Saturday, April 11, 2009
The Sub Prime Conundrum.
I remember poking fun at my old dad back in the early seventies, when he didn’t realise the meaning of the word Gay had fundamentally changed to mean something else entirely from what he understood. I think we have a similar problem right now with the phrase ‘sub-prime’
Most asset funders are owned by the Banks, who are risk averse to the extreme, after having bought into high-risk high-yield sub prime mortgage and investment packages that they didn’t understand. Tempted by exceptional (but fictional) profits their decision making process got hazy, their risk radar went offline and they paid good money for bad paper.
Those of us that have a grounding in the Motor Industry will understand what I mean when I allude to the ‘white flagger’, the poor sap that buys every ancillary product known, and as they do so, the experienced Business Managers heart sinks, because they just know that the customer is going to be bounced from every funders underwriting team. In fact, if you listen closely, you may even hear them giggle a little on the phone when you’re asking for a credit acceptance. Not easy to swallow when the times are tough and deals are hard won.
There is an opportunity here, for our asset funders to wake up, to sense the chance and to grasp the nettle of sub-prime lending.
As the economy twists and turns like any good fairground ride, redundancies will occur, which in turn will create non-prime customers. This is happening right now.
So why is it that we are losing our specialist non-prime lenders? Lets consider BCT – writing business without paying commissions, but still writing good volumes at rates which should be banking up substantial provisions for the lender. This may seem like a great model, but kills off a good proportion of the business stream. Brokers can’t afford to pass deals that earn them nothing, and we as an industry will lose that panel skillset if we’re not careful.
The Funding Corporation, Blue, and of course Welcome are some of those that will be removed from the Motor Finance landscape in the coming weeks & months, along with the others, and that’s a shame.
I have a website, www.fundacar.co.uk which dealers and customers alike utilise to propose deals to a non-prime funding panel. In the last three months I have seen the number of proposals double through the site, the number of lenders on the panel fall, and those funders on the panel get more and more fussy and pick over what they will and won’t approve.
I can’t and won’t apportion blame to any one funder, neither can I criticise them for taking the opportunity of cherry picking the best ‘below the line’ deals, but I will stress the importance of their duty to that market.
It is your duty Mr. Sub Prime funder, you have an obligation to pass the message up the line, to speak to the board of your wholesale funders, to explain to them that asset backed and secure UK based sub prime funding for motor has got sod all to do with billions of dollars worth of toxic sub prime mortgage lending.
Sub-prime has a double meaning; to us in the industry it means a real customer, with a real need, who has a blemished history, not a pre-destined future. To the Banks that fund those specialist lending arms, sub prime probably means ‘that bloody great financial catastrophe that we would rather bury quickly and never add to our balance sheet again’
I am afraid that even the big Banks have a duty here, your inability to feed LIBOR and the inter bank markets is causing the failure of business, which is eroding market confidence, slowing spending, stalling economic resolve, and creating more sub-prime customers on a daily basis.
It seems funny now that such a little phrase can carry such a different meaning, and how easily each can be misinterpreted. The industry needs providers of good sub-prime funding; otherwise the food chain breaks down, the model stalls, and the whole UK automotive market suffers.
So come on, understand the part you Banks have to play in this industry, acknowledge that your poor decisions and losses on “Sub-Prime US Mortgages and Securitised Packages” has no bearing whatsoever on “Sub-Prime UK Motor Loans”, but be mindful that your caution on money into the markets for the last 20 months has created an even greater market for good sub-prime motor finance.
You created the opportunity, now help to resolve it, and turn a profit in the process.
DATED: 11.04.09
FEED: PTL
Most asset funders are owned by the Banks, who are risk averse to the extreme, after having bought into high-risk high-yield sub prime mortgage and investment packages that they didn’t understand. Tempted by exceptional (but fictional) profits their decision making process got hazy, their risk radar went offline and they paid good money for bad paper.
Those of us that have a grounding in the Motor Industry will understand what I mean when I allude to the ‘white flagger’, the poor sap that buys every ancillary product known, and as they do so, the experienced Business Managers heart sinks, because they just know that the customer is going to be bounced from every funders underwriting team. In fact, if you listen closely, you may even hear them giggle a little on the phone when you’re asking for a credit acceptance. Not easy to swallow when the times are tough and deals are hard won.
There is an opportunity here, for our asset funders to wake up, to sense the chance and to grasp the nettle of sub-prime lending.
As the economy twists and turns like any good fairground ride, redundancies will occur, which in turn will create non-prime customers. This is happening right now.
So why is it that we are losing our specialist non-prime lenders? Lets consider BCT – writing business without paying commissions, but still writing good volumes at rates which should be banking up substantial provisions for the lender. This may seem like a great model, but kills off a good proportion of the business stream. Brokers can’t afford to pass deals that earn them nothing, and we as an industry will lose that panel skillset if we’re not careful.
The Funding Corporation, Blue, and of course Welcome are some of those that will be removed from the Motor Finance landscape in the coming weeks & months, along with the others, and that’s a shame.
I have a website, www.fundacar.co.uk which dealers and customers alike utilise to propose deals to a non-prime funding panel. In the last three months I have seen the number of proposals double through the site, the number of lenders on the panel fall, and those funders on the panel get more and more fussy and pick over what they will and won’t approve.
I can’t and won’t apportion blame to any one funder, neither can I criticise them for taking the opportunity of cherry picking the best ‘below the line’ deals, but I will stress the importance of their duty to that market.
It is your duty Mr. Sub Prime funder, you have an obligation to pass the message up the line, to speak to the board of your wholesale funders, to explain to them that asset backed and secure UK based sub prime funding for motor has got sod all to do with billions of dollars worth of toxic sub prime mortgage lending.
Sub-prime has a double meaning; to us in the industry it means a real customer, with a real need, who has a blemished history, not a pre-destined future. To the Banks that fund those specialist lending arms, sub prime probably means ‘that bloody great financial catastrophe that we would rather bury quickly and never add to our balance sheet again’
I am afraid that even the big Banks have a duty here, your inability to feed LIBOR and the inter bank markets is causing the failure of business, which is eroding market confidence, slowing spending, stalling economic resolve, and creating more sub-prime customers on a daily basis.
It seems funny now that such a little phrase can carry such a different meaning, and how easily each can be misinterpreted. The industry needs providers of good sub-prime funding; otherwise the food chain breaks down, the model stalls, and the whole UK automotive market suffers.
So come on, understand the part you Banks have to play in this industry, acknowledge that your poor decisions and losses on “Sub-Prime US Mortgages and Securitised Packages” has no bearing whatsoever on “Sub-Prime UK Motor Loans”, but be mindful that your caution on money into the markets for the last 20 months has created an even greater market for good sub-prime motor finance.
You created the opportunity, now help to resolve it, and turn a profit in the process.
DATED: 11.04.09
FEED: PTL
