Payment technology provider BillingTree recently announced Jason Hiland has been appointed vice president of sales and business development for ARM and financial services.
In this newly created position, Hiland oversees sales operations and initiatives to expand electronic payment and technology adoption to a broader audience of banks and credit unions of all sizes, auto financers and the accounts receivables management (ARM) market.
Hiland has more than 15 years of experience in collection software, electronic payments and technology sales, having spent almost nine years at BillingTree in senior roles. He served as the BillingTree Southeast regional director in ARM before taking the lead position over the financial services efforts, where he enjoyed great success building a team and growing the company’s Credit Union and Banking clientele.
Hiland heads the BillingTree sales and new business development initiatives for the entire financial sector, including ARM and managing the company’s sales, partnership and channel efforts.
“We are excited for Jason’s expanded influence to support and grow the market for products and services we offer collection agencies, credit unions, banks, auto financers, and our vendor and partner communities,” BillingTree chief executive officer Edz Sturans.
“Jason joined BillingTree almost nine years ago and has been a top performer,” Sturans continued. “He’s provided unparalleled support for our clients in both ARM and financial services, making a huge impact on our clients’ successes.
“With such a proven track record, I’m confident under his leadership we’ll experience continued growth and success over these combined markets,” Sturans went on to say.
Over the years, repossession and skip-tracing services have come to be viewed somewhat as commodities by many in the lending community. As such, outside of compliance, the primary focus around the management of these services has been cost. After all, since these services are available through multiple providers, why pay more than what the low-cost provider is willing to accept?
This downward pressure on costs has resulted in the service providers having to reduce resource allocation, in several key areas, in order to maintain an acceptable margin on the business. In many cases, this strategy ends up costing the lender more in the form of higher charge offs, higher priced deep skip services, etc.
However, some lenders have realized that even small differences in recovery rates can translate into big gains in net dollars recovered even if the cost of the repossession was slightly higher.
When recovery fees are driven down to rock bottom levels, the service provider (whether a direct agent or a forwarder/skip company) is typically forced to undertake one or more of the followings:
• Reduce the labor allocation devoted to the portfolio
• Reduce payment to the agent/driver
• Reduce the amount and quality of the data purchased from third party providers
Let’s look at each of these issues in a little more detail.
Labor allocation
In the case of forwarders or skip service providers, typically administrators or skip tracers are assigned to work a specific group of cases. The labor pool allocated to these functions is a significant part of the provider’s overall cost structure. When a lender pushes for rock bottom fees, inevitably queue sizes get increased in order to reduce labor cost. The more cases an investigator has to work, the less time that can be spent on each and recovery rates usually suffer.
Repossession agent fees
When margins are very tight due to low fees, the forwarder/skip provider is also limited as to how much can be offered to the recovery agency. In our case, those fees range from $275 on the low end to $375 on the high end. You can bet there is a big difference in the amount of effort the agent puts into the $375 cases than the $275 cases.
The repo agency faces the same dilemma since they also work primarily on a contingent model. On low fee cases, they will inevitably have to reduce the number of times an address is run, reduce the fee to the driver — or both.
This is a real issue in today’s world where the agent ranks have thinned over the past few years due to rising costs and compliance requirements. Fewer agents, combined with rising delinquency rates, means that agents are in a good position to pick and choose where they put their resources and you can be sure that they do just that. Wouldn’t you?
Reduced data purchases
When it comes to locating missing cars (outside of LPR technology) it is all about finding good addresses and contact numbers. Fortunately, there are many data sources out there that provide information. The cost can be anywhere from free to several dollars per report. As you might expect, the more expensive reports often (not always) contain the better/more current information. However, the service provider must be very careful on how and when the best data sources are used.
For instance, a $6 report on a portfolio that generates a 20 percent recovery rate will add $30 in cost per recovery just for that report. Combine that with a low fee schedule and it makes it very difficult to utilize that data source.
All of these “adjustments” that are required to deal with low margin business absolutely make a difference in recovery rates, charge offs, auction values, etc..
Financial impact
Let’s take a look at a couple of different analysis of the trade-off between higher recovery costs and higher recovery rates.
