The Subprime Coach

Riding the Waves

2009-10-17T07:15:00.000-07:00

Last year, I said that the waive of credit defaults was just beginning. First to go were those subprime loans which should never have been done in the first place, many a result of fraud and/or greed in the mortgage and real estate business. It was obvious that these loans would default. Debt and payment ratios were out of whack, in both mortgages and auto loans, and it was inevitable that these loans would go bad sooner or later.

The second waves of defaults were people who initially could afford their loans, but severe income reductions or unemployment left them unable to pay their bills. No one expected the economy to turn around so badly or abruptly, and people making good money suddenly found themselves in the situation where their payments exceeded their income. This group probably includes those newbie investors, who bought investment properties with little or no down payments, and found themselves unable to pay the mortgage or sell the property. Buyers were scarce, and mortgage money dried up. Values crashed, and many of these folks walked away from their investment properties, trying to save their primary homes.

Now we come to the third wave - folks who can still pay their mortgages or car payments, but owed so much more than the collateral is worth that they are simply walking away. Credit scores are getting trashed, but what's worse is that these folks don't understand how to deal with their newly damaged credit. People with 700+ credit scores are finding themselves faced with the prospect of trying to secure credit with a score, in some cases in the low 50o's or even lower.

For the most part, the customers care little about the consequences of their actions. Many are still under the assumption that, because “everyone is doing it”, defaulting on their loans shouldn’t matter, and they should still be entitled to low interest rates and no stip loans. They balked at providing proof of income, or phone bills and references, figuring the lender shouldn’t require and documentation for their loan. However, lenders I deal with are now asking even good credit customers for POI and POR.

Many dealers I talk to have cut back their subprime departments, finding it too difficult to do these deals anymore. Prime deals are getting tougher, and F&I profits are shrinking. But faced with the new waive of subprime customers; maybe dealerships shouldn’t completely abandon special finance. Now is the time to put your ace in the game, the special finance expert you hired to help get through these tough times. Lender relationships, knowing what deals to send to what lenders, will help dealers sell more cars, make more money, and earn new customers who appreciate a true professional, who can guide them through this newly uncharted territory they face.

I’d like to think we’re starting to see the light at the end of the credit tunnel. I just hope it’s not the headlight from the oncoming train!

Auto Loan Applicants Face Tougher Scrutiny

2009-10-15T07:46:00.000-07:00

Dealers Must Heed Lenders’ Demands for Proof of Income, Residency, Phone Bill

By Donna Harris
dharris@crain.com
Automotive News 10/12/09

Dealer consultant Frank Martin has come to expect auto lenders to call a customer's cell phone to confirm the customer's credit information – right in the middle of the finance transaction. It is just a sign of the times.

“Even customers with high Beacon scores get calls," says Martin, who works in Boca Raton, Fla., and sometimes fills in for absent F&I managers in the stores he serves in the Southeast.

In many markets, major lenders are requiring proof of income and sometimes proof of residence even from customers with excellent credit.

Although lenders have stepped up standards during the credit crisis, finance experts also attribute this intense scrutiny to additional factors:
- Some banks report an increase in fraudulent credit applications related to the credit squeeze,
- Identity theft continues to rise.
- Lenders are subject to greater government regulation requiring them to confirm the accuracy of customer information.

Like A Mortgage
"We have seen credit restrictions the rise in each of our regions throughout the last eight to nine months even on high-prime customers," says Jeff Dyke, executive vice president of Sonic Automotive Inc., the nation's fourth-largest dealership group based on new-vehicle unit sales last year. "That includes both proof of income and proof of residence."

Chuck Butler, owner of Butler Automotive Group, says that over the past year, applying for a car loan has become almost as complicated as applying for a home mortgage.

Butler says lenders require that total debt be no more than 50 percent of income, giving them a huge cushion, "They used to allow as high as 70 percent debt," says Butler, whose dealership group encompasses four import and domestic stores in Medford and Astrland, Ore.

Julie Westermann, a spokeswoman for Bank of America, says the bank has adjusted its underwriting model to require proof of income but typically just for customers with credit scores at the lower end of prime. Experian defines prime customers as those having credit scores between 680 and 739.

Gil Rabani, finance manager for Vacaville Pontiac-Buick-GMC in Vacaville, Calif., says the lenders he works with are focusing on customers' phone numbers. "If the name and number don't match with the name, phone number and address listed in their records, customers not only have to prove income but provide a phone bill," Rabani says.

Ken Basdeo, finance manager for Star Auto Group in Queens Village, N.Y., says some major lenders are requiring proof of income on customers with A+ rating. "For 75 to B0 percent of the deals, we're required to provide proof of income and proof of residence," Basdeo says.
.
Some banks report an increase in fraudulent credit applications. Dealership employees and their customers are sometimes inflating income on the credit application to boost the chances of obtaining financing.

Identity Theft Rises
Identity theft also is rising. Such theft affected almost l0 million victims in the United States in 2008, the latest data available from the Javelin Strategy and Research Center, up 22 percent from 2007.

"Fraud has been increasing as the economy continued to sour," said Nicholas Stanutz, senior executive vice president of dealer sales for Huntington National Bank. Stanutz estimates credit fraud is up l0 to 15 percent.

Martin's firm provides temporary help to dealerships when the F&I manager is out sick or on vacation. The Florida consultant says lately, dealers have called on his firm to fill the job because they fired the finance manager.

"Many dealerships have become more seriously proactive in preventing fraud," Martin says. "What used to be a slap on the wrist has now become cause for termination."

Red Flags
All financial institutions must comply with the federal Red Flags rules requiring them to create a written plan to protect consumers from identity theft. Although enforcement of the rules was postponed a year to Nov. 1, many lenders already have stepped up their efforts to confirm customers' identities.

"No one wants to be the clerk that overlooked inconsistent proof of income or the credit manager that approved a deal with something missing," says Charles Ognibene, a Boston attorney who represents major banks and finance companies.

While Ognibene says regulation has prompted closer scrutiny of every deal, competition also comes into play: "Before the credit crisis hit, if a finance company pushed back an application because something was inconsistent and asked for more information, the dealer might have gone to another finance source. Now, with limited finance buyers, the dealer must heed when his finance buyer demands that i's be dotted and t's be crossed."

Consultant Martin agrees: "No one can afford to be cut off by a lender who is actively buying their paper. "

Sub Prime Car Buyers Still Can Find Credit

2009-10-15T07:27:00.000-07:00

Customers Face Larger Down Payment, Shorter Loan Terms

By Arlena Sawyers – asawyers@crain.com
Automotive News 10/12/09

Even though credit is tight and captive finance companies are focused on prime customers, sub prime customers still can find credit, say dealers, lenders and other financial experts.

Melinda Zabritski, director of automotive credit at Experian Automotive, says lenders are requiring larger down payments and shorter loan terms from all consumers – especially those with sub prime credit - in an effort to manage the lenders, risk.

"It makes sense," Zabritski says. ,,As banks better manage that risk, it helps them offer better loan products to the general market."

Willing To Lend

John Cavanaugh, CFO of Automotive Credit Corp, in suburban Detroit, says many lenders have either reduced their sub prime lending or pulled out of it altogether. But Cavanaugh's company is in it for the
Long haul.

Ln late September, Automotive Credit announced that it had secured a $50 million line of credit from Wells Fargo Preferred Capital, a subsidiary of Wells Fargo & Co.

Automotive Credit purchases the loans of auto buyers with credit scores of 500 and below. About 60
Percent of its customers are franchised dealers.

"Our portfolio is performing well, and we continue to have good access to capital that allows us to grow our business and do what we’ve done successfully for a long time,', Cavanaugh says.

Jonathan Neubauer, CEO of Vehicle Acceptance Corp., of Dallas, provides financial services for dealers who operate buy-here, pay-here operations. Neubauer says his company provides dealers cash advances that when coupled with a customer’s down payment, can cover the dealer's investment in the vehicle. Vehicle Acceptance charges dealers a flat fee to service and collect loan payments.

A small number of the dealers that do business with the company also have new-car franchises, Neubauer says. "We're trying to get the word out that we are lending money,,, he sa1n. "We are willing and able to lend money to buy-here, pay-here dealerships."

The Right Vehicle

Experian Automotives Zabritski says 12 percent of people who purchased vehicles in the first half of
2009 had sub prime credit scores of 550 to 619, down from almost 15 percent in the first half of 2008.

She attributes the decline to a number of factors, including lenders that didn't provide financing or consumers who could not qualify for loans.

Consumers qualifying for deep sub prime loans - scores under 550 - made up about 16 percent of vehicle buyers through June, up from l5 percent in the same period last year

Anthony Stalworth, vice president of sales and marketing at Automotive Credit, says sub prime financing works best when dealers provide customers the right vehicles. He ,says those vehicles typically are 2 to 7 years old, a domestic brand and in good condition.

"That is where the biggest amount' of depreciation is already off the cost of the vehicle and allows our customer to get in at a reasonable payment;" Stalworth says.

