outperform your loss provisions: increase recoveries
TRANSCRIPT
Outperform your loss provisions: Increase recoveries through loan restructuringSept. 2, 2020
CARISSA ROBBPresident, Constant
JEFFREY BERNSTEINSr. Principal Consultant, FICO
MIKE SISKContributing Editor, American Banker
WEBINARPANELISTS
Am
eric
an B
anke
rCon
stan
t
TODAY'S DISCUSSION
TIMELINE
Timeline to accelerated delinquency, charge-off and bankruptcy, Q4 and beyond.
PLAYBOOK EDITS TO MAKE NOW
Proactive loan restructuring, recasts as an alternative to refinancing, and short payoffs for auto.
THE CURRENT LANDSCAPE
Sharp increases of loss provisions with no visibility on duration or recovery. Why consumer/auto is particularly at risk.
A WORD ABOUT COMPLIANCE
Monitoring exams in flight, manual errors and lack of workflow are driving risk.
AMERICAN BANKER, MAY 2020
FORBEARANCE, WHILE IT CAN GO ON FOR MONTHS, DOESN’T LAST FOREVER, LEAVING BANKERS AND INDUSTRY OBSERVERS TO SPECULATE ON HOW MANY DEFERRED LOANS WILL BE UNRECOVERABLE. THE POTENTIAL DAMAGE WILL DEPEND HEAVILY ON THE SEVERITY AND DURATION OF THE PANDEMIC AND ITS AFTERMATH.
AN OBSCURED VIEW OF CREDIT QUALITY ALSO MAKES IT MORE CHALLENGING FOR BANKS TO PRICE FOR RISK AND ESTABLISH TERMS AND CONDITIONS FOR NEW LOANS, INDUSTRY OBSERVERS SAID.
THE
CU
RREN
T ST
ATE
STEVE JOBS
INITIAL LAYOFFS WERE THOUGHT TO BE TEMPORARY. THE RATE OF PERMANENT LAYOFFS ARE RISING AS SMALL BUSINESS RELIEF ENDS.
MACROECONOMIC UNCERTAINTY
Lack of visibility around duration and recovery is driving sharp increases in loan loss provisions.
UNIQUE IMPACT ON AUTO
As payment holidays expire, loss severities are likely to be impacted by used vehicle prices as repossession moratoriums expire and the fact that pre-crisis loans were underwater.
THE PERFECT STORM
The perfect storm is brewing with bank and stimulus relief slowing or expiring, continued unemployment pressures, and moratoriums lifting.
CURRENT LANDSCAPE
MARCH-JUNE
Extensions and deferral plans offered withoutproof of hardship or ability to pay.
TIMELINEACCELERATED DELINQUENCY, CHARGE-OFF & BANKRUPTCY AMID MARKET DISTORTIONS
JULY-SEPTEMBER
Initial round of short-term relief begins to expire, moratoriums lifted. Extended relief likely needed.
Q4 2020-Q1 2021
Stimulus and government relief expires, delinquency worsens, charge-off accelerates. Few relief options exist torestructure and return borrowers to performing.
UDAAP IMPACT
UDAAP violations will stem from inconsistent relief options offered to qualifying customers which will be further complicated by high numbers of case-by-case analyses expected once deferral programs end.
MILLIONS IN DEFERRAL PROGRAMS
Lack of work flow in most servicing systems forced investors to track deferrals in Excel or ad-hoc programs. Manual errors, lost files and inability to meet customer service volumes create compliance risk.
ABILITY TO REPAY ANALYSIS
New to consumer / auto is the burden to show 1) willingness and ability to repay, and 2) the solutions offered are appropriate to benefit the customer.
REGULATORYCOMPLIANCE
TOOLS AVAILABLE TODAY TO STEM LOSSES
THER
E'S
NO
SL
IVER
BU
LLET
Recast for a nominal fee to maintain current rates and protect margins.
Allow for short pay-offs to reach an amicable exit versus nominal recovery on secondary market post-repossession.
Update playbook to sustainably restructure debt beyond temporary payment relief to reduce charge-offs and increase recoveries.
DEMO OF AN AUTMATED LOAN
MODIFICATION
http://www.constant.ai/american-banker-demo
An extended demo of other relief options, voluntary surrender of collateral,
recovery/settlement and other features is available.
To see a demo, email [email protected]
FULLY AUTOMATED LOSS MITIGATION PLATFORMCONSUMER-AUTO-MORTGAGE-STUDENT
End-to-End Loss Mitigation Platform
• Borrower-facing loss mitigation platform reduces charge-off and increase recoveries.• Avoid credit blind spots with real-time affordability / ability & willingness to pay analysis.• Algorithms collect and assess loan data, borrower input, API-gathered data, and investor
configurations to determine the best relief option within investor policy.• Options include extended short-term relief, recasts, reinstatement, repayment, step-up
modification, and permanent modification.• Portfolio monitoring with borrower health scoring to assess imminent risk using non-
traditional risk indicators and small data.
Self-Service for Borrowers
• Platform connects to any SOR or collections platform, data warehouse and data lake to offer a borrower-facing chatbot with simple flows.
• Borrower can access help via a link sent through email campaigns or on eStatementsand websites.
Sector-Specific Automated Solutions
• Auto: Voluntary repossession• Solar: Transfer & assumption• Mortgage: Short sale and deed-in-lieu of
foreclosure• Recovery: Settlement & repayment
AB
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dan@
cons
tant.ai
