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October 9, 2008
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Two Executives Join AFSA’s Board of Directors
AFSA SGA Forum Provides Outlook on Critical Topics
Speakers Added for Securitization Session at AFSA’s Annual Meeting
New Member Welcome
Citi Shrinks U.S. Mortgage Broker Business--Report
AmeriCredit Announces Securitization
Almost 400,000 Countrywide Mortgage Holders Will Get Help
Toyota's 0 Percent Offer Shows Credit Is Available
Daimler Won't Change U.S. Leasing Strategy--CEO
Revolution Money Piles Up Cash to Start Credit Revolution
Q and A with MasterCard's Martina Hund-Mejean
States Call for Adoption of Mortgage-Loan Help
McCain Mortgage Plan Would Bail Out Homeowners
Economy Threatens Student Lenders
Fed Praised for Program to Buy Commercial Paper
There Is No Auto Credit Crisis
High Levels of Dealer Satisfaction Translates to Additional Business for Lenders, Says J.D. Power and Associates
With Credit Drying Up, Car Buyers Bring Cash
US Auto Loan Delinquencies On the Rise; $25B Past-Due--Study
Leasing Still a Great Product
Two Executives Join AFSA’s Board of Directors
Sanjiv Yajnik, President of Capital One Auto Finance, Inc., and David Kvamme, President & Chief Operating Officer of Wells Fargo Financial, Inc., began their three-year terms on AFSA’s Board of Directors at the beginning of October.
Yajnik, who joined Capital One in 1998, leads the company’s auto finance business, which includes the multichannel direct-to-consumer line of business and the dealer line of business serving auto dealers nationwide.
Kvamme replaces his colleague, Tom Shippee, who will be retiring at the end of the year. Since joining the company in 1983, Kvamme has held numerous managerial positions, including Senior Vice President and Division Manager, with responsibility for five consumer regions in the western United States, and President of U.S. Consumer.
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AFSA SGA Forum Provides Outlook on Critical Topics
Speakers at the AFSA State Government Affairs Forum – held in conjunction with the National Association of Consumer Credit Administrator’s (NACCA) Annual Meeting Sept. 30 – Oct. 2 in Beverly Hills, Calif. – provided predictions and revealed upcoming developments on a wide range of topics of interest to AFSA members. During a panel discussion on the foreclosure crisis with Preston DuFauchard, Commissioner of the California Department of Corporations, James Saccacio, CEO of RealtyTrac, predicted that foreclosures unfortunately will not slow down in 2009.
Bill Matchneer, Associate Deputy Assistant Secretary for Regulatory Affairs and Manufactured Housing with The United States Department of Housing and Urban Development (HUD), revealed that HUD plans to develop an interpretive rule regarding the SAFE Act that should make the transition to the new licensing system easier for states. Matchneer also expects HUD to have a final model of the SAFE Act that includes efforts from both the industry and the Conference of State Bank Supervisors by the end of October.
In separate sessions, Jennifer Duffy, Senior Editor of The Cook Political Report, and John Fund, The Wall Street Journal Columnist, discussed the 2008 elections one month out. They highlighted the current challenges the presidential candidates for the Republican and Democrat party face. In addition, Fund predicted that the presidential election will be so close that lawyers on both sides will attempt to review all potential electoral issues, therefore delaying the announcement of the next president on November 4.
Next year’s forum will take place Sept. 23-25, 2009, in Miami. Speaker presentations from this year’s forum can be downloaded from the AFSA Web site with a valid login.
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Speakers Added for Securitization Session at AFSA’s Annual Meeting
AFSA’s annual meeting, which addresses the industry’s most pressing issues, has added speakers for the Tuesday, Oct. 28 session, Securitization in a Global Marketplace. Panelists Andrew Davidson, President of Andrew Davidson & Co., Inc. and George Miller, Executive Director, American Securitization Forum (ASF), will address the trends, opportunities and potential pitfalls in global securitization.
Davidson founded Andrew Davidson & Co., Inc., which provides risk analytics and consulting for fixed income investors in the mortgage and asset-backed securities industry. Miller oversees the ASF’s securitization market advocacy initiatives.
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AFSA welcomes new associate member MVTRAC, Inc. Headquartered outside of Chicago, MVTRAC is a leading provider of on-demand software and data solutions for the U.S. automotive finance industry.
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Citi Shrinks U.S. Mortgage Broker Business--Report
Reuters (10/08/08) D'Souza, Savio
Citigroup is eliminating roughly 5 percent of jobs in its U.S. mortgage operations. In addition to cutting the 500 jobs, mostly sales and support positions, Citigroup says it will sever ties with 8,500 independent mortgage brokers but will continue to do business with 1,000 others. "This new model is dependent on doing business with the right brokers via a low-cost, high-touch approach," says Mark Rodgers, a company spokesman. Citigroup's remaining wholesale mortgage business will operate out of St. Louis and Dallas.