"lf they do a good job putting the 'customer in a nice car and treat the customer right, we have a much better job of collecting”

No Cash, No Car

Bill Perkins, owner of two Chevrolet dealerships and a Buick-Pontiac-GMC store in suburban Detroit, promises customers he will find them financing - no matter their credit history- with one caveat 'they have to have $1,995 down; you can't buy a car without cash now, says Perkins, who sells about 140 used vehicles a month at his three dealerships. About 40 percent of the used vehicles he sells are to customers with sub prime credit.

Tony Testo, sub prime finance manager at Landers Automotive Group- in Little Rock, Ark., which handles nine new-car franchises, says he works with five financial institutions to finance his sub prime customers.

Testo says he spends an hour or i more with each customer explaining that he can get them into a good 3- to 6-year-old vehicle, but they will have to pay higher interest rates because they are high-risk customers' Testo also tells customers they need to have a down payment, typically $500 to $2,500. Testo says he empathizes with customers who find themselves in a financial bind, but he wants them to be realistic about their vehicle purchase.

"most of these people have been banged around, treated badly and told no over and over again," he says' "i tell them yes, but we have to do this together

Thank Goodness He Didn't Try To Finance A Car!

2009-08-31T17:39:00.000-07:00

Michael Jackson’s credit score: 564

by Karen Datko

TMZ, the news source for all things Michael Jackson, expressed amazement that MJ had terrible FICO scores.

"Here's a shocker -- Michael Jackson had an abysmally low credit score," said a story at the Web site. In 2007, TMZ says it has learned, Jackson's scores from the three major credit bureaus were 592, 524 and 575, averaging out to just under 564.

It's really no surprise, considering his well-documented ultra-extravagant spending and financial woes, including the fact that Neverland Ranch nearly slid into foreclosure. But there's a lesson for everyday people in the specifics that caused the King of Pop to have poor scores.

Here are the reasons given in the TMZ report:
- A derogatory public record or collection filed.
- The amount owed on delinquent accounts.
- Number of accounts with delinquency.
- Too many inquiries in the last 12 months.

To put this in perspective, FICO scores have a range of 300 to 850. A score under 620 puts you in the subprime market. (Experian offers a state-by-state look at average scores and debt.)

Michael Jackson may have made a mess of his finances, but he did prepare a solid estate plan, including a will, a living trust, and trustees and executors who are experienced and knowledgeable.
All told, Jackson's estate is worth hundreds of millions -- a number that's still being figured out. The total is expected to be considerably larger than his estimated $435 million of debt. Plus, the size of the estate has grown by $100 million since he died on June 25, and is expected to make $50 million to $100 million a year, The New York Times says. Compare that with the $55 million Elvis Presley's estate earned last year. The NYT also said:

In life, Mr. Jackson faced a precarious financial future, as he piled on debts to finance his tastes in art, to travel on private jets and to keep up Neverland. In death, his estate may enjoy the financial security he never had.

Jackson will be buried on Sept. 3, according to the Glendale News Press

Will the real FICO score please stand up?

2009-07-26T08:38:00.000-07:00

by Karen Datko

This post comes from partner blog The Dough Roller.

Earlier this week we took a look at how to get your free FICO credit score from myFICO.com. Operated by the Fair Isaac Corp., creator of the FICO credit score, it offers consumers a free credit report and FICO credit score when they sign up for a 30-day trial of Score Watch. The FICO credit score myFICO.com provides is from Equifax, one of the three major credit bureaus.
And that's where some confusion can creep in.

There are three major credit bureaus: Equifax, TransUnion, and Experian. And each of these credit bureaus calculates a consumer's FICO credit score, which can be and usually is different for each credit bureau. In other words, you likely have a different FICO credit score from each of the three major credit bureaus. And to add to the confusion, each of the credit bureaus calls its version of the FICO credit score by a different name.

So let's quickly sort all this out:

FICO credit score. FICO stands for the Fair Isaac Corp., the company that created the formula for the FICO credit score. Fair Isaac was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac.

Fair Isaac does not calculate credit scores. While Fair Isaac created the FICO formula, it does not actually use it to calculate a consumer's FICO credit score. To use the formula, one needs credit information about the consumer, and that's where the credit bureaus come in.

Three credit bureaus. The three major credit bureaus in the United States use the FICO credit score formula to calculate a consumer's FICO credit score.

Three different scores. Because each of the three major credit bureaus has slightly different information on each consumer, the FICO credit score it calculates is usually different from the others. As a result, most consumers have three different FICO credit scores.

Three scores and three names. Each of the three credit bureaus has branded its FICO credit score with a different name. Equifax calls its score the Beacon score; Experian calls its score the Experian/Fair Isaac Risk Model or Score Power; and TransUnion calls its version of the FICO credit score Empirica.

VantageScore: You may have heard of VantageScore, which is a credit score formulation created in 2006 by the three credit bureaus in an effort to compete with the official FICO credit score. VantageScore has not been widely adopted by lenders and creditors.

Clear as mud, right? Now, how do you get your credit scores? As you may know, consumers can get a free copy of their credit reports from AnnualCreditReport.com. But if you want your FICO credit score, myFICO.com is the place to go, while FreeCreditReport.com offers its own version of a credit score. Here are the details:

MyFICO.com. MyFICO.com is run by Fair Isaac and offers consumers a credit-monitoring service called Score Watch. When you sign up for a free 30-day trial of Score Watch, myFICO.com gives you a free copy of your credit report and FICO credit score as reported by Equifax. You can also purchase from myFICO.com your credit report and FICO credit score as reported by TransUnion for $15.95.

FreeCreditReport.com: Known for its snappy commercials, FreeCreditReport.com is run by Experian. It offers a credit-monitoring service called Triple Advantage Credit Monitoring. In exchange for signing up for a seven-day free trial, you'll receive a copy of your Experian credit report and a credit score from Experian that is not a FICO score.

Stop The Madness!

2009-06-26T11:33:00.000-07:00

Insanity reigns these days, or so it seems. Customers continue to make ridiculous offers or expect miraculous finance options, regardless of circumstances.

I am bombarded daily by customers who view our inventory on our website, and offer to purchase a vehicle for thousands less than we have it listed at, with the caveat that “I’m paying cash!” It seems that many consumers believe that we are so cash strapped that we will take any offer, so long as it’s in “dead presidents”. They are amazed when I graciously decline their offer, explaining that when we advertise a vehicle on our website, we list it at the lowest price we can sell it for. After all, why spend money to advertise something if you can sell it cheaper than you advertise it for?

It makes sense to me to advertise on the Internet the lowest sale price for a vehicle. The Internet allows us to reach well beyond our local marketing area, and although many of our local customers find us through our website, we sell to customers all over the US as well as the world. In the last thirty days, we sent vehicles to Tennessee, Mississippi, Maryland, and South Carolina, as well as Nigeria and the Caribbean. Our advertised prices are typically among the lowest on the web, and our out of town clients appreciate the fact that we sell vehicles at reasonable prices.

Our local clientele are the ones who tend to make ridiculous offers. I’ve had customers offer cash deals, but then not have the cash. Finance customers who can’t, or better yet, won’t prove their income. And out of state or even out of the country customers who want BHPH on a $23000 vehicle with $1000 down!

The biggest obstacle these days seems to be first time buyers with overzealous expectations. Trying to convince these customers to consider a more reasonable vehicle than a $17000 or $18000 vehicle is an obstacle we consistently have to overcome, albeit with less success than we would like to be enjoying. The “you’ll do anything to make a deal” mentality still permeates our marketplace, especially since we are the foreclosure capital of the nation! Many of our customers are past due on their mortgage, or in foreclosure, and think that lenders should overlook this fact. After all, isn't everybody in the same boat?

Once upon a time, people with bad credit felt some remorse over their situation. “Bad things happen to good people” we used to say, and customers with credit issues understood their options were limited. Many realized that there were dealerships out there that were willing and able to help them get a car, although some used tactics and techniques that were less than honorable.

Ultimately, many of the unscrupulous dealerships and there people were caught and punished, and in many instances, those folks responsible for abuses and fraud ended up in jail. Of course, the local news shows love nothing more than a car dealer or his employees getting taken away in handcuffs in front of the camera!

I wish the media would stop telling people that we dealerships are in dire straights, that we are all facing bankruptcy or about to go out of business. While some independents down here in south Florida have closed their doors, most of us are still in business and doing pretty good, if not flourishing. Is traffic down? Yes! Is it harder to get inventory? Absolutely! Are lenders tightening their standards? Without a doubt! But regardless of all these issues, we’re still selling cars and making money. And isn’t that what it’s all about?

Coming: A 3rd Wave of Foreclosures

2009-06-20T11:38:00.000-07:00

The next group of Americans to lose their homes seemed to have good credit and affordable loans. But those families have been walloped by the recession.

By Michael Brush -MSN Money

There's a simple reason you shouldn't get too excited about the "green shoots" of an economic turnaround.

In the housing market, a lot of prime mortgages are becoming subprime as a new wave of foreclosures begins to hit. Mainstream homeowners -- those previously "safe" borrowers with sound credit who have conservative, fixed-rate mortgages -- are getting into trouble at an alarming rate.

In the first quarter, the percentage of these borrowers who were behind on their mortgages or in foreclosure had doubled from a year earlier, to nearly 6%. For the first time in the housing crisis, these homeowners accounted for the largest share of new foreclosures.

