NAF Association: Non-Prime Delinquencies Grow

HANOVER, Md. — After questioning a record 28 finance companies on their portfolios and practices, the National Auto Finance Association discovered that almost 75 percent of non-prime originations fell into the credit range of 500 to 679 last year.

More specifically, the NAF Association said one-third of booked deals fell into the 550 to 619 FICO score range, which they labeled non-prime. Another 15 percent of deals were in the prime and super-prime range of greater than 620. And finally, 52 percent of deals fell into the high-risk and super-high-risk categories of the credit spectrum — below 550.

BenchMark Consulting International, which compiled the study, found a cumulative increase in originations of 13 percent in dollars and 12 percent in accounts from the same companies that also participated in the prior year's study. However, officials indicated the participants also showed that origination ratios were down on average.

The finance companies were classified into two categories, large (more than 40,000 accounts) and small/medium (fewer than 40,000 accounts). Nineteen of the companies that participated in the survey were considered small/medium organizations, while nine were categorized as large. Fourteen new companies participated in this year's study.

Some key trends identified in the survey results, according to officials, are that "Smaller respondents report higher average origination ratios across the board and may be more likely to finance less expensive vehicles with higher mileages. Larger respondents report higher average credit scores and longer origination terms, especially with new vehicles."

Looking at the average amount financed, the association reported that small/medium finance companies averaged about $13,048, compared with $12,725 in 2005. On the other hand, large respondents averaged about $17,439, compared with $17,243. As for the overall median, it came in at $14,695, versus $14,420 in 2005.

Although not all companies participated last year, some of the organizations questioned this year provided both 2005 and 2006 data, allowing Benchmark to compare year-over-year results.

After being weighted, the NAF Association said the median amount financed by company was $15,717, compared with $16,016 in 2005.

Explaining the reason for weighting the results, executives said, "Average results provide equal treatment for each respondent regardless of portfolio size. Weighted ratios are more reflective of the industry as a whole, by using aggregate volumes in calculations."

Officials went on to report, "All non-prime weighted average origination ratios are lower, indicating that increased competition may be forcing the industry to work harder for origination volumes."

Reiterating an ongoing trend in the auto industry, the study found that 92 percent of contracts booked by large finance companies have terms of 49 months or more. In fact, the association said the majority of these participants, 65 percent, book contracts for more than 60 months.

Meanwhile, small/medium finance companies tend to book contracts with terms less than 49 months, executives noted.

Looking solely at new-car maturities, the statistics show that 76 percent are completed with terms above 60 months.

Continuing on, officials noted that not all financing sources charge-back dealers for pre-paid or repossessed accounts.

"Among those that do charge-back, the majority of large respondents charge-back dealers if a loan is pre-paid, while small/medium respondents charge-back dealers if a loan is repossessed," executives explained.

As for delinquencies, the association found that they have increased. Overall, dollar delinquency rates came in at about 11.3 percent, compared with 6.5 percent the prior year. Account delinquencies averaged 11.6 percent, compared with 6.8 percent.

"Delinquency rates are significantly higher across the board year-over-year, which may be attributable to respondent mix changes," the NAF Association said.

Additionally, 48 percent of finance companies that participated in the survey indicated they use behavioral scoring tools to analyze delinquent accounts, while the other 52 percent do not.

Breaking it down by the way these tools are used, the report said 58 percent of companies use the behavioral score on a monthly basis, 25 percent use it when an account becomes delinquent and 17 percent use such tools when the account rolls to the next level.

"The majority of respondents report rolling accounts to collectors (non-dialers) at 60 to 89 days past due," executives highlighted. "The number of average accounts per collector range from 53 to 103 for large respondents and 20 to 145 for small/medium respondents."

The NAF Association went on to point out that bankruptcy dollars and charge-offs based on bankruptcies have declined. However, monthly repossessions and dollar-loss-per-repossessed unit were up 8 percent from the previous year.

Small/medium finance companies told Benchmark they average about 98 repossessions a month, compared with 78 in 2005. Meanwhile, large institutions have a median of about 2,144 repossessions a month, compared with 2,011 in the previous year. The average repossession count a month was 975, compared with 906 in the prior year.

The NAF Association said the average-loss-per-unit on repossessions was about $6,804, versus $6,681.

For the complete graphs and details of the study results, the cost is $300 for non members. The results are free to all members. To order a copy, visit .

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