All Things in Moderation

Buy Here Pay Here

lmsinca brought this up in the post from last night, but it spawned an interesting discussion, so I thought we should link to all three parts of the series.

Part 1

Part 2

Part 3

Share this:

• Facebook
• Pinterest
• Tumblr
• Print
• Email

Like Loading...

Related

Filed under: Uncategorized |

57 Responses

1. 

   ashotinthedark, on November 3, 2011 at 1:33 pm said:

   lmsinca- If you have time could you add a bit of a narrative under the links, summarizing what these places are? Thanks. I have to get out some contrats this morning.

   LikeLike

   Reply
2. 

   lmsinca, on November 3, 2011 at 1:51 pm said:

   ashot, thanks. I left a comment on the previous thread discussing the liar loans of the aughts. Technically, these places aren't doing anything illegal and I doubt they'll take down the financial system, but it doesn't mean they're doing something ethical. They say they're providing a needed service but I think the rates and the ease with which they are able to repossess the cars should give us pause to evaluate whether they're engaging in at the very least good business practice, or worse a type of loan sharking scheme.The third part discusses other avenues to help working poor or credit risk customers purchase cars that make a lot more sense and there's still money to be made.We run a business and I know a lot about customer service and incentives and what not. We like to make money as much as the next guy but we don't take advantage of our customers even when they're a little down on their luck. We have a growing number of late payers over the last few years and we've still managed to collect the money owed and keep them in inventory so they can weather the storm. It's in our interest to keep everyone in business and not ruin their credit or worse.

   LikeLike

   Reply
3. 

   MsJS, on November 3, 2011 at 2:04 pm said:

   Alas, most economies have pockets in them that leverage differences in power, information and/or access for financial gain. Some would argue that a good chunk of the industrial revolution was based on this.

   LikeLike

   Reply
4. 

   bsimon, on November 3, 2011 at 2:30 pm said:

   The securitization question Scott asked on the other thread is a good one. As I understand it bond buyers are promised cash flow. Isn't that their only legal interest? I'd expect the securitization agency to handle the repo math.

   LikeLike

   Reply
5. 

   ashotinthedark, on November 3, 2011 at 2:35 pm said:

   It would seem that the bond buyers would need most of the loans to be paid off, right? So they would want to avoid the dealers who regular make loans to people who have no hope of keeping the car and dealers who regularly reposses the cars. That said, I do think there is an interesting moral aspect to this and the sister business of payday loans.

   LikeLike

   Reply
6. 

   ScottC, on November 3, 2011 at 2:35 pm said:

   bsimon:As I understand it bond buyers are promised cash flow. Isn't that their only legal interest?I would think so. Hence my point that securitization would likely push the business away from a quick default/multiple re-sales model. And that would be a good thing, no?

   LikeLike

   Reply
7. 

   ScottC, on November 3, 2011 at 2:37 pm said:

   lms…I really want to convince you that the packaged securitizations are not necessarily an unmitigated evil. Do I have any chance?

   LikeLike

   Reply
8. 

   lmsinca, on November 3, 2011 at 2:47 pm said:

   Scott, maybe. And I understand the point re them wanting the loans to be paid off rather than be foreclosed upon. My inherent thought though is that there is something unusual going on, but I know I'm skittish when it comes to these types of deals. The other issue I have is that apparently the dealerships (if that's what they're called) know that 25% of the loans will default so is there a good Buy Here Pay Here versus a bad Buy Here Pay Here issue. And if so, how would the investors be able to tell the difference? And by investor, I mean the guy at the very end of the deal, not the one designing the deal.

   LikeLike

   Reply
9. 

   jnc4p, on November 3, 2011 at 3:26 pm said:

   "lms…I really want to convince you that the packaged securitizations are not necessarily an unmitigated evil. Do I have any chance?"I presume the way to prevent them from being an unmitigated evil would be to require the originators to hold a certain percentage of their paper and also to actually have enforceable buy back provisions for bad originations.Basically what the Fannie Mae and Freddie Mac receiver (FHFA)is trying to do, despite the best efforts of the Treasury department to make a deal on behalf of the banks.