Job losses are a major reason once-safe borrowers are falling into trouble. With unemployment likely to rise, the problem will only get worse. So the core challenge at the heart of our economic crunch -- a poor housing market that infects banks and the whole credit system -- is not going away soon. That's bad news for the stock market and the economy in general.

"A couple of months ago, a lot of people had hoped that the housing collapse was about over," says money manager and forecaster Gary Shilling, a well-known bear who called the housing problems early in the cycle. "But it was more hope than reality."

The 3rd wave of woe

Economists call rising delinquencies and foreclosures among prime borrowers the third wave of trouble. The first two waves were housing speculators going bust and subprime borrowers -- those with poor credit histories and some version of no-down or low-down adjustable-rate mortgages -- getting into trouble.

Mark Zandi, the chief economist for Moody's Economy.com, calls the third wave a "significant threat" to the economy. "It is gathering momentum," he says. "The problem is now well beyond subprime and deep into prime."

It will cause at least three problems that could shrivel the "green shoots":
-Mounting foreclosures among prime borrowers will destroy their credit ratings, making it tough for them to contribute to growth by spending on credit.
-Rising foreclosures will add to an already high level of housing inventory on the market, pushing down home prices even more. That will make people feel poorer, so they'll spend less. It also will tempt more people to walk away from mortgages, adding to the problem.
-Foreclosures will mean more loan losses at banks, deepening the problems in the financial system.

Investment opportunities?
How do you play this as an investor? Well, if you missed the 30%-plus move off the bottom since early March but you're still confident enough to tiptoe back in, don't do anything more than that. Average in on down days.

Better yet, wait for the market pullback that this third wave makes more likely. Shilling has a bearish forecast of a trip down to 600 for the S&P 500 Index, more than a 30% decline from recent levels of 940.
Investors confident and daring enough to short stocks -- selling borrowed stock with the hope of buying it back later at a lower price -- may find profitable targets in the housing sector and among the regional banks. Homebuilder stocks look particularly tempting; they have risen more than 50% off their March lows on hopes for a quick recovery.

Whitney Tilson, a co-portfolio manager of the Tilson Focus Fund who also spotted the housing crisis early on, was recently short KB Home, Lennar and Toll Bros. in housing. He also has bearish bets against regional banks Regions Financial, First Horizon National, Zions Bancorp and New York Community Bancorp.

The 'subprime society'
Shilling suspects many so-called prime borrowers are now going bust because, well, they really weren't so prime to begin with. The same lax standards that created a zoolike atmosphere in subprime lending infected prime mortgage lending to some degree. Many prime borrowers still stretched to qualify, and they lack the financial reserves to sustain any personal setbacks, Shilling says.

A few months of unemployment will throw them into default. The official unemployment rate stood at 8.6% in April, and many economists believe it will top 10% as the recession drags on.

How much worse will the foreclosure crunch get? Credit Suisse analyst Rod Dubitsky predicted last week that 8.1 million mortgages, or 16% of all mortgages, will go into foreclosure over the next four years. A weak economy, continued declines in home prices and rising delinquencies among prime borrowers all but ensure that foreclosures "will march steadily higher," he says.

Dubitsky thinks such a high level of foreclosures could transform the U.S. into a "subprime society." The large number of people unable to borrow because of impaired credit will keep the consumer-spending engine on low idle.

Zandi predicts that a rising number of troubled prime borrowers will keep the number of distressed mortgages aloft for at least 18 more months. He thinks the number of mortgages in default or behind by more than 30 days (the definition of distressed) will rise to 9.2% in the current quarter from 9.1% in the first quarter, then stay above 7% through most of next year.

To put that into context, from 2000 through the end of 2006, 2.7% of mortgages were distressed, on average, at any one time.

Inventory overhang
A big problem stemming from all those foreclosures will be that huge excess inventories of homes for sale will continue to push down prices, Shilling says. "As long as you have those excess inventories, you have downward pressure on prices. It is no more complicated than that," he says.

The combined inventory of new and older homes on the market remained relatively constant at about 2.5 million for many years. Now, it's officially around 4 million, but Shilling thinks it could be higher because of miscounting.

In his bearish scenario, the inventory overhang will push down home prices so much that up to 25 million homeowners will be "underwater," meaning they will owe more than their homes are worth. That would be a huge increase over recent levels of 13.5 million homeowners and bad news for the economy.

Homeowners who are underwater can't borrow against their homes to fuel a rebound. They're reluctant to spend. And they are more tempted to simply walk away from what looks like a losing prospect.

2 more waves
Bad enough? Well, this third wave of prime borrowers going bust will be followed by two more waves of credit-related problems, Tilson says:
In a fourth wave, more homeowners with "jumbo prime" loans will go into default. These are loans to buy high-end homes that once boasted price tags upward of $1 million. "All over the country, the high end is starting to tip over," says Tilson. This wave will also bring more problems with home equity loans and second mortgages on homes.
A fifth wave will carry rising defaults on commercial-real-estate and business loans.

Like Shilling, Tilson believes all of these waves of credit-related problems spell the most trouble for homebuilders and regional banks. "Homebuilders are going to face severe headwinds trying to sell homes at least for a couple of years," he says.

Regional banks will have problems because they got heavily involved in commercial-real-estate loans when they lost so much of their home-mortgage business to upstarts vying for a piece of the subprime action during the boom. Regional banks also lack the income from wealth management and trading that's helping big banks such as JPMorgan Chase earn their way out of trouble.

There are 'green shoots'
There are some glimmers of hope in all this. For one thing, homes are more affordable than ever. Mortgage rates are still extremely low by historical standards despite a recent increase. So the cost of buying a home compared with average income levels is as low as it has been in nearly three decades.

And intriguingly, a housing sector analyst who first started warning of trouble back in 2003, way ahead of most people, now predicts a reversal is at hand. Stuart Feldstein, the president of SMR Research in Hackettstown, N.J., thinks home sales and prices are turning and will be in an uptrend soon.

One problem here is that Feldstein was early -- even if impressively prescient -- the last time around.

And of course, housing affordability doesn't mean much if so many people continue to lose their jobs. Goldman Sachs Group economist Ed McKelvey doesn't expect the jobless rate to peak until after 2010 -- in a sluggish economy that he expects will grow at a paltry 2% in the second half of next year.

With economic conditions like that, no matter how cheap houses get, it'll be tough for anyone to buy them.

At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.

Dear Mr. President

2009-05-27T13:00:00.000-07:00

Below is a letter that was sent to President Obama from Larry Greeen, who is about to lose his franchise. You can send your own message to http://www.whitehouse.gov/contact/ or president@whitehouse.gov.

To: The President of the United States of America
May 16th, 2009
From: Larry Green (Concerned Citizen)

Mr. President,

I am writing you today as it is my right to share my opinion and thoughts with you, the leader of our country. The developments in the past weeks have been quite puzzling to me. Seeing you announce on public television that Chrysler LLC would file for bankruptcy is something In ever thought I would ever see our president do. To further complicate all that has been happening with the automotive industry I was in total shock to see who you had appointed to oversee the restructuring process and the lack of experience they have with automotive retail sales and
manufacturing.

If you want to learn how to raise livestock then the obvious place to start is seeking knowledge from a farmer. So why is there such a lack of experience in your appointee’s when it comes to automotive manufacturing and sales. I believe that when decisions of this magnitude are made that will have such an impact on the everyday American, we need people with proven track records advising you. Some places to find these successful people might be, The National Automobile Dealers Association,National Dealer Councils, previous CEO’s in the automotive industry, and the list goes on and on.

Now, Mr. President, I know you will probably never see this letter as your staff will intervene. But I am taking you for your word during your campaign, where you said on several occasions that you will represent we, the people! But I feel I need to send this to you with the little hope that you may indeed receive my letter.

I live in a small rural community in Brandenburg Kentucky. We received a notice letter from Chrysler yesterday stating that we are not part of their future plans. My concern is not about me, but rather the impact that the local community as well as hundreds of others across the country will feel from this outrageous, government sanctioned, protection of large corporations and unions at the expense of everyday people who elect government leaders. These leaders are elected because of their platform, ideals, abilities and concern for the American people in general. In the case of the automobile restructuring the average American has definitely taken a back seat.

What I want you to know Mr. President, is that in most cases the local automobile dealers are the community backbone in rural areas. I will share with you just a few things that we do here in Brandenburg; We provide numerous scholarships to graduating seniors every year. We are one of the largest employers in the community. We support numerous sport’s activities from little league all the way through high school.We are the number one contributor to the local Future Farmers of America.We have sent over 2000 large packages to our deployed soldiers in war zones. We assist the local Army Recruiting Command with a tutoring program that has enabled several young men and woman to enter into the military. We donate to the senior citizens in the community to give them a better quality of life. We provide assistance to local law enforcement and emergency service providers on a regular basis. We donate time,resources and money to numerous non profit organizations such as,American Red Cross, Relay for Life, American Cancer Society, Veterans Organizations, USA Cares, Association of the United States Army, Breast Cancer Awareness, Boy Scouts of America, Food Closets, Shelters, Park sand Recreation, Angle Tree, food and shelter for less fortunate people,and this list goes on and on, Mr. President.