The analysis below illustrates the additional “lift” in recovery rates that is required to offset a $50 difference in recovery costs.
As you can see, based on these assumptions, the service provider would only have to generate less than one additional recovery for every 100 assignments to offset the cost of paying $50 more on all recoveries. This does not even take into consideration the value of avoiding the charge off.
Note: The below analysis is designed to illustrate two issues:
1. The extremely small (1/4 of 1 percent) additional recovery rate that would have to be achieved to offset an additional $50 recovery fee
2. The additional value ALSR believes it will generate based on the higher recovery rate we believe we can achieve
| |
$375 Recovery Fee |
$425 Recovery Fee |
$425 w/ Improvement |
| Involuntary Repo Fee |
$375 |
$425 |
$425 |
| Unit Value |
$10,000 |
$10,000 |
$10,000 |
| Annual Assignments |
1200 |
1200 |
1200 |
| Precentage Recovered |
45% |
45.25% |
48% |
| Number Recovered |
540 |
543 |
576 |
| Total Recovery Expense |
$202,500 |
$230,775 |
$244,800 |
| |
|
|
|
| Total Value of Recovered Units |
$5,400,000 |
$5,430,000 |
$5,760,000 |
| Less Recovery Expense |
-$202,500 |
-$230,775 |
-$244,800 |
| Net Recovery Value |
$5,197,500 |
$5,199,225 |
$5,515,200 |
| Additional Recovery Value |
|
$1,725 |
$317,700 |
Of course, the net benefit between higher costs and higher recovery rates is significantly impacted by auction values. Some portfolios deal in collateral that often has little more than scrap value when recovered and some have average values in excess of $25,000. The table below illustrates the financial gain, under different auction value scenarios, if recovery rate increases just 5 percent.
Here are three assumptions:
• 250 first placement cases per month
• 35 percent versus 45 percent recovery rate
• $50 increase in recovery fee
Average Auction Value
| |
$5,000 |
$7,500 |
$10,000 |
$15,000 |
| Additional Annual Recovery Value |
$690K |
$1.065MM |
$1.5MM |
$2.2MM |
If you would like to see a more detailed analysis based on the specifics of your portfolio, just let us know and we will prepare.
Summary
Cost is an important variable in the repossession management process, but pushing costs too low can produce a diminishing return.
Mike Levison is the chief executive officer of ALS Resolvion. More details about the company can be found at www.alsresolvion.com.
Nationwide recovery management and skip tracing firm Millennium Capital and Recovery Corp. made a total of eight personnel moves this week as five executives ascended into new positions, and three managers joined the company.
According to a news release, the promotion of several key company leaders included:
— Jeffrey Marsh has been promoted to chief managing officer and executive vice president.
— Scott Wilson has been promoted to chief operating officer and senior vice president.
— Geoff Pope has been promoted to chief compliance and technology officer.
— Michael Upperman has been promoted to managing director of operations.
— Rick O’Connell has been promoted to managing director of operations.
In addition, several new senior managers have joined Millennium in key leadership positions, including:
— Diana Moeglin as vice president of business services
— Rhonda Nixon as managing director of operations
— Jason Nemec as director of operational excellence
Millennium explained the expanded breadth and depth of its senior management team are part of the next steps in its pursuit of excellence for auto finance companies in all key partnership areas, including performance, service excellence and compliance.
“Welcome to the new Millennium,” president Jayne Bronchetti said.
“This new leadership team at Millennium is at the forefront of transforming the recovery management industry through Millennium’s propriety approach leveraging business intelligence, and intelligent automation to maximize recovery performance, reduce losses, and streamline the recovery process for brand name consumer lenders,” Bronchetti added.
In his new role, the company indicated that Marsh, who joined Millennium in 2015, will lead the company’s long-term business strategy to add value to its customers and to champion its efforts to transform the industry, while overseeing its leadership team, and continuing to expand its business development and growth.
Marsh was named one of the Trailblazers, Innovators and Disruptors in the auto finance industry by SubPrime Auto Finance News in 2016.