   LikeLike

   Reply
10. 

    jnc4p, on November 3, 2011 at 3:36 pm said:

    Also, we may finally have the solution for the question the Onion posed several years ago:Recession-Plagued Nation Demands New Bubble To Invest In

    LikeLike

    Reply
11. 

    ScottC, on November 3, 2011 at 3:40 pm said:

    lms:so is there a good Buy Here Pay Here versus a bad Buy Here Pay Here issue. And if so, how would the investors be able to tell the difference?I would think that the default rate would have to vary across good/bad operations. Clearly someone who is running a quick default/multiple re-sales model would tend to have a higher default rate than someone who was running a model based on keeping loans active and paying.I would also imagine that someone running a multiple re-sale model wouldn't be that interested in securitizing his loans and selling them as a package in the first place. Once he sells the loan, he no longer gets the benefit of repossessing and re-selling the car. By selling the loans, he's essentially cashed out.

    LikeLike

    Reply
12. 

    jnc4p, on November 3, 2011 at 3:49 pm said:

    OT: Oakland OWS riots last nightPeaceful Occupy protest degenerates into riotProtesters set fires, clash with police in Oakland

    LikeLike

    Reply
13. 

    lmsinca, on November 3, 2011 at 3:52 pm said:

    scottHow would we, as consumers, discover what types of loans are actually in these securitized packages? In other words, what kind of packages are being rated AAA? Maybe I should email Matt Taibbi and see if he can get to the bottom of it, lol.

    LikeLike

    Reply
14. 

    ScottC, on November 3, 2011 at 3:54 pm said:

    jnc:I presume the way to prevent them from being an unmitigated evil would be to require the originators to hold a certain percentage of their paper and also to actually have enforceable buy back provisions for bad originations.In the case at hand, I don't think that makes much sense. As I mentioned last night, investors aren't buying these under the impression that the borrowers are better credits than they are. The whole theory is that, because they are known to be bad credits, the interest rate is extremely high, and if you package enough of them together, the high returns will more than compensate you for the inevitably high default rate. If investors were allowed to sell "bad loans" back to the originator, they would be getting paid outsized returns for taking on risks that they aren't actually taking on. Not only would investors be getting a free option, they would be getting paid for the privilege of owning the option. That's pretty much unheard of.In this case, at least, investors who own loans that end up defaulting can't complain about being deceived by originators about the credit quality of the loans. The whole point of the program is that the underlying credits are bad.

    LikeLike

    Reply
15. 

    lmsinca, on November 3, 2011 at 3:58 pm said:

    scott, this is the comment in the second part that worries me.Although they're backed mainly by installment contracts signed by people who can't even qualify for a credit card, most of these bonds have been rated investment grade. Many have received the highest rating: AAA.That's because rating firms believe that with tens of thousands of loans lumped together, the securities are safe even if some of the loans prove worthless.Some analysts worry that the rush to securitization could lead to careless lending by dealers eager to sell more loans, as happened with many mortgage-backed bonds.

    LikeLike

    Reply
16. 

    okiegirl, on November 3, 2011 at 3:59 pm said:

    O/T to ashot: Saw your comment on earlier thread. I have some very cool info to share about our robotic crawler if you are interested. If so, email me (my email is available in my profile). I am hesitant to just post it here only because it would so easily lead to personally identifying me and we are public. Or if I know you're here I can post and then delete quickly.

    LikeLike

    Reply
17. 

    bsimon, on November 3, 2011 at 3:59 pm said:

    "I would also imagine that someone running a multiple re-sale model wouldn't be that interested in securitizing his loans and selling them as a package in the first place. Once he sells the loan, he no longer gets the benefit of repossessing and re-selling the car. By selling the loans, he's essentially cashed out."Its hard to guess who the agents are in this model. Seems to me the profit is earned in the difference between the interest you're collecting from the high risk borrower vs the interest you're paying on a AAA bond. That agent is taking the risk of being able to repo a salable car from the bad loans. You can then resell that car in order to cover the interest payments to the bondholders. Its about working the spread.