We are also a major contributor in political contributions and are involved heavily with the democratic party. We are not unlike the typical rural dealer as I am sure you have not been briefed on what atypical dealer adds to a typical community. Mr. President, please do not allow these drastic cuts to occur until you know how they will impact on local communities.

In our dealership we have been profitable and have never, ever been a liability to Chrysler LLC. The areas they said they were going to measure, we exceeded in every category. So the question remains, why?We feel that all they did was cut numbers as they were told to do by your people. They quite simply looked at a map and tried to space their dealers 50 miles apart. The funny thing is Chrysler/Fiat thinks customers will drive the additional distance to buy their products. I hate to tell you that this is not factual at all. Most rural dealer shave loyal customers to their dealership and not the brand. In fact, we have been covered up by phone calls each and every minute since the news was published because our customers want to trade in their Chrysler products and buy Ford or Mercury. Why, because we are also a Ford-Mercury dealer and our customer base is loyal to us not the brand.That is why you need to have representation of dealers also involved in this restructuring process.

Your appointee’s are under the impression that rural dealers are a liability to Chrysler LLC. This is totally false, Mr. President and we are an example of that. We have always paid for everything that is sent to us, tools, brochures, supplies, training etc. We own our facility, we pay our employee’s, own our computer equipment and all other materials.In fact if you want the truth, we are an asset to Chrysler LLC and have made them millions of dollars in the 26 years we have been a Chrysler Dealer. I feel that our constitutional rights have been violated. Under section 8 (Powers of Congress) paragraph 4, states “to establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States”. Mr. President, there is nothing uniform in how these proceedings are being carried out.

Under Amendment 5 (Trial and Punishment, Compensation for Takings.Ratified 12/15/1791.) last paragraph, “nor be deprived of life, liberty,or property, without due process of law; nor shall private property betaken for public use, without compensation.” Cleaning out a dealerships CMA account of money that the dealer put in there (not Chrysler), is noway close to being anything short of a felony offense by Chrysler LLC,who did this just hours prior to filing for Bankruptcy. To this day we have received no compensation whatsoever. Mr. President, this is the company that our tax payers money bailed out for a short period of time.Wow what a payback.

Amendment 7 (Trial by Jury in Civil Cases Ratified 12/15/1791.) “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and in no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of common law.” It’s obvious that common law is in no way part of the present conduct of our legal process with this case.

Amendment 8 (Cruel and Unusual Punishment. Ratified 12/15/1791.) “Excessive bail shall not be required, nor excessive fines be imposed, nor cruel or unusual punishments inflicted”. How much crueler can the system be than they have been to average American people who happen to own profitable dealerships?

Amendment 11 (Judicial Limits. Ratified 2/7/1795) “The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another State, or by Citizens or Subjects of any Foreign State.” Mr. President, we are well aware of who is calling the shots in how this process is unfolding and that is by Fiat, a Foreign company. It seems that our countries laws and processes are being interpreted to take care of non US Citizens rather than very productive members of our society who are US Citizens, the car dealers.

I will close this letter by asking you, respectfully, to consider those little league kids who might not be able to play ball next year.The senior citizens around our country who may not have electric or hot meals next winter. Those children in low income households who may not have Christmas next year. The Boy Scout who might miss out on going to summer camp. The lives that may have been saved through the Red Cross,Cancer Society and Breast Awareness. The Veterans programs that might be affected. And so much more! I don’t know about you, but this really bothers me. I urge you, Mr. President to please do the right thing and take care of our own!

Sincerely,

Larry D. Green
(270) 422-4901

The Nation’s Biggest Car Scam

2009-05-05T15:06:00.000-07:00

May 4: In what police say is the biggest auto scam going on right now, crooks are taking advantage of people who are buying used cars. NBC’s Jeff Rossen reports.

http://today.msnbc.msn.com/id/26184891/vp/30557788#30557788

And Then There Were ....

2009-04-30T10:57:00.000-07:00

Just posted on AppOne's credit portal:

"Due to current market conditions, AmeriCredit will no longer be accepting credit applications after April 30th. Any AmeriCredit approvals issued through April 30th will be funded as usual."

One by one, sub prime lenders are falling by the wayside. It's like a sub prime pandemic; the only question left to ask is "Who's next?".

This morning I was talking to my sales force and asked them if anyone was afraid of catching swine flu. They all agreed that the risk here in south Florida was minimal, at worst, and none of them was concerned about getting sick. But if you watched the news this morning, we're all doomed! Vice President Biden said he would NOT travel by plane or subway, and recommended staying away from crowded places! CDC official tell us not to travel to Mexico, and countries and states, cities and counties are shutting down public places to avoid a swine flu pandemic.

Let's all duct tape our doors and windows and not venture outside until we get the all clear!

No, don't get me wrong. There is always a concern for health and well being. We should all take precautions against getting ill, as well as spreading anything around. But perception is the reality in our society, and if the news tells us it's a pandemic, we believe it with the utmost enthusiasm. The news tells American consumers that the auto industry is going bankkrupt, and they stop buying cars. They tell us that there's not money to lend, so banks stop lending. The tell us that things are bad, and they just get worse. Maybe it's time to find some good news to report?

I'm sure this is an oversimplification of things, but then again, it's just my opinion.

Why Banks (Still) Aren't Lending

2009-04-23T09:39:00.000-07:00

Taxpayers want bailed-out banks to make loans and goose the economy. But given the depths of the economic mess, that's the last thing the banks should do.

By David Weidner, MarketWatch

Banks need to stop the charade, ignore the political and public pressure and admit they're not lending. It's not because they don't want to, but because it's bad business.

Don't think so? Take this pop quiz. Bank of America posted smashing first-quarter profits and its chief executive, Ken Lewis, said the Charlotte, N.C., company is lending as if the good times never ended. So, in the bank's conference call, which of the following statements did Lewis make?
A. "Credit is bad, and we believe credit is going to get worse before it will eventually stabilize and improve."
B. "Even our internal economists are a little at odds as to the timing (of the recovery), with some seeing recovery earlier (than year's-end)."
C. "We believe unemployment won't peak until next year at somewhere in the high single digits."
D. All of the above.
E. None of the above.

For a CEO whose bank is lending as if it's 2006, you might be surprised that the Lewis who proclaims to be bullish on loans is bearish on the economy. The answer is D.

There's only one problem. No bank CEO can reconcile more lending with a deteriorating economy -- especially one in which economic conditions are the worst they've been in generations. But that's exactly the claim the bank chief is making.

Lewis described a deep recession that's going to be here for months. Still, Bank of America touts that it's "helping" homeowners and small businesses with new loans. It claims to have added 45,000 customers and provided them credit. The reality, however, is less impressive: Bank of America loaned $183 billion during the quarter, up just 1.6% from the last quarter of 2008, when lending took a big dive industry wide.

This isn't to single out Bank of America. All of the major big banks, including Wells Fargo, JPMorgan Chase and Citigroup have been doing the credit double-talk that goes something like this: These are terrible conditions to be lending in, but we're lending in them without risk.

If those claims sound a little too good to be true, it's because they are. Almost all the big banks that have taken cash from the Troubled Asset Relief Program have curtailed lending, according to The Wall Street Journal.

One of the intentions behind TARP was for it to be a kind of stimulus program made through the banks. After plugging holes on each bank's balance sheet, the TARP cash was supposed to flow into new mortgages, auto loans, credit card lines and corporate lending. Six months later, it's fair to say TARP money has helped prop up some banks, but it hasn't flowed into the consumer credit markets the way the framers intended.

Now, critics have argued that the banks should be loaning this money to help stimulate the economy. Companies need credit to expand and hire, they say, and consumers need credit to buy products and help feed the economy.

In almost any other economy, this would be true, but not at a time when an overextension of credit created the recession we are fighting. Credit cycles, by definition, are periods where banks overextend credit and then pull back to correct the imbalance. If the government forces banks to lend to at-risk borrowers, we're going to aggravate an already dire credit picture and require more government intervention.

You can easily see how lending to home buyers not worthy of credit would fuel the nation's housing woes and create more housing problems, but what about the loans most people assume are helpful to the economy: small-business loans?

It turns out that existing small-business loans are defaulting at an alarming rate. More than 4.4% of small-business loans were in 30-day default, up from 3.48% a year ago. And 1.29% were delinquent 90 days, up from 1.04% a year earlier, while 0.63% were 180 days delinquent, double the rate a year ago, according to PayNet, a small-business payment network.

It doesn't matter what type of loan; lending into an economic downturn is an invitation to trouble.
Some of the biggest US banks posted first-quarter profits that skeptics assert are based more on accounting gimmicks than healthy operations.

The steep rise in defaults and nonperforming loans suggests that the economy will make it hard for banks to simultaneously set aside reserves and lend more money out. Small businesses will lay off workers before they start missing loan payments, and the unemployed can't pay off their credit cards and car loan payments.

Taxpayers fuming about the banks' unwillingness to loan government money into the system might reconsider, given that the banks are actually being prudent with taxpayer cash. Now that banks have been backstopped by the Federal Reserve and Treasury Department, they have less incentive to scrutinize credit. The risk of bad loans has been shouldered by Washington.

Banks have made a lot of missteps in the financial crisis -- overreaching with credit, misusing taxpayer cash, imposing punitive interest costs on consumers, being insensitive -- but reining in credit is not one of them.

