And Then There Were ....

Just posted on AppOne's credit portal:

"Due to current market conditions, AmeriCredit will no longer be accepting credit applications after April 30th. Any AmeriCredit approvals issued through April 30th will be funded as usual."

One by one, sub prime lenders are falling by the wayside. It's like a sub prime pandemic; the only question left to ask is "Who's next?".

This morning I was talking to my sales force and asked them if anyone was afraid of catching swine flu. They all agreed that the risk here in south Florida was minimal, at worst, and none of them was concerned about getting sick. But if you watched the news this morning, we're all doomed! Vice President Biden said he would NOT travel by plane or subway, and recommended staying away from crowded places! CDC official tell us not to travel to Mexico, and countries and states, cities and counties are shutting down public places to avoid a swine flu pandemic.

Let's all duct tape our doors and windows and not venture outside until we get the all clear!

No, don't get me wrong. There is always a concern for health and well being. We should all take precautions against getting ill, as well as spreading anything around. But perception is the reality in our society, and if the news tells us it's a pandemic, we believe it with the utmost enthusiasm. The news tells American consumers that the auto industry is going bankkrupt, and they stop buying cars. They tell us that there's not money to lend, so banks stop lending. The tell us that things are bad, and they just get worse. Maybe it's time to find some good news to report?

I'm sure this is an oversimplification of things, but then again, it's just my opinion.

Why Banks (Still) Aren't Lending

Taxpayers want bailed-out banks to make loans and goose the economy. But given the depths of the economic mess, that's the last thing the banks should do.

By David Weidner, MarketWatch

Banks need to stop the charade, ignore the political and public pressure and admit they're not lending. It's not because they don't want to, but because it's bad business.

Don't think so? Take this pop quiz. Bank of America posted smashing first-quarter profits and its chief executive, Ken Lewis, said the Charlotte, N.C., company is lending as if the good times never ended. So, in the bank's conference call, which of the following statements did Lewis make?
A. "Credit is bad, and we believe credit is going to get worse before it will eventually stabilize and improve."
B. "Even our internal economists are a little at odds as to the timing (of the recovery), with some seeing recovery earlier (than year's-end)."
C. "We believe unemployment won't peak until next year at somewhere in the high single digits."
D. All of the above.
E. None of the above.

For a CEO whose bank is lending as if it's 2006, you might be surprised that the Lewis who proclaims to be bullish on loans is bearish on the economy. The answer is D.

There's only one problem. No bank CEO can reconcile more lending with a deteriorating economy -- especially one in which economic conditions are the worst they've been in generations. But that's exactly the claim the bank chief is making.

Lewis described a deep recession that's going to be here for months. Still, Bank of America touts that it's "helping" homeowners and small businesses with new loans. It claims to have added 45,000 customers and provided them credit. The reality, however, is less impressive: Bank of America loaned $183 billion during the quarter, up just 1.6% from the last quarter of 2008, when lending took a big dive industry wide.

This isn't to single out Bank of America. All of the major big banks, including Wells Fargo, JPMorgan Chase and Citigroup have been doing the credit double-talk that goes something like this: These are terrible conditions to be lending in, but we're lending in them without risk.

If those claims sound a little too good to be true, it's because they are. Almost all the big banks that have taken cash from the Troubled Asset Relief Program have curtailed lending, according to The Wall Street Journal.

One of the intentions behind TARP was for it to be a kind of stimulus program made through the banks. After plugging holes on each bank's balance sheet, the TARP cash was supposed to flow into new mortgages, auto loans, credit card lines and corporate lending. Six months later, it's fair to say TARP money has helped prop up some banks, but it hasn't flowed into the consumer credit markets the way the framers intended.

Now, critics have argued that the banks should be loaning this money to help stimulate the economy. Companies need credit to expand and hire, they say, and consumers need credit to buy products and help feed the economy.

In almost any other economy, this would be true, but not at a time when an overextension of credit created the recession we are fighting. Credit cycles, by definition, are periods where banks overextend credit and then pull back to correct the imbalance. If the government forces banks to lend to at-risk borrowers, we're going to aggravate an already dire credit picture and require more government intervention.

You can easily see how lending to home buyers not worthy of credit would fuel the nation's housing woes and create more housing problems, but what about the loans most people assume are helpful to the economy: small-business loans?

It turns out that existing small-business loans are defaulting at an alarming rate. More than 4.4% of small-business loans were in 30-day default, up from 3.48% a year ago. And 1.29% were delinquent 90 days, up from 1.04% a year earlier, while 0.63% were 180 days delinquent, double the rate a year ago, according to PayNet, a small-business payment network.

It doesn't matter what type of loan; lending into an economic downturn is an invitation to trouble.
Some of the biggest US banks posted first-quarter profits that skeptics assert are based more on accounting gimmicks than healthy operations.

The steep rise in defaults and nonperforming loans suggests that the economy will make it hard for banks to simultaneously set aside reserves and lend more money out. Small businesses will lay off workers before they start missing loan payments, and the unemployed can't pay off their credit cards and car loan payments.

Taxpayers fuming about the banks' unwillingness to loan government money into the system might reconsider, given that the banks are actually being prudent with taxpayer cash. Now that banks have been backstopped by the Federal Reserve and Treasury Department, they have less incentive to scrutinize credit. The risk of bad loans has been shouldered by Washington.

Banks have made a lot of missteps in the financial crisis -- overreaching with credit, misusing taxpayer cash, imposing punitive interest costs on consumers, being insensitive -- but reining in credit is not one of them.

So, when Lewis and his counterparts at competing banks brag about how much lending they're doing, take it with a grain of salt. In most cases, this is posturing by CEOs looking to fend off criticism they're not doing enough to help the economy.

What critics fail to acknowledge is that we all benefit from banks adhering to lending standards. When that doesn't happen, we get financial collapses that compare to the darkest times in our history.

10 Hints to Give Your Customers to Help Them Get a Car Loan

1.Know your credit score. - Get a copy of your credit report. Don't act surprised at your credit issues, or deny them.

2. Have an explanation for your credit issues. - Don’t be apologetic. Bad things happen to good people. Be specific about any problems or crisis that caused your problem. Let the bank know about any major upheaval in your life that may have led to your problems such as an illness or a natural disaster, like Katrina, or 9-11.Make sure that you can substantiate your claim

3. Don’t lie about anything on the credit app. - Lenders will turn reject your loan if they find you lied to them

4. Know your income. - Make sure you can prove what you make. Have your proof readily available. Make sure you know your GROSS income, before taxes, that you can prove.

5. Save your down payment. - More down payment means more car. Larger down payments can sometimes get a lender to view your application more favorably

6. Know what your payoff is. - If you are trading in a car with a payoff, get a ten day payoff from the lender. If you have a warranty or additional policies bought with the vehicle, find out if you can cancel them. This will lower your payoff or entitle you to a refund after the vehicle is paid off

7. Buy what you need, not what you want. - Set realistic expectations. Don’t buy more payment than you can truly afford. Rebuild your credit first, than rebuild your image later.

8. Don’t be argumentative. - Nice people get better deals than people who give sales reps a hard time

9. Don’t go from dealer to dealer. - We all deal with pretty much the same lenders, so excessive inquiries can be a reason a lender declines your application

10. Don't believe everything you hear on the news or read in the paper. - Yes, the auto industry is hurting, and some dealers are having a tough time, but that doesn't mean we're going to do anything stupid or illegal to get you a loan, nor does mean we'll take any offer you make, no matter how ridiculous it is.