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AmeriCredit Announces Securitization
SubPrime Auto Finance News (10/07/2008)
AmeriCredit recently announced that it was able to price a $500 million offering of mostly subprime auto receivables-backed securities through its AmeriCredit Automobile Receivables Trust platform. The proceeds from the transaction will be used to provide long-term financing of AmeriCredit's receivables.
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Almost 400,000 Countrywide Mortgage Holders Will Get Help
USA Today (10/07/08) P. 1B; Armour, Stephanie
Bank of America has announced that it plans to give more affordable mortgages to nearly 400,000 homeowners whose loans originated with its Countrywide Financial unit. Beginning Dec. 1, eligible homeowners will see first-year payments of principal, interest, taxes, and insurance changed to equal 34 percent of their income. No fees will be charged for the restructuring of the payments, and any prepayment penalties will be waived. In addition, the program will immediately halt any foreclosure sales on homes owned by borrowers who are likely to qualify to have their mortgages restructured until a final decision is made on their eligibility. Finally, the program will provide $70 million in relocation assistance to borrowers who are unable to keep their homes.
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Toyota's 0 Percent Offer Shows Credit Is Available
Associated Press (10/03/08) Strumpf, Dan
Toyota recently offered financing at an unprecedented zero percent on 11 models: the Matrix, Corolla, Camry, RAV 4, Highlander, FJ Cruiser, 4Runner, Sequoia, Sienna, Tacoma, and Tundra, with terms between 36 and 60 months. The aggressive incentive is unusual for Toyota. Toyota spokesman Xavier Dominicis said the zero percent financing is intended to correct the perception that it is difficult to get a car loan. "At Toyota it's not,” he said. “Our finance arm ... it's in a position to loan money." Analysts agree, noting the company’s AAA credit ratings and strong cash flow as well as its limited exposure to subprime customers.
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Daimler Won't Change U.S. Leasing Strategy--CEO
Reuters (10/02/08)
Daimler AG CEO Dieter Zetsche says the automaker will not modify its leasing strategy in the U.S. market, despite the prospect of posting a loss in earnings due to the decline in prices for cars coming off lease. In recent remarks made at the Paris auto show, Zetsche reiterated his commitment to Daimler's leasing strategy. "We've already learned from some bad experiences in the past, so we've been relatively conservative with our leasing business," he said. "This does not preclude possible losses--we might learn some more--but we will not change our basic leasing strategy." Zetsche refused to discuss Daimler's plan on what it will do with its remaining 19.9 percent stake in U.S. automaker Chrysler.
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Revolution Money Piles Up Cash to Start Credit Revolution
Tampa Bay Business Journal (10/06/08) Manning, Margie
More than $80 million in capital has been stockpiled by Revolution Money, and the company claims that its RevolutionCard credit card and MoneyExchange online person-to-person money transfer product are more secure and less expensive than better-known brands such as PayPal, Visa, and MasterCard. Revolution Money CFO Darren Thompson says between $2 and $2.50 of a $100 purchase paid for with a traditional credit card is consumed by transaction fees, versus only 50 cents with the RevolutionCard. Meanwhile, MoneyExchange is cheaper than its chief rival, PayPal, Thompson says. "I'm not surprised by how they [raised capital] because there is so much demand for alternative payments," says Aite Group analyst Adil Moussa. He says that Revolution Money's low-cost products are essential to their adoption by merchants. "Because it's more efficient for [merchants], they are willing to channel some of the savings into benefits for consumers," Thompson says. He says lower payment processing rates are attractive to retailers with slim margins, such as grocery stores and drugstores.
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Q and A with MasterCard's Martina Hund-Mejean
CFO (10/08) Vol. 24, No. 9, Hahn, Avital Louria
MasterCard CFO Martina Hund-Mejean says in an interview that the passage of legislation mandating that credit card companies negotiate interchange fees with merchants rather than allowing banks to set those rates will be detrimental to consumers because it will result in higher fees and fewer rewards. She notes that in Australia, "merchants are paying lower fees, but there is no evidence that they have lowered the prices they charge consumers." Hund-Mejean says that MasterCard straddles the leading edge of the development of an industry standard for contactless payments communication with its tap-and-go wireless PayPass technology, which has facilitated the conversion of mobile phones into secure contactless-payment devices. "We have been working with telecom providers and industry organizations to ensure that standards are met as mobile phones move to the center of commerce," she adds. Hund-Mejean notes that MasterCard has 17 mobile pilots across all major regions. She says MasterCard is working to differentiate itself from its rivals in three primary respects: Being a truly global company, drawing about half of its revenues from outside the United States; customizing products to fulfill a partner's specific need; and supplying client banks with information, consulting, and outsourcing services through MasterCard Advisors, the company's professional services division.