So, when Lewis and his counterparts at competing banks brag about how much lending they're doing, take it with a grain of salt. In most cases, this is posturing by CEOs looking to fend off criticism they're not doing enough to help the economy.

What critics fail to acknowledge is that we all benefit from banks adhering to lending standards. When that doesn't happen, we get financial collapses that compare to the darkest times in our history.

10 Hints to Give Your Customers to Help Them Get a Car Loan

2009-04-06T13:49:00.000-07:00

1.Know your credit score. - Get a copy of your credit report. Don't act surprised at your credit issues, or deny them.

2. Have an explanation for your credit issues. - Don’t be apologetic. Bad things happen to good people. Be specific about any problems or crisis that caused your problem. Let the bank know about any major upheaval in your life that may have led to your problems such as an illness or a natural disaster, like Katrina, or 9-11.Make sure that you can substantiate your claim

3. Don’t lie about anything on the credit app. - Lenders will turn reject your loan if they find you lied to them

4. Know your income. - Make sure you can prove what you make. Have your proof readily available. Make sure you know your GROSS income, before taxes, that you can prove.

5. Save your down payment. - More down payment means more car. Larger down payments can sometimes get a lender to view your application more favorably

6. Know what your payoff is. - If you are trading in a car with a payoff, get a ten day payoff from the lender. If you have a warranty or additional policies bought with the vehicle, find out if you can cancel them. This will lower your payoff or entitle you to a refund after the vehicle is paid off

7. Buy what you need, not what you want. - Set realistic expectations. Don’t buy more payment than you can truly afford. Rebuild your credit first, than rebuild your image later.

8. Don’t be argumentative. - Nice people get better deals than people who give sales reps a hard time

9. Don’t go from dealer to dealer. - We all deal with pretty much the same lenders, so excessive inquiries can be a reason a lender declines your application

10. Don't believe everything you hear on the news or read in the paper. - Yes, the auto industry is hurting, and some dealers are having a tough time, but that doesn't mean we're going to do anything stupid or illegal to get you a loan, nor does mean we'll take any offer you make, no matter how ridiculous it is.

Another One Bites The Dust

2009-03-25T10:30:00.000-07:00

So, today's news is that Fireside Bank is going out of the auto loan business. After 50 years in the auto finance game, Fireside, like so many others recently, could not withstand the losses they had incurred over the last few years.

I can't help but wonder who's next. AmerCredit has run into problems lately, but has managed to work through them, albeit at closing many of their offices and laying off staff. Both CitiFinancial and Capital One have laid off their local reps recently, and many other lenders have consolidated offices in an effort to cut costs. Others have cut back their expansion plans, in order to concentrate on the markets they have already entered.

As business gets more difficult, lenders become scarcer. Those that are left are looking at the business they are doing with a deliberate eye, and have become much more selective in the applications they approve, as well as considerably more conservative in the terms they offer. The old models are gone, and it sometimes seems like lenders are just as confused as we are.

Callbacks continue to amaze me, with approvals and declines making no sense. I had a customer yesterday putting down $6000, and an LTV at less than 70%, yet an "equity" lender I do business with turned down the loan because of "insufficient down payment"! Yet this morning, I get a first time buyer approved for a $350 payment, with only $2000 down. Remember the old days when a rate sheet made sense?

Entering a Brave New World

2009-03-19T09:46:00.000-07:00

Well, it’s been a month since I’ve been here, and it seems to be pretty good so far. Let me give you an update on what’s been going on lately.

Back in January, the Toyota dealership that ASKED me to come down and run their special finance department decided to undergo a “workforce reduction”. For those of you who aren’t familiar with that phraseology, what it means is “ we decided that your assistant, who we can pay less than we’re paying you, can do your job, so don’t go away mad, just go away!” Needless to say, business is off these days, but to cut personnel that don’t cost you anything because they only get paid on what they produce, well, that never made sense to me. The dealership eliminated my position as well as the special finance manager in the new car showroom. We were offered the “opportunity” to go on the floor as sales reps. He took the job. I didn’t!

So here I am, at an independent lot, as Sales/Finance Manager. We do about 30 cars a month and we’re growing, and we make nothing but money. Our average PAYABLE gross is over $2500 per unit, and while we do a good deal of buy-here-pay-here, I’ve brought on a number of new lenders, and our finance business is growing nicely. This gives me an opportunity to learn about BHPH first hand, since it’s been a good 25 year since I had my lot and things have definitely changed!

BHPH is definitely not your typical auto sales. As a manager here, I have to treat every deal as if it’s my own money. There’s a lot more to rolling a unit than collecting the down payment and watching the taillights hit the curb.

When we determine a customer is a BHPH candidate, things change in how we approach the deal. First of all, we need a minimum of 30% of the sale price down. No pick up payments, no promissory notes…its cash or dash. Down payments have to cash or certified funds, no credit cards or checks. Our terms run between 24 and 30 months, the shorter the better. Interest rate is 17% add-on, which is roughly 29.9% APR. We use rule of 78’s contracts, but there is no prepayment penalty. If the customer pays off the loan early, better for us, so we encourage this by eliminating a prepayment penalty,

Payments are setup bi-weekly, beginning 14 days from delivery. Each vehicle is equipped with a GPS device, either pre-installed before delivery, or we make an appointment for the customer to come back and have it installed. All standard stips are collected up front, POI, proof of residence in the form of a bill, as well as 3 pieces of junk mail addressed to the buyer. As dumb as that sounds, it verifies their address in a way that can’t be manufactured. Bring me the sealed envelope and we’re good to go! Phone bills as well as ten complete references are required, and insurance must be verified and faxed to us with the dealership as lien holder and loss payee before the vehicle leaves our lot.

We typically steer customers to older units in inventory. BHPH has come a long way from $1000 ACV’s that sell for $4995 with $1000 down. We stock BMW’s. Mercedes, Lexus, Jaguars, Volvos, Hondas and Toyotas to name some of the inventory we keep on hand. Yes, I have some older units, like the 97 Ford Explorer, or the 96 Cavalier, but these are for the customer who just needs wheels, and has limited down payments, typically $1000. Most of our customers can come up with $4000 or more as a down payment on the right unit.

Every deal is desked at maximum selling price, typically $3000 profit, plus all the interest that we collect. Our default rate runs pretty low, in that we have someone who calls the customer constantly to collect late payments. Yes we have a few scoundrels, but for the most part our customers seem to pay pretty well. Right now, out of 56 units in inventory, only 4 are repo’s. I try to be careful what I put out on the road BHPH wise, and I avoid problem units, like the F350 dually diesel with 100K plus miles. High risk loans shouldn’t be done on high risk vehicles, since the likelihood of payment declines as the likelihood of mechanical problems increases.

BHPH is typically the last resort in my lender portfolio. We’ll take a shorter deal if we can get a deal funded outside. After all, I’d rather let someone else handle the collections so we can concentrate on selling cars. Obviously, while we may be primarily in the collection business, we still have to sell cars.

I’m sure this is nothing new to a lot of you reading my blog. However, for you folks at franchise dealerships, as lenders tighten up or fall out of business, it’s going to be harder to do deals as time goes on. We’ve already seen it happen; I can say with a great deal of confidence that business will become a lot harder in the next 12 months. We’ve been through it before, and we’ll get through this slow down as well, but the lender landscape is going to be littered with the casualties of this crisis, and new lenders are becoming reluctant to expand into markets like Florida and Nevada, where credit seems to be taking the hardest hit.

BHPH can be a very profitable business, if done properly and with restraint. Not every customer can drive off with a vehicle. Some risks are just not worth taking. New relocated customers, unverifiable jobs or references are some of the things that disqualify a customer in my mind. If it smells fishy, best to pass the risk to someone else. This dealership has been here for 30+ years doing business the right way, and we’d like to be here 30 more!

Lessons I’ve Learned So Far in 2009:

2009-03-03T08:48:00.000-08:00

There is no such thing in a dealership as a “job well done”. You’re only as good as the last deal you delivered.
A GM can loose $250K in the used car department and still keep his job as long as he gets the sales force to sell all the old age units on the lot!
Sales people will complain about costs and packs until the GM puts a ridiculous bonus on those units, then they’ll sell every one of them.
Lowest prices on the internet bring lots of customers who buy lots of cars at lots of losses. They’ll all pay cash, and never come back to your dealership, because they typically live too far away to have ever considered your dealership before, but felt it was worth the drive to steal a unit from you. Nothing like loosing money and never getting any residual business from a customer.
Customers believe you’ll do anything, and take any offer, because the news shows keep telling them how bad our business is.
Sales Managers never want to hear they’re doing anything wrong, ethically or legally, until they’re about to get caught.
Sales people will stand and stare at you when you say no, hoping that if they look long and hard enough, the answer will change!
Never believe a GM who tells you to get to work and he’ll get you a pay plan, and never believe a GM who says, “Don’t worry, I’ll take care of you!”
It’s never a good sign when the GM calls a management meeting for 8PM on a Sunday night.
A finance director who puts all his eggs in the captive’s basket will soon find himself unable to make an omelet after so many of the marginal deals he forced on them go bad. It’s tough to build relationships with lenders these days when they know they were never the first choice, or even a top 3, for a dealership.
A GM will always choose to keep the guy who makes the least amount of money when business gets bad.
A “workforce reduction” is just a fancy way of saying “Don’t go away made, just go away!”