    LikeLike

    Reply
18. 

    kevinwillis.net, on November 3, 2011 at 4:04 pm said:

    jncp4: "OT: Oakland OWS riots last night"Closed down the Port of Oakland. Really stuck it to all those wealthy longshoremen that moonlight as Wall Street fat cats. 😉

    LikeLike

    Reply
19. 

    ScottC, on November 3, 2011 at 5:15 pm said:

    lms:this is the comment in the second part that worries me.I don't see why it should. I find it a little odd that, as the article says, "Some analysts worry that the rush to securitization could lead to careless lending by dealers eager to sell more loans, as happened with many mortgage-backed bonds." If I understand things properly, their lending couldn't really get any more "careless" than it already is. Again, it seems to me the whole point is that these loans are targeting the worst of the worst of credits, people who cannot even get a $500 limit credit card. It is the mega-high interest rates, not the credit quality of the borrowers, that make these securities AAA rated. Of course, I suppose that the analysis of the ratings agencies could turn out to be wrong, if default rates end up being even higher than historical norms. But it seems to me this is very different from the AAA ratings that were being given to residential mortgaged backed CDOs, which were at least in part based on 1) far too optimistic (er, delusional/fraudulent) estimates of the credit quality of borrowers and 2) an unjustified belief that housing prices would forever rise.

    LikeLike

    Reply
20. 

    ScottC, on November 3, 2011 at 5:18 pm said:

    bsimon:Seems to me the profit is earned in the difference between the interest you're collecting from the high risk borrower vs the interest you're paying on a AAA bond.I may misunderstand what is going on, but I don't think that is how it works. When these get packaged together and securitized, the original lender no longer owns the loan. It is owned by the investors. The originator is not intermediating between borrowers and lenders, receiving one rate and paying another. Once the loan is packaged and sold, the originator is out of the equation, and the borrowers pay the interest to an administrator (which receives a fee), which then distributes the interest to the security holders. So there is no one making a spread. At least that is how I imagine these work from what I have read in the article.

    LikeLike

    Reply
21. 

    lmsinca, on November 3, 2011 at 5:22 pm said:

    scott, I think the point of that "Some analysts worry………" is that the dealers themselves, in the interest of making money via down payments ($3000 – $4000) and then selling off the bundles will quite willingly abuse the "system". And then are the investors facing even higher default rates than the 25%? Not every investor is sophisticated in understanding how these securities are bundled. So once again we have bad risks getting loans they can't afford bundled into securities that investors buy without knowing the full details (possibly?) and the guy at the front end making more and more money handing out crappy loans to poor people. It appears to be another recipe for collapse, albeit not on the grand scale of the last one.

    LikeLike

    Reply
22. 

    bsimon, on November 3, 2011 at 5:39 pm said:

    Did article 1 or 3 detail how the securitization works? Someone holds a lien on the car(s) until the loans are paid off. Who is that entity? In any case, the whole deal sounds shady to me.

    LikeLike

    Reply
23. 

    ashotinthedark, on November 3, 2011 at 5:59 pm said:

    Okie- I'll send you an email to follow up on the crawler. Thanks in advance.

    LikeLike

    Reply
24. 

