Historical Perspective on Loss Mitigation
In today’s environment, it’s critical that lenders examine their strategies because:
· Uninsured rates on prime portfolios are now 15% to 20%
· One in eight motorists, or 13%, are uninsured; Florida is the highest at 27%
· Storm season projections are that 2018 will be at least as bad as 2017
Traditionally, many subprime lenders avoided the hassles and expense associated with insurance tracking, because these services were typically bundled into lender-placed insurance products. Rather than place their payment stream at further risk, these lenders either resorted to less than effective internal processes, or they ignored the problem altogether.
In the meantime, higher credit quality lenders continued to track insurance, either because of investor requirements or if they securitized collateral. However, in light of recent regulatory concerns with improperly placed lender coverage, these lenders began to evaluate the necessity of tracking insurance as well.
Although these strategic decisions may make economic sense, they lead to an anomalous result; despite the requirement in 49 states that all consumer autos be insured, the lack of effective enforcement mechanisms of these laws and oversight by lien holders has led to a significant occurrence of under-insurance, which is pronounced on subprime loans.
Ultimately these decisions come back to haunt lenders when it's time to repossess a vehicle for a non-performing loan. While many vehicles that are repossessed have damage, without information of insurance that may be available for that damage, no recovery may be had on those cars for that damage. These recoveries, which could amount to millions of dollars per year, are significant for any lender, regardless of size or credit class.
We’ll talk more about the foundation and impact of a strong collateral loss avoidance strategy (including the use of data in driving recoveries) in our upcoming webinar entitled Loss Mitigation Best Practices on Wednesday, August 22 at 2:00 p.m. ET.
August 16th, 2018 by Dan Bucherer