auto finance

Give Your Loan Portfolio A Quick Pre-Sale Checkup

Whether you’re an experienced loan seller or have just recently decided to dip your toe into the market, there are a few simple but important steps you should be taking to help you get top dollar for your paper.

Make A Great First Impression

The vast majority of pre-owned auto dealers today take pride in their business and reputation and take great measures to dispell the unsavory "used car dealer" stigmas of yesterday. They strive to create a brand that generates customer satisfaction and loyalty, both of which typically translate into success and profitability.

Of course one of the most important factors by which customers will judge your business is the quality of the vehicles you offer for sale. For your inventory to make a good first impression, you normally perform a little maintenance on each vehicle before it goes on the lot. For instance, making sure it's clean and shiny, starts quickly and drives well, and that it has a current inspection. If it looks, sounds, and drives it's best, you can expect to receive top dollar.

The same holds true when you are ready to sell the loan.

In a way, you're selling the car a second time. Only this time, you're not just peddling the metal, you're selling the paper and the borrower behind it. Since your loan buyer won't be kicking tires or test driving the collateral, you must make sure that your paper is as clean as possible so that it makes a good initial impression. This not only will help expedite the sale and closing but could go a long way in helping you obtain the best price for your portfolio while building a long lasting relationship with the buyer of your loans. Let's discuss a few steps you can take to make that happen.

 

Do The Math

Before you can even consider selling loans in your portfolio, you must verify that the numbers add up. Take a sampling of your Retail Installment Contracts and Payment Transaction Histories to check the allocation of principal, interest and late fees to ensure the accurate posting of both. For example:

We’ve seen many cases where a loan buyer received contracts that were written as Simple Interest but the interest was amortized as Precomputed and vice versa. This is an automatic deal killer for buyers and a potential regulatory issue for you, and should be fixed immediately whether you intend to try and sell the loan later or not. You can salvage the loan to sell at a later date, but you will need to fix the issues and make any necessary adjustments.

There are some on-line tools that can help you with the re-amortization of you loan contracts, however, we would always recommend you seek advice from a knowledgable firm that specializes in loan compliance.

I won't recommend any specific online resources here since I cannot guarantee their accuracy, but if you need some help, drop me a note in the comments section and I'll point you in the right direction for a consultant or on-line resources.

 

Provide A Clean Data File

Since I'm fond of using auto dealer lingo, I will compare providing your perspective loan buyer with a clean, detailed loan file as you would a customer with a clean, freshly detailed, reconditioned car.

Like a clean, nice running car, loan buyers are impressed and willing to buy when they receive a clean loan file from a seller. A clean file means that errors are removed, and accurate, relevant information has been placed in the file in a consistent manner. If you are not proficient in putting together a “clean loan file” please drop me a note and we can make recommendations for that as well.

Sound a touch OCD? Welcome to the world of an Analysts. Sorry, couldn't resist that one.

All kidding aside, scrubbing your data file and including all of the account, contract, collateral, and customer information will do wonders in getting your deal priced fairly and closed quickly. The less time you have to spend going back and forth with the buyer for data, the sooner you can be spending your profits and deploying the cash received from the sale. Also, and this is vital, ensure you have a fully executed non-disclosure agreement in place.

The graphic below is a good example of the information that buyers generally request.

datafiletemplate01

Sample data file template: Account, Contract, and Collateral Information

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Sample data file template : Customer Demographics

After creating your data file verify that all fields and headers are lined up properly. It's an easy mistake to make when compiling your file but can make for quite a mess when a misaligned file is loaded into a buyers modeling system.

 

Paperwork

As the saying goes, no job is finished until the paperwork is done.

Before submitting your loan portfolio to a buyer, you need to check all of your loan documents to ensure that all have been properly filled out and executed. The actual loan files need to be reviewed as to the ancillary documents.

During the due-diligence of your loan files, the buyer will be looking very closely at the following documents at a minimum:

  • Copy of the Retail Installment Contract
  • Copy of the vehicle title or title application
  • Customer credit application
  • Any GPS or starter interrupt information and disclaimers

In short, make sure that you've crossed your T's and dotted your I's. It's better for you to identify and correct any issues than it is for the prospective buyer to find them. However, if a prospective buyer finds deficiencies in your data and or documents, take them seriously, speak to professionals and make the necessary corrective actions.  Ignoring issues when they are discovered can be very harmful to your business and certain remedies are time sensitive upon discovery of the deficiency.

Presenting clean, accurate, and compliant loans to your buyer will let them know that you are running a top notch shop and motivate them to compete harder for your business and bid higher for your paper.