    ScottC, on November 3, 2011 at 6:10 pm said:

    lms:Perhaps I need to learn a bit more about it. But it seems to me that, for anyone looking to make quick money on a downpayment, the only way to do it is to lend to the worst possible credits available, and then hope for a quick default and reposession, so that the process can start over with a new borrower on the same car. This means, first of all, the incentive to lend to the worst possible credits already exists without securitization. Second, if this was your model, the last thing you would want to do is to securitize and sell the loan, because then you cannot repo and resell upon default. All you have made is the difference between your cost on buying the car and the sum of the down payment and the sale of the loan. Which, if you think about it, is pretty much the same as if you had simply sold the car for cash with no loan involved. So I just don't see how securitizing these kinds of loans can possibly lead to even worse lending standards than already exist in this kind of market.Yes, default rates may be higher than what investors anticipate. But I am not sure how unscrupulous originators could cause that to happen. And even if they did, the problem would become apparent fairly quickly, and could never grow into the kind of issue that the housing thing turned into, because, unlike housing, there is no appreciating asset underlying the loan that can mask the failure of the borrower. Finally, if default rates do turn out to be greater than expected and investors lose money, I don't have a lot of sympathy for an investor who involves himself in this kind of security (29% returns?!?!) without understanding the risks involved or the underlying credits. Especially in this post-2008 world, any investor who blindly says "All I need to know is that Moody's rates it AAA" deserves what they get.Oh yeah…one more thing. Anyone with $4,000 for a down payment ought to be able to find some kind of serviceable vehicle to buy outright with no loan involved at all. I just bought a 10 yr old Honda in good shape for $5,000. I find it hard to believe that this Buy Here/Pay Here business involves that kind of downpayment. Seems more likely to be a few hundred dollars, if that.

    LikeLike

    Reply
25. 

    ScottC, on November 3, 2011 at 7:21 pm said:

    lms:BTW…just to clarify, I know the article notes the size of some of these downpayments. It just doesn't make sense to me. My first question would be, why did you make a $4,000 downpayment instead of just buying a $4,000 car?

    LikeLike

    Reply
26. 

    lmsinca, on November 3, 2011 at 7:42 pm said:

    scottYou corked my comment to you yourself…….that's a first. I think what I know is that I'd like to know more. Did you read the part about the unintended consequence of "cash for clunkers" removing a lot of the really inexpensive used cars off the streets, cars that normally cash strapped people could pick up for a few thousand. I'm assuming they require a down payment or since the interest rates are so high even a small loan can run into hundreds of dollars a month payment, so the people buying them come up with some sort of down payment to buy down the loan amount.There's a lot of people out there with bad credit now because they were foreclosed on but still have jobs and income, so I think we need more information. I'm highly suspicious, as you can tell.

    LikeLike

    Reply
27. 

    ashotinthedark, on November 3, 2011 at 8:13 pm said:

    "Did you read the part about the unintended consequence of "cash for clunkers" removing a lot of the really inexpensive used cars off the streets, cars that normally cash strapped people could pick up for a few thousand."Removing those inexpensive cars also hurt by simply decreasing the general inventory of used cars. So the cheap cars were gone and whatever cars remained generally went up in price. I would tend to agree with you, lmsinca that the bigger down payment was necessary to keep the monthly payments a bit lower. I would also add that people often are not particularly smart (as you noted) and are also naive. If they were smart, Kevin wouldn't get the credit card perks to take his family on a cruise.

    LikeLike

    Reply
28. 

    okiegirl, on November 3, 2011 at 8:29 pm said:

    Maybe kevin could take all of us on an ATiM cruise instead of his family. Seems only "fair" to me, and I do love the Fairness Fairy.

    LikeLike

    Reply
29. 

    ScottC, on November 3, 2011 at 8:35 pm said:

    BTW…I want to know which one of you clowns gave my e-mail to the OWS people. I've suddenly started to get e-mail updates from "OWSnews.org – News of, by and for the 99%". Ugh. Obviously they haven't done any due diligence on who they are marketing to.As soon as I find out who the joker is, you'll soon be gettinga year's subscription to The Weekly Standard.

    LikeLike

    Reply
30. 

    ashotinthedark, on November 3, 2011 at 9:12 pm said:

    ScottC- It wasn't me. And I don't think it's funny. I mean I definitely didn't laugh when I read your post…not at at all.Oh and furhter evidence that Detroit is a great city: They are protesting Nickelback playing at halftime of the annual Thanksgiving Day game.

