stance again last week when chief financial officer Chris Choate hosted a presentation titled “Behind the Charts” in which he touched on several elements of the finance company’s business operations. When it came time for Choate to answer questions from Wall Street observers, multiple analysts wanted to know about GM Financial’s plans for subprime originations.
“We at GM Financial have sort of, particularly in the used-vehicle financing space, we have allowed our market share in that space to erode dramatically. We still have a presence, but it’s way down from what it was,” said Choate, who referenced a portion of his presentation that highlighted how GM Financial’s subprime business outperformed the track of the Wells Fargo Subprime Auto Index going back nearly six years.
“If you go back over a two- or three-year time period, our presence in that used-vehicle financing space as the market got a little frothier and really became too narrowly priced … we just kind of have sidled off to the sideline a bit,” he continued. “So we think that’s certainly one of the reasons why we’re outperforming this index that we showed in the chart is we’ve just maintained a lot of pricing and credit discipline.
“And that's not to necessarily say that others didn’t,” Choate went on to say. “A lot of the newer entrants in the space — and they do end up in the industry part of this index that we showed — target a different level of subprime. So subprime is big; it’s a word that covers a fairly broad swath of territory, generally from 620 FICO all the way down south of a 500 FICO. And so you have some of the newer entrants that necessarily have to grab onto the credit scale down lower in order to get a toehold and have a viable value proposition to dealers. So it’s not all apples and apples, quite frankly.”
Choate continued his response alluding to trends that KeyBanc referenced in its latest dealer survey: whether or not finance companies might be pulling back in how much subprime paper they’re originating. Choate insisted “it’s a little more complex than kind of a blanket observation there,” as to whether or not the majority of the industry is deciding to take its foot off the subprime pedal.
“If you look at the market data kind of month by month by month by month, there are any number of smaller and larger players that mash on the gas and then pull back,” he said. “It kind of ebbs and flows a decent amount, and that includes Santander and (Capital One) and Wells Fargo and Chase Auto Finance and us and Ally (Financial) and all the others, not just the small guys, who will express through their buying habits a little more desire for a certain credit tier or a credit mix in one month or two.
“And then for whatever reason sort of pull back on that a little bit two or three or four months down the road,” Choate continued.
Then the GM Financial executive took the view of a dealer, “be it CarMax or somebody else.” Choate acknowledged, “You can certainly develop a view that the market has tightened just because one of your primary lenders may have ebbed versus flowed over a certain period of time.
“We certainly don't view at GM Financial that there's going to become a lack of credit availability in subprime,” Choate declared. “It’s certainly possible, and I think we would stay hopeful that pricing will firm a bit in subprime in order to fatten the margins back up a bit.
“But I don't believe that you're going to see any dramatic tightening,” he went on to say. “I think generally credit appetite at least across the larger, more established players of which we and the others I rattled off are those guys, we think it will be fairly stable.”
While FICO indicated the total subprime population dropped to the lowest point in about 10 years when analysts compiled their April data, Choate described the kind of subprime customer GM Financial will book a contract with nowadays.
“The demographic of a subprime borrower today for us is generally better than what a subprime borrower looked like for us 10 years ago. They have better household income, a little more stability on residence, a little more down payment going into the deal,” Choate said. “So we have a better through-the-door subprime consumer now than we did 10 years ago.”
SubPrime Auto Finance News has learned Dealer Funding — a finance company specializing in subprime auto financing for both franchised and independent dealerships — “has paused all new business activities as part of an evaluation of its ongoing business operations.”
According to a note we obtained that Dealer Funding sent to its network of dealers on Tuesday, the move is effective immediately.
When SubPrime Auto Finance News reached out to David Stoltz, the national sales manager at Dealer Funding, in an attempt to clarify when or if the finance company would begin to originate contracts again, Stoltz replied on Thursday morning via email stating, “Dealer Funding has no comment.”
The message Dealer Funding sent to dealers said the last day for the funding of contract purchases would occur no later than June 29. The company added that the timetable for financing is subject to all verifications and other requirements being completed and satisfied by that date.
The company went on to mention that dealers with pending transactions that do not want to wait until up to June 29 to learn if the contracts will be purchased can withdraw those transactions by submitting a request to Stoltz at [email protected].
Dealer Funding added that any unpurchased contracts as of June 29 or earlier will be returned as soon as practicable.
The company also stated that servicing and collection activities associated with outstanding contracts will continue.
“We would like to thank all of our dealers, both independent and franchise, for their support and business over the last many years,” the company said in that message to its dealer network.
Dealer Funding’s profile on its LinkedIn page indicated that the finance company has worked with “thousands of dealerships” since 1995.
“Dealer Funding has been there to support our customers and dealerships through the last few tough years,” the company said. “We have continued to grow our dealership base and geographic footprint even as our competitors have come and gone. Our stability is attributed to 100-plus years of indirect auto finance experience among the senior management.”
The decision by Dealer Funding arrived about a month after DriveTime Automotive Group chose to wind down GO Financial.