Wilson joined Millennium in 2017 as vice president of operations and has led the development of the company’s internal systems, including both predictive analytics and ongoing automated intelligence initiatives. Wilson oversees the recovery operations and performance metrics at Millennium and is a key force in the pursuit of its intelligent automation initiatives.
The company said Geoff Pope’s leadership in compliance and technology have earned him the promotion to chief compliance and technology officer.
Among other credentials, Pope completed the National Automotive Finance Association’s Consumer Credit Compliance Certification Program and oversees the company’s SOC2 Type2 audit program. Millennium is completing its seventh consecutive SOC2 Type2 audit this next month.
Maximizing recovery and reducing losses for finance companies have been the primary focus for Upperman and O’Connell. And as managing directors of operations, the two directors have been tasked with completely overhauling Millennium’s internal process to reduce losses further for finance companies, capitalize on the available technologies and provide great efficiency in the process.
The company also is pleased to announce the appointment of Moeglin to vice president of business services. Moeglin brings an extensive experience in the transportation and automotive industry to the company. She will oversee the company’s pre- and post-recovery operations.
Nixon has joined Millennium, also as a managing director of operations, with a great deal of financing experience, having been an associate vice president and regional collections manager and other roles with Wells Fargo Dealer Services for the past 12 years.
Nixon also has experience in loan servicing and collections with First Investors Financial Services Corp. and Union Acceptance Corp.
Millennium also created the key position of director of operational excellence, which has been filled by Nemec.
Nemec is a wealth of knowledge in operational excellence from his roles at Huntington Bank, KeyBank, Citi, First Merit and National City Bank. His role is focused on dismantling existing processes and re-engineering them to optimize performance and efficiency for Millennium and its customers.
Millennium is leading a workshop session at Used Car Week 2018 in Scottsdale, Ariz., titled, “How Intelligent Automation is Transforming the Recovery Industry,” featuring industry thought leaders with the latest on technology in the sector.
Millennium is also moderating the much anticipated “Forwarder Panel” discussion at the event as well, with some of the leading national recovery management firms’ and lenders’ perspectives on technology and the evolution of the “forwarding” industry.
More details can be found at www.usedcarweek.biz.
Dave Kennedy and Les McCook of the American Recovery Association shared some vivid anecdotes originating from meetings with Jack Tracey and Joel Kennedy of the National Automotive Finance Association along with leadership of close to 30 finance companies with large and small portfolios.
“They saw the hardship that was being placed upon their vendor network. And in being a good business partner and caring about the other side, they are now rethinking their strategy,” said McCook, ARA’s executive director, during the annual Non-Prime Auto Finance Conference hosted by the NAF Association. “What’s important here is this is a beginning,”
That beginning is ARA and the NAF Association using last week’s conference as the springboard to announce the results of their first joint effort to establish a minimum compliance standard for third-party repossession vendors that work directly with an auto finance provider, not through a forwarding model.
Together with a working group of NAF Association bank and finance company members, the leadership of ARA has sought to address the lack of standardization of compliance programs by setting forth the following goals:
1. Create a set of baseline criteria for NAF Association members to use in the oversight, management, and auditing of recovery agents.
2. Produce a standard list of compliance requirements for recovery agents to help them satisfy all of their clients.
3. Streamline the process of third party management for recovery agents specifically, resulting in lower costs for all parties.
Dave Kennedy, who is ARA’s president, shared an analogy with conference attendees in an attempt to summarize the entire situation; one that might have generated extra impact with individuals who have children currently attending a college or university or recently graduated.
“Say you go to college and you get your degree. You go to school at say Temple, and you pass the baseline standards for that degree. But then your employer says, ‘We like you, but we now require that all of our employees to go Harvard, so you’re out of a job.’ That doesn’t make any sense,” Kennedy said.
The initial agreement indicates repossession agencies can complete training curriculum from five different providers, including:
— Recovery Industry Services Company
— Recovery Standard Training
— Vendor Transparency Solutions
— American Recovery Association
— Recovery Specialist Insurance Group
“The key is to bring efficiency. All of these training programs meet the basic criteria. This is going to save hundreds of thousands of dollars for lenders. They’re all great programs. Now if an agent can prove he has one, it’s going to save hundreds of man hours,” Dave Kennedy said.