    LikeLike

    Reply
31. 

    Michigoose, on November 3, 2011 at 9:12 pm said:

    T'wasn't me, Scott, I swear!okie–where should we go?

    LikeLike

    Reply
32. 

    lmsinca, on November 3, 2011 at 9:16 pm said:

    Wasn't me scott, I don't even get email from OWS, but I do get about 30 or 40 other unsolicited emails every day, uggghhh. I do think it's a tiny bit funny though.I've never been on a cruise and I really think it's about time…………anywhere but Mexico. Every time I think of Mexico I feel like crying.

    LikeLike

    Reply
33. 

    lmsinca, on November 3, 2011 at 9:17 pm said:

    scott, maybe it was kite? Let's blame it on the new guy.

    LikeLike

    Reply
34. 

    Michigoose, on November 3, 2011 at 9:21 pm said:

    Yeah! lms has it right, let's blame it on Kite!!

    LikeLike

    Reply
35. 

    lmsinca, on November 3, 2011 at 9:26 pm said:

    michiWe're making a quick turn around trip to Cedar City, UT this weekend. Unfortunately, we don't even have time to stop in Vegas on the way home. Driving out Sat and back again on Sun, to deliver our daughter's dog to her. I'll be back to just the puppy again, yay. I'm too old for two dogs anyway.

    LikeLike

    Reply
36. 

    okiegirl, on November 3, 2011 at 9:27 pm said:

    No, I think I liked Kite. I think CF or someone else from PL got on here and pulled Scott's email (assuming it is on his profile). I truthfully cannot imagine who on AMiT would have done it.

    LikeLike

    Reply
37. 

    ashotinthedark, on November 3, 2011 at 9:31 pm said:

    lmsinca- Why does thinking of Mexico make you cry? A friend of mine just put up picture of a trip he just made to Oaxaca where I studied for a semester and had me remembering some good times I had there.

    LikeLike

    Reply
38. 

    Michigoose, on November 3, 2011 at 9:34 pm said:

    Have a good drive, lms! Shame you can't come a little farther north and that I'm tied up on Saturday or I'd think about scooting down south real quick. Maybe next time. . .Okie, I liked Kite, too. We're just ribbing him (assuming he still comes by to read the comments). Something like this is too benign for most of the folks from PL to have done. Are you using a new e-mail just for this site, Scott?Although benign does not equal funny. . . just that I think they'd do worse than sign him up for OWS newsletters.

    LikeLike

    Reply
39. 

    lmsinca, on November 3, 2011 at 9:35 pm said:

    ashotBecause I love Mexico and the people and what's happening down there is just so sad to me. So many of our friends and members of our family have contact with people there and it's really depressing what's going on. Unless you travel to one of the tourist areas, which we've never done even though I've spent a lot of time in Mexico, it's not safe anymore. And the people are suffering because of it.

    LikeLike

    Reply
40. 

    okiegirl, on November 3, 2011 at 9:35 pm said:

    Michi, as long as kevin is paying, we might want to make it exotic. Where on earth (literally) is safe at the moment?

    LikeLike

    Reply
41. 

    okiegirl, on November 3, 2011 at 9:39 pm said:

    lms, I cannot believe it but I have never been to Mexico. And one of my good friends used to live there half the year. It still makes me think of the Don Juan series of books oh-so-long-ago.

    LikeLike

    Reply
42. 

    Michigoose, on November 3, 2011 at 9:43 pm said:

    I loved Mexico the one time I went, but that was many moons ago when I was safe to be a naive Midwestern teenager with a good grasp of the language but no notion of how to bargain. The worst that could happen was you spent more than the locals when you went to the market.okie: Australia? It's spring down there now.

    LikeLike

    Reply
43. 

