Collateral Data & Insights Help Identify Where Pockets of Growth Potential Exist to Maximize Competitive Landscape
LAWRENCEVILLE, GA (February 21, 2018) – Black Book, a division of Hearst Business Media that provides industry-leading used vehicle valuation and residual value forecast solutions, announced today a new educational white paper focused on subprime and deep subprime auto lenders: Subprime & Deep Subprime: How To Remain Competitive and Profitable Despite Growing Risk. Click here to download the white paper.
How Subprime & Deep Subprime Have Grown
Following the recession, and as the economy has improved, an increasing number of lenders began to offer subprime and deep subprime loans, and more independent financial institutions saw their way into the market, as well. At the same time, larger banks became full spectrum lenders that opened up space for subprime loan opportunities. While subprime and deep subprime loans have remained in check, lenders have had to grapple with ways to remain competitive and profitable in spite of any growing risks.
As loan volumes increased, financial institutions began relaxing their lending criteria for credit and collateral to remain highly competitive for subprime and deep subprime, resulting in higher loan-to-value ratios (LTV) using inflated values up front, placing even more importance on building the loan off the most accurate collateral value possible. As these LTVs rose, banks took on more risk, exposing themselves to more negative equity in their portfolio combined with longer loan terms, as well.
Various Scenarios Faced by Subprime & Deep Subprime Lenders
The new Black Book white paper offers specific examples showing lenders where and how collateral data can pinpoint profitable opportunities in subprime and deep subprime, while minimizing exposure to risk. These data examples including high-term scenarios even with decent credit profiles; higher LTV scenarios; and higher LTV, higher term, higher APR, and higher depreciation scenarios.
When a lender is looking to evaluate the amount of risk tolerance in a long-term loan, there are four things to consider:
- How much initial loan-to-value they want to establish
- The rate of annual depreciation of the collateral
- Credit profile of customer, whether subprime or prime
- Determine if the Risk-Adjusted Return on Capital is sufficient
“Subprime and Deep Subprime loans have remained a profitable opportunity for lenders, particularly following the recession since the economy is stable yet there’s still a lack of understanding of layered risks associated with these credit profiles,” said Anil Goyal, Executive Vice President, Operations at Black Book. “This white paper takes an in-depth look at different scenarios lenders face in trying to grow their portfolios profitably to remain competitive while quantifying their associated risks.”
To view Black Book’s new white paper: Subprime & Deep Subprime: How To Remain Competitive and Profitable Despite Growing Risk, click here. For a demo of how Black Book collateral data and resources can help amplify portfolio profits, please call 800.554.1026.
About Black Book
Black Book® is best known in the automotive industry for providing timely, independent and accurate vehicle pricing information, and is available to industry-qualified users through online subscription products, mobile applications and licensing agreements. Since 1955 Black Book has continuously evolved to ensure that it achieves its goal of delivering mission-critical information to its customers, along with the insight necessary to successfully buy, sell, and lend. Black Book data is published daily by National Auto Research, a division of Hearst Business media, and the company maintains offices in Georgia, Florida, and Maryland as well as the Canadian Black Book in Toronto. For more information, please visit BlackBook.com or call 800.554.1026.
Author: Digital Dealer
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