by Julia Guardione

From the Desk of Douville: Rising Above

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 lenders tightening credit standards and LTV advances across the board, in all credit score bands.

I’ve had numerous conversations in recent weeks regarding best practices for the current lending climate. My response is always the same: The only way out of a volatile lending environment is to earn your way out of it. Stick to what you know, focus on the borrower NOT the collateral, and pick winners. Always remind yourself that you’re not a collateral lender.

Remember when truck values were dropping and high MPG autos were bringing premium prices at auction? It never makes sense to change your buying habits to tighten volume, or to chase it for that matter. Provide a stable policy environment that allows your loan officers to identify golden opportunities. Create a loan department where your underwriters feel safe to make sound credit decisions based on the merits of the borrower, and support those decisions. Providing common sense underwriting on a consistent basis will pay dividends in the future. Ability, stability, and willingness to pay still win the day.

Changing your “underwriting stripes” to predict the return on collateral is akin to trying to time the stock market to improve your portfolio. The decisions your staff made a year ago may be affecting you now, but the opportunities lost have affected your institution more. We don’t know what sedans or crossovers are going to bring at auction a year from now, so allow your loan policies to guide you to sound decisions. By the same token; don’t make decisions you know are bad just because your policy says you can. I understand. The “shine” of larger yields always wears off when the repos start coming in. But, stay the course. This is not the time to be timid about how you buy paper. The demand for prime paper/near prime paper has pushed all lenders into a very crowded space. There are now more lenders competing for fewer deals.

The bottom line is that there is significant pressure to increase loan volume and meet your budget demands. Buy smart. Look for opportunities. Look into your deals and not at them. Never chase volume. Stick to your underwriting intuition and buy the customer, not the collateral (within reason, of course).

All the best,

Roger Douville
VP of Lending Services

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