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States Call for Adoption of Mortgage-Loan Help
Wall Street Journal (10/08/08) P. A5; Simon, Ruth
A report from the State Foreclosure Prevention Working Group reveals that nearly 80 percent of seriously delinquent homeowners with subprime or Alt-A mortgages are not targeted for any type of loss mitigation. In response, a letter to the nation's biggest subprime mortgage servicers--signed by attorneys general in Arizona, California, Illinois, Iowa, Massachusetts, Michigan, New York, North Carolina, Ohio, and Texas--urges them to embrace a "comprehensive, streamlined and effective loan modification program" similar to the one announced recently by Bank of America. According to Illinois Attorney General Lisa Madigan, "If the largest lender in the country understands the value of this program for its mortgage customers and the overall economy, so should other lenders." The Bank of America program will focus on subprime adjustable-rate mortgages and option ARMs and could involve lowering the loan amount or interest rate and ensuring that borrowers devote no more than 34 percent of their monthly earnings to mortgage payments. "Our first approach is to work with everybody. Later on, if it is necessary, we would consider litigation," says Iowa Attorney General Thomas Miller, who has been in contact with three large mortgage servicers so far.
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McCain Mortgage Plan Would Bail Out Homeowners
Los Angeles Times (10/08/08) Drogin, Bob; Reynolds, Maura
Sen. John McCain (R-Ariz.) proposed during the Oct. 7 presidential debate to have the federal government spend $300 billion to help keep struggling borrowers in their homes. As part of the American Homeownership Resurgence Plan, the government would pay homeowners and mortgage lenders in full for their failing mortgages. The initiative would enable lenders to remove the bad mortgages from their balance sheets, and homeowners would be able to refinance into fixed-rate loans insured by the government. McCain said the plan is expensive, "but we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing the economy." He offered it as an alternative to the federal government's plan, which has evoked plenty of bi-partisan criticism. Both Republicans and Democrats balk at the idea of bailing out perpetrators of the type of faulty lending and borrowing practices that triggered the housing meltdown while doing little to help conscientious home buyers who are now stretched thin financially. McCain's plan, purportedly, would allow "well-meaning, deserving homeowners" who are facing foreclosure to refinance into new, government-insured loans. To qualify, borrowers would have to prove that they actually occupied the property and that their credit was in good standing at the time of the original loan.
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Economy Threatens Student Lenders
Dartmouth Online (NH) (10/02/08) Cress, Rebecca
The growing credit crunch has forced a number of private student-loan lenders to cut back on the loans they make, while others have been forced to leave the student-lending business altogether. Students with existing private loans are likely to see their interest rates go up by two to three percent. The rising interest rates are due to the fact that some student lenders, such as Sallie Mae, peg the interest rates they charge to the London Interbank Offered Rate Index, which has soared in the past several weeks, says FinAid.com publisher Mark Kantrowitz. Federal loans, however, are more secure because of the Ensuring Continued Access to Student Loans Act of 2008. That legislation, which was signed into law by President Bush on May 7, stabilized the federal loan program, allowed more parents to get PLUS loans, and increased the limits on unsubsidized Stafford Loans.
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Fed Praised for Program to Buy Commercial Paper
American Banker (10/08/08) Hopkins, Cheyenne
The Federal Reserve Board has announced that it will purchase an unlimited amount of commercial paper held by cash-strapped companies. Many economic experts praised the creative decision to become the lender of last resort to another sector of the financial system. The announcement is expected to have a positive impact on the commercial paper and money markets, opening a flow of credit for companies that are having trouble renewing their short-term debt. The commercial paper market stalled in recent weeks as money market funds and other investors hesitated to buy the paper. As of Oct. 1, there was $1.6 trillion of commercial paper outstanding. "In a sense this is a smaller problem because the assets are not as mispriced as mortgage markets have become, but it's also a much easier problem to solve than the frozen mortgage market, and it should have a much more immediate payoff," said FTN Financial chief economist Chris Low. The program will be funded by a deposit from the Treasury Department and fees charged to borrowers. To participate in the lending program, commercial paper issuers will either pay a fee, provide collateral, or offer a guarantee of their obligations. Some experts did criticize the Fed for only addressing the demand for funds and doing nothing to address the supply side of the market. Instead, they view this as a short-term fix to give the market time to reform itself. The program is scheduled to expire on April 30, though it could be extended.
