The repo man is getting busy
More vehicle owners are falling behind as the economy slows. Many slip when they lack the money to repair cars that they’re still making payments on.
For the repo man, business is always good. But lately, it’s been better than good.
As the subprime-mortgage collapse blares in the background, “recovery service agents” have been cleaning up the wreckage of another subprime-lending mess: that of the auto industry, which in its own competitive bid for buyers has been extending longer, costlier loans to people unable to keep up with their payments.
The number of auto loans past due by at least two months reached a 10-year high in January, according to Fitch Ratings. Three-quarters of prime and subprime auto asset-backed securities fell more than 60 days behind on payments, a 44% increase over one year earlier.
Nationwide, 12.4% of consumers have at least one late auto payment on file, according to consumer credit agency Experian. One in three auto-loan borrowers have payments greater than $500 a month, and 12% have been late at least once.
In a survey for the National Automotive Finance Association, BenchMark Consulting International said monthly repossessions by subprime lenders increased 15% from 2005 to 2006.
1.5 million repossessions last year
Manheim Consulting, which analyzes the used-car market, estimated a 10% increase in the total number of repossessed vehicles –- both new and used — to 1.51 million in 2007. Auctions held by Manheim and Adesa, a vehicle remarketing company, resell most of the vehicles repossessed in the United States.
Tom Kontos, executive vice president of analytical services for Adesa, says auction houses saw about a 15% increase in repossessed autos from January 2006 to January 2007.
“Faced with a decision of whether to pay a home mortgage or make a car payment, oftentimes the decision is to default on the car,” Kontos said. “So that’s what we think is happening that’s contributing to this surge of repos.”
Tom Webb, Manheim’s chief economist, expects the steady rise of auto repossessions in the last two years to continue through 2008, due to a sagging economy and loose lending standards in place before autumn 2007.
“The auto lenders have already started to tighten up,” Webb said, and he expects to see lower default rates by 2009.
“The shorthand is that for years we’ve lived beyond our means, reflected in record debt levels, and now comes the paying phase,” said Christian Weller, a senior fellow at the Center for American Progress, a progressive think tank in Washington, D.C. “Car loans have expanded as fast as mortgages, and in terms of the categories of what people borrow for, it is the second-largest.”
Repossession agents in areas hit by foreclosures say they’ve been picking up vehicles both from people struggling to keep their homes and from those now left without work: construction workers, pavers, landscapers and real-estate agents.
“It is actually stunning the number of cars we’re taking from people who are supporting the local real-estate market,” said J. Patrick Altes, the president of Falcon International, a recovery agency with offices throughout Florida. “It’s almost the type of thing where we see it and you wonder if anyone else sees it. . . . It’s like they turned off the spigot.”
It depends partly on how long you intend to keep the vehicle. If you lease, here’s how to get the best deal.
Cracks are showing everywhere:
Buyers continued to take out longer and longer loans, an indication they are borrowing more than they can afford. The percentage of prime auto loans with maturity lengths greater than 60 months increased from 12% in 2002 to 41% in 2007, Manheim reported. Among subprime borrowers, that rate grew from 33% of borrowers in 2002 to 67% in 2007. “They’re basically trying to buy as much vehicle as they can within a monthly payment,” Webb said. “By extending it, it allows them to buy more vehicle.”
In 2007, younger vehicles — those under six years — made up a larger share of subprime repossessions than in years past, Manheim said, indicating that people are falling behind earlier in the cycle.
For the first time in several years, prime lenders increased the number of loans extended to risky consumers. Those with FICO scores below 600 moved from 4% to 8% for used vehicles and 2% to 6% for new vehicles, BenchMark reported. “They’re moving downscale, and they’re also lending money to the higher-risk players,” Cunningham said.
Subprime lenders also reached down the credit scale, with 54% of deals made to buyers considered a high or superhigh risk, those with FICO scores under 549, up from 34% in 2005. “All of these are kind of pointing to higher delinquencies and higher charge-offs,” Cunningham said.
A unique form of collection
Miss a credit card payment or an electric bill and companies bump down your credit score or cease service. Fail on the mortgage and a judge can issue a foreclosure notice. But skip a car payment or the full insurance and a guy in jeans can hook a chain to your car and tow it away, no court hearing required.
“If you think about it, that’s a pretty drastic remedy,” said Nancy Barron, a consumer lawyer in California who specializes in auto claims.
Outside California and Florida, repo agents don’t need licenses, although lenders typically require insurance, and several industry trade groups have strived to improve professionalism in the industry, saying most repossessions go quietly and without incident.
Most repossessed autos are sold at dealer auctions, an average of 41 days after the repossession. The Federal Trade Commission requires that vehicles be resold in a commercially reasonable manner (for more, see this FTC fact sheet).
“After 90 days, we have to classify it as a bad debt,” said Mark Pregmon, executive vice president of SunTrust Bank. “Do we want to repo the car? Absolutely not . . . but that money’s not free. That money costs something.”
BenchMark estimates the average loss to subprime lenders at $6,000 a car.
Owners are required to pay any deficiency — the difference between what was fetched at auction and the outstanding loan — as well as fees for repossession, cleaning, transport and resale, which can total about $700.
Many borrowers are stuck paying for years on a car they no longer have. To make matters worse, a replacement car costs more to finance. Even one 30-day past-due payment can ding a buyer’s credit score nearly 100 points.
If you fear the repo man . . .
State laws do protect consumers (check your state attorney general’s office for guidelines), and experts can help. Here are a few tips, in descending order of crisis:
Your car has been repossessed. This is not, in fact, the end. If the lender did not conform to your state’s notification laws, a penalty can be issued against the lender’s ability to collect. Contact a consumer lawyer or advocate for help. The National Association of Consumer Advocates maintains a listing.
Some states require that owners be given a chance to make good before the car is repossessed.
“In every state the consumer has a right to redeem the car, to pay all that is due and the expenses to get the car back,” said Jon Sheldon, a lawyer with the National Consumer Law Center. “That will often be a much better deal than letting the creditor sell it.”
Act quickly. Many auctions are closed to individuals, and actions become more difficult after a sale.
Though prices vary widely, the average difference between the auction price and retail resale is about $1,500, said Kontos of Adesa.
It depends partly on how long you intend to keep the vehicle. If you lease, here’s how to get the best deal.
The repo man is at your door. If this happens, you can legally object, said Sheldon. Be polite but firm, and avoid anger or violence. “If you’re objecting and they take it anyway, then it could lead to a breach of the peace,” which is illegal in every state, he said. This can buy you time to work out the problem with the lender.
Avoid any physical confrontation. Instead, document everything. Write down license-plate numbers and names, including those of witnesses.
Remove personal items from the glove compartment and car. “Anybody who’s late in their payments should remove all their belongings,” said Yvonne Rosmarin, a consumer lawyer in Massachusetts. “I don’t know how many people I’ve heard stories from who have had personal belongings in there that just disappeared.”
If you are on active military duty and you bought the car before you went on active duty (you were in the reserves, for example), a creditor cannot repossess the car without a court order, under federal law.
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