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An Era of Rising Delinquency

July 20, 2022 | By Lendisoft

We seem to be entering an era of rising delinquency. This makes sense, given where we are in the latest economic cycle. Many are saying the country is heading into, or is already in, recession—likely to become known as the “post pandemic” recession of 2022.

Unexpectedly, delinquencies stayed mostly flat throughout the pandemic, facilitated by widespread and unprecedented use of forbearance and payment deferment programs (extensions) that in many cases even outperformed loan performance from years prior when the economy was going strong. This is much like the tsunami effect. And we all know that just prior to tsunami, the ocean tide recedes in an overreaction to what’s coming—a terrible surging tidal wave that brings destruction and ruin. Based on some of the latest economic indicators, it appears the tidal wave is upon us.

But let’s not over-dramatize things, most of us old-timers have experienced the ebb and flow of the economy several times over in the past 30 years. We are blessed to live in a societal system that incorporates checks and balances that facilitate expansion and contraction much like a living, breathing, creature.

The 1.3 trillion-dollar auto finance industry runs lock-and-step with this ebb-and-flowing phenomenon. When the economy is humming right along, lending institutions find creative ways to grow their lending portfolios, and that typically means carefully loosening credit-granting policies to tap into near-and-subprime consumer segments, which seem to perform well-enough as long as the economy stays strong. But as the economy shifts from ebb, to flow, lenders everywhere tighten their credit granting policies and many go into “credit-granting hibernation” altogether, forced to halt all loan origination efforts until things return to normal.

Now what makes our current condition so difficult on lenders is the “double-whammy effect”. While a lender’s profitability is getting squeezed due to underperforming payment performance, it is also getting squeezed by rising interest rates in their lending lines-of-credit and loan granting warehouse facilities, which are almost always tied to variable interest rate indexes. Most lenders only run with 100-to-300 basis points of profit margin to begin with. Now imagine what happens when interest rates in their loan facilities increase by ~200-bps, and at the same time, annualized loan losses increase by another ~200-bps! That’s 400-bps stolen from their would-be bottom-lines, which sends most lender’s P&L statements deep into the red. Sadly, layoffs ensue, and many lenders go out of business altogether.

SO WHAT IS A LENDER TO DO?

It’s time to get serious about risk management—especially in how you service loans. Risk management matters to your bottom line!

 

What if I told you, you could reduce delinquency dramatically and increase collection revenues by up to 30% each month, simply by employing proven risk management strategies to your existing servicing operation?

 

ACTUAL CASE STUDY

A subprime auto lender in San Diego, CA had been outsourcing its servicing to a well-known, national brand, servicer; but was disappointed in the results they were seeing. In Feb 2018, they decided to bring servicing in-house and adopt Lendisoft’s risk management procedures. The results were remarkable!

30+ Delinquency improved immediately:

Monthly Payment Revenues Increased Immediately:

RISK MANAGEMENT STRATEGIES

Lendisoft makes employing risk management strategies a breeze, and let’s small to medium sized lenders enjoy the same competitive advantage as some of the most successful enterprise lenders in the industry.

Each Lendisoft strategy brings incremental lift to your bottom-line profitability. Start driving more revenues from your past due accounts.

It’s time to achieve your fullest potential. It’s time to run collections “The Lendisoft Way”. Call us to set up a demo today!

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