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There Is No Auto Credit Crisis
Business Week (10/07/08)
Although AutoNation CEO Mike Jackson heads a company that owns hundreds of dealerships, his view that banks currently don't want to finance new vehicles for prime customers does not have "any basis in reality," writes journalist and automotive expert for KDFW Fox 4 in Dallas Ed Wallace in Business Week. Wallace takes issue with the fact that so many journalists quote Jackson, when in Wallace's view Jackson is wrong. Although sales in September were poor, it was not because prime customers could not get loans. Instead, Wallace argues, in any automotive downturn the first customers to exit the market are those who are the most well educated; they tend to be the most cautious about taking on additional debt during hard times. The decline in sales in September was due to a steep decline in showroom traffic--a 39 percent drop in the first half of the month and a 50 percent decline in the second half of the month, according to CNW Marketing Research. Showroom traffic declined 45 percent overall in September, but vehicle sales declined by just 27 percent.
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High Levels of Dealer Satisfaction Translates to Additional Business for Lenders, Says J.D. Power and Associates
F&I Magazine (10/07/08)
Automotive loan lenders who remain on good terms with dealers receive a larger portion of business from those dealerships, finds J.D. Power and Associates' 2008 Dealer Financing Satisfaction Study released Oct. 7. The study analyzes automotive dealer contentment with loan providers in four categories: prime retail credit; retail leasing; subprime retail credit; and floor planning. It investigates five crucial components that typify satisfaction within the first three aforementioned segments: provider offering; credit staff; application and approval processes; termination policy; and sales staff relationship. The study examines four components in the floor planning segment: provider offering; floor plan support staff; inventory process; and general service. The consultants found that as dealers grow more comfortable with lenders, they divert a larger portion of their business to those lenders. Some factors that give dealerships favorable impressions of lenders are the ability to engage with a single credit purchaser, swift application approval times, and expediential financing. With dealers in the prime retail landscape, those who are very pleased with their financiers give those lenders approximately 53 percent of their business, while dealers who say they are "satisfied" with their lenders apportion to those lenders 40 percent of their business.
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With Credit Drying Up, Car Buyers Bring Cash
New York Times (10/07/08) Vlasic, Bill; Bunkley, Nick
Data from J.D. Power & Associates show an approximate $1,000--around 20 percent--increase in the average down payment on financed car purchases since July, and around 31 percent of all nonluxury sales in the final week of September were all-cash transactions, the highest level since three years ago. Meanwhile, tighter credit played a role in the 26.6 percent decrease in September car sales in the United States. September sales dropped below 1 million automobiles for the first time in 15 years. "Consumers were already staying away from the showrooms, and when you add in the credit crisis it's like a one-two punch," said Tom Libby, chief market analyst for J.D. Power. He says his company is getting ready to slash its sales predictions even more. The firm had anticipated 14.2 million new-car sales for 2008 and 14.3 million for 2009. Those numbers are "going to go down significantly," says Libby.
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US Auto Loan Delinquencies On the Rise; $25B Past-Due--Study
Dow Jones Newswires (10/06/08) Terlep, Sharon
A new report from Experian Automotive finds that car loan delinquencies have risen in the second quarter, with nearly $25 billion in loans now past due. Loans 30 days past due have risen 9 percent, while loans 60 days past due are up 11 percent. The credit ratings of borrowers have declined as well, with prime credit ratings on those owning outstanding loans having fallen to 57 percent of borrowers from 61 percent two years ago. The overall delinquency rate is still more manageable than that currently rocking the mortgage market, though, as car loan delinquencies stand at less than 4 percent. Meanwhile, captive auto finance companies are extending just 31 percent of loans, down 5 percentage points from two years ago.
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Leasing Still a Great Product
Ward's Dealer Business (10/01/2008) P. 42; Dorfler, Bryan
The dramatic cutback in leasing will lead to fewer purchase and finance options for consumers, argues F&I consultant Bryan Dorfler in Ward's Dealer Business. It may also ensure the ongoing extension of the traditional installment loan terms to beyond six years, making equity positions more difficult to achieve and restricting future sales. One advantage of the truncated trade cycles that leasing creates is the need to buy another automobile at a fixed date. When worked correctly, lease loyalty programs can produce a consistent schedule of customer purchases at a foreseen date and budget. Ultimately, Dorfler says, leasing will rebound because it is good for consumers and manufacturers. It is more profitable for a finance firm than a traditional loan. Furthermore, the competitive pullback may result in a less-harsh competitive atmosphere where more moderate rates and residuals can be accepted.
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Abstract News © Copyright 2008 INFORMATION INC.
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AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. For more information,
please contact newsbriefs@afsamail.org.
AFSA's mission is to protect and improve the consumer credit business, maintain a positive public image, and create a legislative climate in which reasonable credit regulation can and will be enacted. The Association operates in the public interest, encourages and maintains ethical business practices, supports financial education for consumers of all ages, and provides other assistance in related fields on an as-needed basis. The American Financial Services Association has provided services to its members for over ninety years. The Association's officers, board, and staff are dedicated to continuing this impressive legacy of commitment through the addition of new members and programs, and increasing the quality of existing services.
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