Lying For A Car Loan Is A Dead End

2009-01-29T10:00:00.000-08:00

This is an article that was published in the Miami Herald last weekend. It's another 'let's scare the heck of the consumer' article that seems to pop up every so often.

Posted on Sun, Jan. 25, 2009
Miami Herald.com

BY PATRICK DANNER

No job and no salary was no problem for Pat Callahan when she agreed to buy a $36,000 Ford Expedition.

Callahan, a Homestead retiree on Social Security, says the dealership persuaded her to lie on her credit application by claiming a nonexistent job.

When the finance company phoned to verify the salary, an employee of the dealer answered and pretended to be her boss, she says in a lawsuit.

Callahan got the loan, but lost the car. It was repossessed.

Mortgage brokers aren't the only ones with a propensity to fib on credit applications. Staff in dealerships' finance departments, sometimes with the customer's wink-and-nod consent, have played the same game -- with similar results, according to various auto industry insiders.

And unlike mortgage brokers, they are unregulated by the state, even though they have access to some of your most intimate financial secrets and can make a mess of your credit.

The state has considered requiring background checks and fingerprinting of car dealer employees who handle financing, but nothing is imminent, says Terry Straub, finance director for the Florida Office of Financial Regulation.

The scope of the problem is hard to gauge.

Duane Overholt, a former car dealer turned consumer advocate, runs the website StopAutoFraud.com that gathers complaints from car buyers and dealership employees.
''We have gotten more complaints from Florida than any state in the union,'' he says.

According to Moody's Economy.com, auto loan delinquencies rose 12 straight quarters in Miami-Dade County -- to just under 6 percent of all loans -- before dipping slightly in the last quarter. But the faltering economy is clearly a factor in that.

The practice of falsifying credit applications is ''widespread in the more desperate stores in our market, where they are looking for volume any way they can,'' says Craig Zinn, who own nine South Florida new-car franchises. ``It's something we are watching internally, constantly.''

He says there is a van that makes the rounds to dealerships that offers to produce phony tax forms, phone bills and pay stubs -- essential ingredients of a fudged credit form.

To simplify the deception, some dealers have the customer sign a blank credit application so the dealer can fill in the information as they please, consumer lawyers say.

Luis Lopez ended up going to court, his credit smudged, after buying a 2002 Mercedes-Benz CL500 from Auto Trend in Hallandale Beach. According to his lawsuit, which went to arbitration, the finance company first approved, then rescinded the auto loan -- after discovering the finance application included a phony W-2 form that misspelled his employer's name and inflated his annual income by $125,000.

The car was repossessed.

In a deposition last year, the dealer denied his employees were involved in the fabrication. In the end, an arbitrator awarded Lopez $2,907 -- about a third of what he sought -- plus costs. Lopez remains upset.

''I don't understand if I won the case, why I am getting peanuts back?'' says the 29-year-old Pembroke Pines man. Auto Trend's phone number is no longer in service, and its lawyer could not be reached.

David Alejandro Lopez, former finance director at Maroone Chevrolet in West Miami-Dade, is suing the dealer, alleging it routinely falsified customers' incomes so they could qualify for car loans. The dealership is owned by Fort Lauderdale's AutoNation.

Lopez claims finance managers, working under him, would either fabricate or obtain fake pay stubs, tax forms and utility bills to support the inaccurate applications. He says he got fired after rebelling against the practice.

''AutoNation did nothing about it,'' says William Amlong, a Fort Lauderdale lawyer who is representing Lopez in the whistle-blower suit in Broward Circuit Court.

In an e-mail, AutoNation spokesman Marc Cannon says the company conducted its own investigation and found no evidence to support Lopez's charges. He says Lopez was fired for ``valid reasons.''

''The company is committed to maintaining high standards of business ethics and conduct and will vigorously defend its position in this case,'' Cannon says.

Jack Tracey, executive director of the National Automotive Finance Association, which primarily represents subprime car lenders, concedes there are incidents of fraud but nothing widespread.
''When people read about it, they think it's going on all of the time,'' Tracey says. ``My experience with financing sources is that . . . if they find a dealer doing it, they just cut them off.''

George Fussell, chairman and CEO of Fort Lauderdale's Southern Auto Finance, believes the level of fraud peaked in the boom times before the auto industry hit the skids this past fall.

''Right now, all lenders have their tail between their legs and they are looking very deep into these credit applications to see if there's anything wrong, and if there's a hint of anything wrong, they're not making the loans,'' Fussell says.

Southern Auto says it does its own rigorous investigations to determine the veracity of credit applications and has discovered various wrinkles.

For instance, Fussell says a dealer might claim that it accepted a $3,000 down payment when in reality a portion of that $3,000 was fronted to the buyer by the dealer in the form of a loan. In egregiously deceitful cases, Southern Auto will make the dealer take back the loan, relieving Southern of its risk.

As for Callahan, the Homestead retiree who couldn't handle the $713 monthly payments on the Expedition, she's suing the dealer, Armstrong Ford of Homestead, over the aggravation she says she endured. The dealer did not respond to calls from The Miami Herald.

''I feel like I was pressured into something I didn't want to do,'' Callahan says. Her suit in Miami-Dade Circuit Court seeks unspecified damages.

The Expedition is gone. Today she drives a Hyundai that her daughter bought.

© 2009 Miami Herald Media Company. All Rights Reserved.http://www.miamiherald.com

Car Repo Men Had Busiest Year Ever

2009-01-09T09:13:00.000-08:00

Posted Jan 08 2009, 07:06 PM by Karen Datko
http://blogs.moneycentral.msn.com/smartspending/

Vehicle repo men were in overdrive last year, picking up a record 1.67 million cars and trucks.

According to Automotive News, that figure is from Tom Webb, chief economist at Manheim Consulting, and represents a 12% increase over 2007.

In the only bright note in this story, Webb expects an overall increase of only 5% for all of 2009, with an actual decrease in repos coming in the second six months of the year.

Other factlets from the story:

Big unsold inventories of new vehicles depressed the value of used cars, Arlena Sawyers of Automotive News reports. The Manheim Used Vehicle Value Index last year experienced the biggest annual decline of its 13-year history.
Just as the price of gas-guzzlers fell during the summer of $4 gas, they're worth more now that gas is much, much cheaper, and the value of compact cars has dropped.
Not only that, but our partner blog ConsumerAffairs.com reports that only half of the buyers of small cars feel "extremely happy" with the purchase, much lower than the average rate of new-car glee. Market research firm Mintel, which conducted the survey, speculated that small cars on the market now don't have enough amenities to satisfy many buyers.

"The transition from expensive, gas-hogging SUV to cheaper, fuel-efficient compact will feel like less of a sacrifice if the smaller car offers similar luxury features," Mintel senior analyst Mark Guarino said.

And Another One Goes Down For the Count!

2009-01-07T11:06:00.000-08:00

Seems like we're running out of lenders these days. Nuvell/National closed there doors today, giving their people 6 months severance pay or a chance to apply for a job at GMAC. Based on the agreement that GMAC had to make in order to become a bank holding company, it seems doubtful that they are in an expansion move, so I guess we'll just add a few more folks to the ranks of the unemployed.

I have friends who work for Nuvell/National, and worked for National nine years ago as their south Florida Area Sales Manager. I have tried to do business with them since I've been back in the seat, and while it hasn't been easy, we have managed to fund a couple of deals with them each month. The truth is, I've try to fund deals fund deals with every one of my lenders. I firmly believe in NOT putting all my eggs in one basket, and as such, when one lender shuts down, or tightens up, I'm not stuck without someplace else to go with a deal.

No doubt business is getting harder these days. HSBC, Triad, Wells Fargo, and now Nuvell/National have all fallen by the wayside. It started last year, when AmeriCredit and Wells Fargo upped their minimum criteria for applications, and followed by HSBC and Triad pulling out. Funding slowed down with some of my other lenders, but they warned us ahead of time, and we were prepared to ride out the rough times along side them. Lenders have long memories, and I'm confident that my patience will pay off several times over in the long run.

My friend a Nuvell/National told me yesterday that it all came down to their cost of funds, and the inability to remain profitable as that cost increased. It probably won't be the last time we hear this story. Lenders and dealers who are in a position to ride out the storm will undoubtedly came out stronger and more profitable. Hang on tight, and look for smoother waters ahead. It's all we can hope for these days!

New Threats to Credit Scores

2008-12-30T17:34:00.000-08:00

A revised FICO formula will kick in soon, and the balances you carry will matter more than ever. Luckily, little missteps will count less. Plus: How you can protect yourself.

By Liz Pulliam Weston, MSN Money

A long-delayed update to the leading credit scoring formula is rolling out in 2009, offering a few advantages to consumers -- and some serious new risks.

FICO 08, the latest version of the FICO scoring model, was initially supposed to be introduced in the fall but was delayed by lawsuits between its creator, Fair Isaac, and the nation's three main credit bureaus.

Everybody's since made up, and TransUnion will offer the new score to lenders starting in late January, with Equifax introducing it in the spring, said Craig Watts, a Fair Isaac spokesman. (Experian, the third bureau, hasn't yet announced when it will offer the score.)

