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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (79188)	1/26/2008 12:44:22 PM
From: robert b furman	Read Replies (2) \| Respond to of 94695

There are tiers of recourse in used and new car sales. The vast majority of new car dealers have "non recourse" agreements. This makes the collection of the loan the responsibility of the lender.If delinquent it too becomes the responsibility of the lender to repo the vehicle. When repo'd,the lender has the right to audit the credit application to confirm that the ap was correctly filled out. Things like an infalted income on the app can get a dealer in trouble on what is called "Terms and Conditions". If a dealer in is violation of terms and conditions - then the repo'd vehicle is delivered to him and the contract must be bought back from the lender at the oustanding balance! This is a great enforcer of submitting apps in a factual and straight up fashion. With competition and low margins - THERE IS NEVER ENOUGH MONEY IN ANY DEAL TO BOGUS CRDIT APP !!!!! With lower credit beacon score deals the requirements needed to prove the ability of the lender to repay are term stipulations. Some standards are a paycheck that verifies level of income,lenders call the place of employment to verify stability and employment,utility bills to verify residence (the place where the repo man can find the car if needed). These are called stipilations and are necessary to be inhand before the delivery of the car. In all of these above loan types,high end lenders ie Chase,JPMorgan HAVE NOT LOWERED STANDARDS. OEM's captive lower interest loans are quite stable.They'll have a push during major selling events for a month at longest - but they guard their capital much like a bank does. Sub prime car loans charge fees to take the deal and those fees address the cost of repoing a delinquent lender. Sub prime car loans have not lowered their standards either. The lowest tier is dealer financed - referred to as Buy here Pay here dealers.This is an extremely lucrative low end local financing arrangement. They are local banks diquised as used car lot. Total profitability is much more aligned to collections than it is to sales levels. These guy repo a car whena day late,charge a repo fee and require that the lenders gets completely current before they get to drive the car again and then wait for the next repo. Can't feally say that standards have or have not changed - these guys are really entrpeneurial. The manipoint of the sub prime real estate collapse is it was cancerous. It was new and evolving and much money was made with high flying fees. It became more and more corrupt as politicians encouraged home ownership as standards continually declined. Sinc it was new there were not the checks and balances of other loans types.This missing accountability is what got it in trouble. As a dealer myself I saw the train wreck coming. People with no credit ,no income had found a tax free way to make money.Flipping homes and living in them or just speculating - IT WAS NEW FOUND WEALTH !! Then the music stopped slowly as the fed raised rates. Those holding the bag were those that had unsold inventory and unfortunately all others that had recently purchased a home in a very inflated price. That being said - I believe after the glut of new construction is whittled away over the next spring/summer,this problem will susbside. People will live in a house that is below the market in price.Homes are emotionally attached to people - it is not like a stock. Cars and credit cards are more a function of employment.If employment stays firm these will not become the major cancer that these new finance tools have made real estate into. My bet is there will be some nice gains made 2-3 years out as the pay outs mature. Foreclosure only happen at the beginning of a loan.As the loans mature out - the lender is walking away from their equity - a rare occurrence - ESPECIALLY with low income people who have poor credit. We are in the worst and it is getting better in my guess. JMHO Bob