by Scienaptic Research

Auto loans, especially those for used vehicles, make up a significant portion of the portfolio for credit unions — around 35% to 45% of their total portfolio on an average. They account for less than 5% of bank loans. Also, banks have only around 20% share of used vehicle financing, as compared to 70% in credit unions.

Let us explore why credit unions were sought after by auto loan borrowers, the new challenges owing to the COVID-19 pandemic, and how they can possibly weather the storm using AI-powered underwriting solutions.

Traditional Differentiators Offered by Credit Unions to Make their Auto Loans More…

Scienaptic Reasearch

As part of the credit underwriting process, lenders usually verify borrowers’ income and employment status to ensure that they can repay the loan. However, the COVID-19 pandemic has forced thousands of people out of jobs naturally leading to rapid shifts in employment data.

What is noteworthy is that the pandemic has affected a few industries more than the others. Take a look at the results of a worldwide survey conducted by IMD on the impact of COVID-19 on industries for six months from April to Oct 2020.

Here’s another similar perspective from S&P Global:

Author: Eric Steinhoff, Rakesh Lavi

The impact of COVID-19 on the US and world economies has been deep and far-reaching, with economic and financial markets experiencing a historic crunch. Although most governments have announced countermeasures and relief packages, we must be ready for a continued downslide in the coming months.

Moody’s research predict that the post-COVID recovery will be more of a Nike “swoosh” than a v-shaped one. …

Is it possible to originate safely in this environment?

Author | Eric Steinhoff

“If you’re not growing, you’re dying” — we’ve all heard a version of this quote, and it surely didn’t come about as part of a discussion about a credit portfolio. However, if you’re reading this post you probably are well aware of the adverse effect slowed growth can have on your portfolio performance and perhaps, if you’re a monoline lender, the whole existence of your business.

An economic downturn like the one we’re in creates a perfect storm where credit losses increase at the exact same time that interest revenue from new lending dries up. …

Author: Scienaptic Research

Many economists and researchers were warning us about the next recession to hit us by the mid-2020s. And right when we started experiencing an economic slowdown, we are trapped by the novel coronavirus (COVID-19). The businesses were not prepared for the ripples caused by the effects of coronavirus and measures to contain it. Many companies are taking a huge hit and are trying to cut costs by laying off people and reducing overheads. In fact, on April 3, 2020, the U.S. Bureau of Labor Statistics released a news release detailing the unemployment rates for March 2020.

Till date, over 22 million people have filed for unemployment as more and more States enforce lockdowns. The unemployment rate is now the highest for over 90 years. Like it or not, the world we are living in today has been changed by the effects of COVID-19, and it will take months before we see some economic adjustment. It’s bringing the recession at our doorstep. Bank of America states the recession is already here and could be the deepest recession on record. According to the bank, they see the first-quarter GDP sinking 7% and continuing that decline with a 30% drop in the second quarter. Besides, they expect a loss of 20 million jobs due to the coronavirus crisis sending the unemployment rate to a high of 15.6%. …

Author: Pankaj Kulshreshtha

In the run upto 2008, I had an interesting experience as CRO for a loans portfolio. While the stress and uncertainty of COVID19 times are going to make 2008 look benign, I thought of sharing the story. There are likely a few lessons here that may be useful for lenders now.

This was a small liquidating portfolio of personal loans. Loss rates were running at about 7% when this portfolio came in my fold. When I saw the draft monthly PQR (portfolio quality report) that included this portfolio for the first time, I knew we had a problem at hand. My team’s triangulations projected that we will have about 40% LTS (Loss to sales) over the lifetime of this portfolio. This seemed as toxic a portfolio as it gets for a risk manager. I called this out in the global risk review. As expected, folks thought this was just a new risk guy padding up the projections, but cursorily asked me to keep an eye out. A couple of months go by and we see all our assumptions to 40% LTS tracking as predicted. Come the next global risk review, people now take notice. Global CRO then asked the question that led to multiple insights. …

Author | Vinay Bhaskar

Traditionally risk managers have responded to recession predictions by simply reducing risk appetite. This is roughly how that works — once there is enough buy in to the recessionary scenarios internally, risk score cut-offs are increased, and underwriting strategies are tightened. This results in an immediate drop in approval rates in the hope that when the real slow down hits, the losses will not be too bad. We believe a better framework to make lending businesses recession resistant and sustainably profitable is now available. …

by Scienaptic Research Group

The credit industry and the needs of borrowers have evolved rapidly in the past decade. One of the main challenges that lenders face is an accurate risk assessment of individuals and firms who have limited or no credit records with the National Credit Rating Agencies (NCRAs). Such “credit invisible” and “thin-file” consumers constitute nearly 20% (45 million) of the entire US adult population. In addition, there are several “credit deserts” in the US, which are geographic areas with little access to traditional sources of credit. …