“It's an excellent initiative and something that’s going to bring a lot of efficiency and comfort to both sides of the table,” Kennedy added.
Joel Kennedy, an NAF Association board member, former finance company executive and now director with Spinnaker Consulting Group, emphasized the concept of bringing efficiency and addressing potential problems that might be keeping finance companies “up at night.”
Kennedy also pointed out how crucial the input was from an array of finance companies, not just large players dictating the situation.
“It’s all about trying to drive better efficiencies and synergies for the process that we have right now,” Kennedy said. “The whole point is each individual finance company has a responsibility from a third-party vendor management standpoint to make sure they’re managing their own vendors as if it was their own company. With repossessors, there is additional risk involved given the customer engagement.
“What we came up with was a baseline set of standards that can be ascribed to by all of the NAF Association members to say, ‘Here is the bare minimum of what we think you need in order to safely management this relationship.’ There really isn’t any kind of guidance from any regulatory body that says chapter and verse how you manage this relationship and risk,” Kennedy continued.
The resulting baseline standards encompass the key areas of vendor compliance, including:
1. Owner / business regulatory reviews
2. Training
3. Policies and procedures
4. Vendor site visits
“We want to create a significant solution for both sides of the auto-lending and recovery industries,” said Tracey, executive director of the NAF Association. “I look forward to our continuing relationship and mutual problem solving.”
Joel Kennedy closed his portion of conference presentation about this development by delving into how ARA and the NAF Association can forge forward on the current developmental path.
“I think this is the kind of thing that not only can provide guidance to our members to streamline and build efficiencies where we can all spend a little less time schlepping and more time analyzing on the high-value, high-risk targets we can get solved,” he said.
“The next steps are to carry this through and see how far we can take this,” he continued. “Can we collaborate on data? Can we collaborate on sending the field guys to chase information? Can we get into more self-reporting for the recovery agents where we can get the data into a repository and all the members can utilize it?”
Tracey later added, “There are some serious dollars to be saved.”
A new Fitch Ratings report shared results of internally conducted stress tests that likely won’t please recovery managers, but these findings nevertheless cannot be ignored by any finance company, regardless of size.
Fitch explained that falling used-vehicle values and swelling supply are set to continue at least through next year, which will lead to worsening recoveries and heightened performance pressures for both auto loan and lease ABS.
Losses have been slowly trending higher since 2016, though, “The prospect of higher defaults becomes more tangible if increased competition, a decline in sales and looser underwriting standards converge,” Fitch director Margaret Rowe said.
“Incentives and original equipment manufacturer spending is also up in each of last three years and may further weaken used vehicle values, which will make managing vehicle production levels more critical over the next two years,” Rowe continued.
The intensifying wholesale market pressures will not be enough to dent Fitch’s rating outlook for auto ABS, which remains positive for this year thanks to growing credit enhancement levels, swift amortization and Fitch's through-the-cycle loss proxy approach.
Auto lease securitizations are further protected by including more conservative securitization mark-to-market Automotive Lease Guide (ALG) residual values. Fitch expects upgrades on subordinate note tranches to continue in 2018, particularly for more seasoned transactions.
Nonetheless, Fitch stress-tested its rated auto ABS with two separate hypothetical scenarios to examine potential rating implications if used vehicles fall more precipitously and supply continues to swell.
Under Fitch’s “moderate” scenario (a roughly 20 percent trimming to recoveries), analysts determined there would be no rating deterioration for both loan and lease ABS.
Under the “severe” stress scenario (a 50-percent reduction), however, analysts indicated subprime auto loan ABS could see one- to two-notch downgrades for their subordinate tranches. Analysts added high investment-grade ratings in both asset classes would see little to no impact and remain stable under this scenario.
“Subprime subordinate tranches show greater potential for multiple compression and downgrades given their reliance on excess spread,” Rowe said. “That said, downgrades would likely be concentrated to the most junior subordinated notes of a subprime deal in the most severe scenario.”
The report titled, "Supply & Severity: Will Swelling Used Vehicle Supply Impact Auto ABS Ratings?" is available at www.fitchratings.com.