Fair Isaac says the new score will do a better job of predicting defaults than the classic FICO, which is used in more than 75% of mortgage lending decisions and by 90% of the largest U.S. lenders.

But FICO 08 is even more sensitive than the classic FICO to how much of your available credit you're using. If your credit card issuer slashes your credit limit -- which is increasingly likely these days -- you could see your scores plunge, regardless of whether you carry a balance.

Another hazard: The new scoring formula responds more negatively if consumers have few open, active accounts. Because more credit card issuers are shutting down unused and unprofitable accounts that boosts the chances of damage to your scores.
3 victories for consumers

Not all the news is bad. FICO 08 offers some definite improvements for consumers in several areas, including:

Collections. The new formula ignores small collection accounts in which the original debt was less than $100. This is a big victory for consumers and one I've advocated for years, because niggling little debts -- created by unpaid library fines, forgotten parking tickets or a small medical bill that slipped through the insurance cracks -- had an outsize impact on people's scores.
Credit missteps. Fair Isaac says the new version is less punishing to those who have had a serious credit setback, such as a charge-off or repossession, as long as their other active credit accounts are all in good standing.
Authorized users. Fair Isaac initially said FICO 08 would combat potential fraud by ignoring any "authorized-user" accounts in a borrower's credit report. After a big consumer outcry and potential credit fairness issues, Fair Isaac backed off and decided some authorized-user information would be included.

Adding a spouse or child to your credit card as an authorized user has long been a good way to improve that person's credit score, because your good history with the account typically could be imported to the relative's credit file. But in 2007, credit repair companies began abusing this feature by "renting" authorized-user slots from good credit risks and selling them to strangers who wanted to boost their scores. Some of these strangers bought slots on dozens of different people's cards, boosting their scores by tens or even hundreds of points.

Lenders pressured Fair Isaac to drop authorized-user information from its calculations. But consumer advocates protested, noting that the change could punish millions of innocent parties, including spouses whose entire credit history depended on authorized-user information. Legal experts also warned that ignoring information regarding spouses on authorized credit lines could be a violation of the Equal Credit Opportunity Act.

So now Fair Isaac says the FICO 08 formula will factor in authorized-user accounts "while materially reducing potential impacts to the score," according to the company's FICO 08 marketing brochure. Fair Isaac won't disclose exactly how it does that, but speculation is that the new score will count a limited number of authorized-user accounts and ignore the rest.

Better? Worse?
Fair Isaac made another course change regarding how FICO 08 would handle "inquiries," or applications for credit. At first, the company said applying for new credit would hurt less than in the past, since initial research seemed to show that inquiries had become less predictive of future defaults. Subsequent research, though, contradicted that finding, said Watts, the company spokesman. So you still want to be cautious and apply for credit only when necessary.

But clearly, one of the biggest hazards for consumers is the credit utilization issue. As issuers slash credit limits, the gap narrows between customers' balances and their limits, which is generally bad for their credit scores.

How bad is tough to predict. A limit reduction on a single account won't necessarily trash your credit, Watts said. Because FICO scores assess a lot of data, the effect of a single factor like a credit limit reduction will depend on what other data is on the credit report and how much the line is reduced.

"The person's score could be unchanged; it could go down," Watts said. "Or in some cases, it could go up."

It's fair to say, though, that big reductions in credit limits, and reductions affecting more than one account, aren't going to be good for your scores. Credit card expert Ben Woolsey of CreditCards.com noted that issuers' credit limit reductions so far -- and the promise of more to come -- are "clearly a hazard" to consumers' scores.

Still, Fair Isaac defends the accuracy of its formulas. Watts said the company's research has so far found the credit limit reductions have affected "a relatively small population and those line reductions have been a relatively small amount for a sizable part of that population."

At the same time, he said, a "notable number" of consumers have reduced their use of revolving credit such as credit cards, which is helping to minimize any impact to their FICO scores from credit limit reductions.

"Our most recent performance study," Watts said, "indicates that the FICO score continues to appropriately rank-order consumers based on credit risk."

Different yardsticks, same strategies

Other ways to protect your scores:

Watch those balances. The less of your credit lines that you use, the better, even if you pay your balances every month. The credit bureaus and your credit scores don't distinguish between balances you pay off and those you carry month to month; the balance that's reported to the bureaus is typically the one that shows on your most recent monthly statement.
If you're in the habit of using a big portion of your credit limit -- because you travel on business or are chasing credit card rewards -- consider asking for a higher limit or using more than one card. Ideally, you'd use no more than 30% of your available limit at any time during the month; under 10% is even better.
If your credit card issuer slashes your credit limit, try to get the decision rescinded (read "Thaw out your frozen credit" for details). If that's not possible, use the card less and move at least a portion of your balance to other cards or to an installment loan. For credit scoring purposes, it's better to have small balances on a number of cards than a big balance on a single account.
Don't close accounts. Fair Isaac has made it clear that closing accounts can never help a classic FICO score and may hurt it. With FICO 08, that's even more true. You get more points for having open accounts in good standing; conversely, having a higher proportion of closed accounts can hurt you more.
Keep your accounts active. Issuers increasingly are shutting down unused accounts, which reduce your available credit and can hurt your scores. Even if your account isn't closed, though, FICO 08 doesn't like to see a bunch of unused cards -- it wants to see you actively and responsibly using a variety of credit accounts.
A simple way to keep an account active is to have a monthly bill charged to it, and then arrange for an automatic monthly payment to ensure you don't miss a due date (a single skipped payment can devastate a great credit score).
Consider an installment loan. There are two main types of credit: revolving accounts that allow you to build up and pay down balances, and installment loans that typically have fixed payments that require you to pay down your balance over time. Credit cards and lines of credit are examples of revolving accounts, while auto loans and mortgages are considered installment loans.

The FICO formula has always rewarded folks who had and successfully managed both types, which is why getting an installment loan was often recommended as a way for people with troubled credit to rehabilitate their scores. The new scoring formula is even more sensitive to the mix of credit types people have and use. In the past, people were able to get and keep very high scores using only credit cards; it's not clear if that will still be true under FICO 08.

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
Published Dec. 29, 2008

The Truth, The Whole Truth and Maybe Nothing But The Truth!

2008-12-10T15:09:00.000-08:00

Maybe it's just here, but lately, I've run into a number of cases of customer fraud. I'm not talking about identity theft. That I can deal with. It's customers who think they can fool me and the bank!

A few examples:

One customer provides pay stubs on delivery that are over 30 days old. She sends an "updated" pay stub to us after we spot the car... the only problem is the only thing that changed on the pay stub was the date! The dollar amounts were the same as the first pay stub she gave us, but the customer cut and pasted a new date over the original one!
A customer provides a pay stub on delivery that appears to be legitimate. We package the deal and send it out for funding. The bank does a verification of employment and finds out that the customer is a part-time employee, and the pay stub he provided us is "not consistent with how he gets paid"
A customer fills out a credit application and tells us he has been at his job for over 6 years. On verification, the bank finds out "Customer was just re-hired at current job 11/24/08 after being gone for years". So much for that approval.
Three separate cases of fraudulent Social Security numbers, with one customer who could not provide the original card, but had a real good photocopy for us!

It seems as though all the press about the car business being in trouble has got some customers believing that we'll do anything for a deal. I've been approached by customers offering "bonuses" to get their loan approved. Some customers believe that we'll look the other way at indiscretions and questionable activities in order to make a deal. Others are amazed that the banks actually verify everything, and many are dumbfounded by the idea of a customer interview. I constantly have to tell my customers to make sure they answer their phone when the bank calls. Yet I still have to chase customers to get their welcome call done.

One of the things I have done to help cut down on the brain damage is require my sales people to get a "Verification of Employment" form signed by the customer when they complete the credit application. When the customer is reluctant to sign this form, it's a heads up to a potential problem with the deal. In addition, we do a reverse look up on both the home and work numbers provided. Not surprising, we find a lot of cell phones for employers, and either get a proper number, or we don't deliver the vehicle.

It's getting harder to do business these days. Every deal counts, but only when it gets funded. It only makes sense to make sure, up front, that a deal is indeed a deal, and not a repo or rollback!

Entitlement or Priviledge?

2008-11-24T12:50:00.000-08:00

I am consistently amazed at customers who come in thinking that, despite the fact that their last vehicle was just repo'd, they want to get another loan without putting any money down. It seems that these customer believe that credit is a right, or entitlement, and that regardless of their past credit history, or lack thereof, they shouldn't have to put any money down in order to get a loan.

Well, I've done some research on this matter, and to no one's surprise, the Founding Fathers were very explicit on the rights we bestow on our citizens. Freedom of speech, religion, assembly and such were all spelled out very clearly. But no where in the Constitution could I find a reference to the right to "buy now and pay later".

I tend to believe that credit is a relatively new concept. Folks in colonial America may have had credit arrangements, but they were more likely than not between merchants and customers that knew each other first hand. Long relationships had already been established, and credit, as it was, was limited in depth and term. Small amounts for short terms, until the harvest, or the sale of a horse, or some other transaction would occur, to make good on the debt incurred. It made sense, since there was little mobility in those days, and it wasn't hard to find someone who owed you money. You rode out to their farm and asked for repayment, whether it be cash or collateral didn't matter.

