Rising above when market conditions get tough There is no shortage of data documenting rising delinquency rates, losses trending upward, and dropping collateral values. The near prime to subprime market has seen the worst performance and has been grabbing the headlines as of late. We have also seen reaction to current market conditions with some…
Responding to Risk
The uncertainty in the resale market today has us all questioning our risk tolerances with collateral values. I am troubled at how much more reactionary we are today in finance. Auction values are strong for pickup trucks and SUV’s. Midsize cars and compacts, not so much. But remember when gas was over $4 a gallon? You couldn’t give the Ram 2500 away!
Trying to time the vehicle value market is like trying to time the investment market. Before making changes to your policy, ask yourself what the real reason is for the change. Making changes may make you feel like you’re doing something proactive and preventing risk, but are you really? If you change your buying practices today, do you really know how the change will affect your loss ratios 14 months from now? If you can predict that, you should be making a lot more money.
Making frequent changes to your buying habits for the sake of making changes because other lenders are doing the same is the wrong approach. Consider changes gradually without reactionary influence. Review your policies on a regular schedule to get the desired portfolio result you want for your institution. Write into your policy how you will handle exceptions to your policy.
Document when you will stretch and under what circumstance you will make an exception. Stick to your knitting and if market conditions get you in a jam, the only way out of it is to earn your way out by making prudent credit decisions. Making changes to chase volume or runaway from volume only increases your risk.
All the Best,