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We work with many different types of lenders and credit providers at NCCI. There is a surprising amount of difference between the way lenders operate in different businesses.
There are also similarities, of course. All lenders work hard to mitigate risk, stay in contact with their borrowers to help them stay on track and understand the power that face-to-face interactions can have on helping borrowers in trouble get back on track.
But the differences are interesting, too. For instance, since the middle of last year, we’ve been seeing a massive falloff in home loan financing as real estate sales have slowed and rising interest rates have reduced the mortgage refinance business. Despite this, only now are we seeing heavy cuts in the workforces at these lender shops.
In contrast, even a small change in the market for auto finance will see these lenders taking immediate steps. With much smaller transaction amounts, auto lenders can’t afford not to move quickly.
The auto finance industry begins to tighten up
CNBC was one of the first to comment on the changes we’re seeing now in the auto finance market. In February, CNBC reported that the share of borrowers who were 60 days or more delinquent in their auto loan payments last December had increased by nearly 27% from the previous December.
Experts suggest that delinquencies are increasing due to inflation and the fact that personal savings are lower today than they were in the past. Add that to the fact that the average price of a new car was over $47,000 in December, you can see where more borrowers could get into trouble.
In January of this year, Cox Automotive data showed that 1.89% of all auto loans were severely delinquent. That’s the highest rate since 2006.
Fortunately, there are actions lenders can take to mitigate these risks and help their borrowers stay on track, but the key to implementing any program will depend upon the lender’s ability to make contact with their borrower to find out about their situation and propose a solution.
Delinquency tends to send borrowers running for cover
One of the side effects of a missed payment is an unwillingness on the part of the borrower to answer the phone. There are several reasons why consumers may avoid contact with lenders when they are delinquent on payments.
The most common reason is that the borrower is embarrassed and often afraid of harassment or intimidation. They don’t want to be forced to agree to a workout that they ultimately will be unable to abide by.
Most delinquent borrowers believe they are unable to make their payment and don’t see a clear path out of the problem. They often fear that any payment they agree to make will only make their financial situation worse. In extreme cases, the borrower may feel hopeless or resigned to their financial situation and may avoid contact with lenders as a result.
In the end, they don’t believe the lender really wants to help them. This is why face-to-face interactions led by trained professionals is so important. A borrower may avoid a phone call or text, but it’s much harder for them to ignore a ringing doorbell.
Mitigating the risk now
Smart lenders take action quickly during troubled times, which is probably why our outreach services for auto lenders is trending upward sharply. Part of this is due to our professional field services teams, who can make contact with any borrower, anywhere in the country.
Auto lenders have also been responding well to our new technology partnership with PAVE, allowing our teams in the field to guided vehicle inspections with detailed and graded condition reports very affordably. Find out more by reaching out to us today.
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