Today, banks lend at more than an arms length from a customer. Few, if any of our customer actually meet the people who are loaning them the money, and so lenders look for some commitment on the part of these customers with regard to the loan. There is no "right" to credit, it is really a privilege that must be earned. Stability and ability are fine attributes in an applicant for a loan, but far too many lenders learned the hard way that, simply because a customer looks like they can afford the payment, that doesn't necessarily mean that they WILL pay them. A commitment to or "customer participation" in the loan won't insure that the payments will be made, but at least the lender knows the customer has a stake in the game. I often tell my customers that their credit challenges can be overcome with a significant commitment on their part to the transaction.

The lack of a satisfactory payment history shouldn't preclude a customer from getting a loan, it just means that they have to prove that they will actually make the payments. For too many years, auto credit was a three strike deal - regular finance, special finance, and last but not least, buy here pay here. Customers knew that they could simply stop paying on their current loan and go down the street and get another car with little problem. Lenders were flush with cash and eager to over extend credit to folks who shouldn't have gotten it. Now we all are paying the price.

There is now guaranteed right to credit. Maybe I need to right the "Credit Challenged Bill of Rights"? Kind of like the Miranda rights you hear on all those cop shows and movies. Hmmm...

What's Does It Take To Be Successful In Subprime?

2008-11-02T14:53:00.000-08:00

Yes, it's still about the relationships your dealelrship and you have with your lenders, but the lenders are getting much more cautious with their approvals. More lenders are doing upfront verifications, and even prime lenders are verifying income on some deals. Lenders are looking more closely at DTI issues, and most payments have gone from 20% PTI to 12-15%. Huge advances are also a thing of the past; I haven't seen an approval from a subprime lender over 115% since I've been back here. 110% seems to be the magic number, and even Drive, when they give a 115% advance eat it up in their fee.

I talk to my buyers only when I have something to bring to the deal, or to make sure they have all the correct information to make their decision. Many times, Dealer Track may not transmit all the income info correctly, especially on 2nd income or part time jobs.

My secret has always been to send a lender a deal they can buy. Good business is good for everyone..good for the bank, in that they can collect the loan. Good for the dealership so we sell a unit and make a profit, and good for the customer to get a vehicle they want AND can afford. The days of stuffing a customer into a deal for huge gross profits is a "once upon a time" or "remember when" deal. If I can make $2000 profit, I'm a happy camper. I only wish I could get the huge advances with all the back end products we used to get. But by sending an application structured to the lenders guidelines, I get most of my deals approved first time out. Rehash when I need to, but I don't waste the buyer's time on an unrealistic structure and expectation.

I also maximize my relations by telling the lenders upfront about problems or obstacles they might encounter when it comes to funding a deal. Cell phone bills, landlord verifications, anything that might be a problem for them is expressed upfront so there's no surprise on either end at funding.

Full spectrum lenders? A figment of your imagination, like unicorns or the Loch Ness Monster! No one is buying the "full" range of customers. The only lender I have digging deep is S.E. Toyota, and only on Toyota products. First time buyer programs have pretty much evaporated, with Drive and Summit doing these deals, but with limited advances and payments. Many lenders have increased their minimum criteria, raising income to $1600 or more, minimum 1 year on the job, minimum down payments, etc. "No money down" deals followed the unicorns out of town!

I spend time talking to my buyers and reps about their programs, and what they are looking for, not what I want. I have all the 560 and up lenders I need, the problem is the customer demographics here are way below that. My average FICO score falls below 520, with mid to high 400's the rule rather than the exception.

Foreclosure is a big problem here, and most of my lenders won't approve a customer in foreclosure. Once the foreclosure is over, however, it's open season, and I have some lenders giving decent approvals to these customers. Lately, I've seen a bunch of customers with multiple foreclosures - investors who got in way over their heads and can't get out from under now. Many of these customers knew they have credit problems, but still think they can negotiate the terms of the loans. Many leaved pissed off, only to come back a day or two later, after they realize I was honest with them, but other lenders have already sent the applications everywhere, and it's getting harder and harder to turn a decline around.

I have been talking to many deep lenders, trying to find other sources, but many have limited recourse (first 3 payments or first payment default). I had a few lenders who want us to pay them an upfront fee to sign up with them, and many of the dealer agreements I've looked at appear to be written by Chinese lawyers (lots of print that you can understand).

It'a A Jungle Out Here...and It's Getting Harder to Navigate

2008-09-23T14:39:00.000-07:00

The lead story in this week's Automotive News reads "Credit-crunched". That doesn't begin to tell the story!

Almost daily, I'm am harangued by sales people who complain about the deals they used to get done. You know, the ones where the customer can't prove their income, or the ones who only claim to credit fame is a repossession. I constantly remind them that things are different today, that getting proof of income (POI) waived, and getting a marginal customer with a high credit of $300 a $20,000 auto loan is just not happening these days. It's not that I don't want to do the deal, it's that I don't want to deliver a vehicle I know we'll have to take back in a week! Lenders are tougher and tighter these days, and while I have all the 560 and up lenders I can use, I wish there where more of the sub 520 lenders available. And then I have to explain that a higher FICO score doesn't necessarilly mean a an apporval.

Here in south Florida, the problem is probably more acute than other areas. Like California and Las Vegas, we are faced with a mounting foreclosure problem. Customers come to us in the midst of foreclosure and want a newer car, or they want to trade in a vehicle they bought 6 months ago because some sales rep told them they could trade it in after ONLY 6 months. It's hard on everyone when we have to say "No" to a customer. Many Special Finance departments appear to be "Deal Prevention Departments" This is fair from the case.

I believe that most of us doing Special Finance these days have a pretty good handle on what our lenders will buy and fund. Delivering a customer and signing papers takes little talent, the real talent lies in making a profit AND getting the deal funded. The days f jamming a deal down a lenders throat are long gone, and Special Finance managers that don't partner with their lenders will find themselves running short of lenders real quick.

My lenders know that I send them applications they can buy, and my deals go in clean and ready to fund. Maybe that's why I got a lender who had shut this dealership off after they had looked at 62 non-buyable applications the month before I got here to turn us back on. In August we funded three deals with them, and this month 5 more!

Yes it's getting harder to get deals done. Yes, lenders are fewer, and profits are getting leaner. 145% advances...I only wish I could get those on a regular basis. But making lemonade out of lemons is what I get paid for, so...

Good Business Has To Be Good For Everyone

2008-08-29T12:28:00.000-07:00

Well, it's been 2 weeks back in the seat. While I'll be the first to admit it's a different world today, I can't really say that it's that much different from what I remember. While there have been a number of lenders leaving the market (HSBC, Triad, UACC) or others that have been retreating or reluctant to expand, the lenders that are left are still buying deals. The only difference these days is that lenders are looking a lot harder at the applications they receive.

Good business has to be good for everyone. That rule has never changed. A deal has to be good for the dealer (there's a profit to be had), the customer (the payment is affordable) and the lender (the loan is collectible). If is doesn't work for any of the players, there's no sense in doing the deal.

The lenders I've spoken to lately all ask me the same question. They want to know how I decide where to send an application. That hasn't changed since I got started in Special Finance. I send the application to the lender I think will buy the deal. I make sure to know each lenders guidelines, and avoid sending an application that I know doesn't meet their basic criteria. If the income is too low, or the score to low, or it lacks the length of employment, I don't send it to a lender who has those criteria. Keeping non-complying applications from lenders that won't buy it keeps look to book in line, and builds credibility with your lenders. It makes it easier to ask for a favor when necessary, because they know you know what you're doing.

Yes, the number of sources has shrunk, and the days of easy credit and no money down are long gone. Yet the customers still expect it. The majority of my day is spent explaining to customers that simply because they look they will pay the loan, lenders know that this does not necessarily mean they will. Making the deal good for everyone is what works today. And that's the thought for today!

Changes in Attitude, Changes in Lattitude!

2008-08-21T09:43:00.000-07:00

It's been a while since I've been here, and I apologize to those of you who follow this blog. As you're reading this, I have returned to my roots in South Florida, taking a position with one of my former clients as Director of Special Finance.

After three years outside of the dealership, I decided I needed to go back inside to get a clear understanding of today's market. Everyone has been telling me that things have changed, and indeed they have, but I decided that the only way I could truly understand was to see for myself. Special Finance is a lot like skydiving... everyone knows how it's done, but only those who have actually jumped can tell you what it is like!

So, it is with that thought that I have "jumped" back in to the dealership. I had worked for this company before I decided to move to Charlotte, and when the used car director called me to ask if I knew anyone who was looking to make a move, well, as they say, timing is everything. After some careful consideration ( and a pay plan that was too good to pass up), I headed for the airport and here I am.

I'll be writing here on a regular basis, as well as in Special Finance Magazine. A view, from the front line so to speak, trying to bring a fresh perspective on what is really happening in dealership TODAY! In the meantime, I welcome your insight and comments. Send your thoughts to subrpimecoach@hotmail.com and I publish them here.

It's good to be back. I forgot how much I missed this, and look forward to sharing my stories with you. Until then, remember..."If everybody could do this, they wouldn't call it Special Finance!"