    Michigoose, on November 3, 2011 at 9:43 pm said:

    "I" = it

    LikeLike

    Reply
44. 

    okiegirl, on November 3, 2011 at 9:46 pm said:

    Australia . . . I LIKE IT! So who is going to tell Kevin he better start charging that card to the max? He's going to have to come up with a lot of points or whatever.

    LikeLike

    Reply
45. 

    Mark in Austin, on November 3, 2011 at 9:49 pm said:

    "Michi, as long as kevin is paying, we might want to make it exotic. Where on earth (literally) is safe at the moment?"Vancouver, BC + Victoria + Olympic Range WAMauiSan Francisco – Napa – YosemiteUS, CA, and Swiss ski resortsLa JollaFlagstaff and rafting through Grand CanyonAsheville, NCMontreal/Quebec CityTahoeAmerican beachesWashington DCSanta FeAmerican and British Virgin IslandsEdinburgh August FestivalFlorence, ITVenice, ITRome, ITLake Como, ITFrench wine countryRhine cruiseDanube cruisePragueParisThe Big Bendfor starters

    LikeLike

    Reply
46. 

    Michigoose, on November 3, 2011 at 9:49 pm said:

    Let's have Scott or Brent spring it on him. He respects their financial opinions, and they'll be able to convince him that it's a good deal.

    LikeLike

    Reply
47. 

    Michigoose, on November 3, 2011 at 9:51 pm said:

    Mark–are you up for Australia (although your list is enticing, particularly Edinburgh)?

    LikeLike

    Reply
48. 

    kevinwillis.net, on November 3, 2011 at 10:00 pm said:

    "Michi, as long as kevin is paying"You can stop right there. I live in a house with 3 women. I'm all payed out.

    LikeLike

    Reply
49. 

    Michigoose, on November 3, 2011 at 10:03 pm said:

    And then you go and get yourself a bunch of blog buddies that are also estrogen enriched. . . what were you thinking, Kev??

    LikeLike

    Reply
50. 

    kevinwillis.net, on November 3, 2011 at 10:09 pm said:

    "Maybe kevin could take all of us on an ATiM cruise instead of his family."That's about as likely as the OWS kitchen sharing food with the homeless. Less likely, even.

    LikeLike

    Reply
51. 

    kevinwillis.net, on November 3, 2011 at 10:09 pm said:

    "And then you go and get yourself a bunch of blog buddies that are also estrogen enriched. . . what were you thinking, Kev??"That I can say no to you, and it doesn't matter anyway. Can't squeeze blood from a stone. 😉

    LikeLike

    Reply
52. 

    lmsinca, on November 3, 2011 at 10:16 pm said:

    markI'm not going on a cruise to La Jolla, I can get there in about 40 minutes any time I want. You know what we did a couple of times was rent a houseboat on Lake Mead. Now that was fun. We towed a ski boat and spent the days fishing or skiing and the nights, well, we won't go into that. On one of our trips friends of ours actually decided to get married while we were there and off we all went to Parker and a Justice of the Peace. Unbelievably, they're still together.

    LikeLike

    Reply
53. 

    Mark in Austin, on November 4, 2011 at 12:48 am said:

    Add Sydney, Melbourne, and Brisbane.Add all of NZ!

    LikeLike

    Reply
54. 

    ScottC, on November 4, 2011 at 12:55 am said:

    Kevin:I live in a house with 3 women. I'm all payed out.I got you beat. By one. Two if you include the dog. Three if you include the cat. And I'm not even a Mormon. It's a hard life.

    LikeLike

    Reply
55. 

    ScottC, on November 4, 2011 at 1:04 am said:

    Mark:Have you been? Sydney is a great city, but I never made it to Brisbane or Melbourne. Port Douglass is worth it as well. New Zealand was spectacular…Queenstown especially.

    LikeLike

    Reply
56. 

    Mark in Austin, on November 4, 2011 at 2:04 am said:

    My sister spent an academic year in Melbourne, but I have never been. Sydney is on my bucket list after Yosemite.Maui twice is as close as I have been.I live with four women, counting the 2.75 year old twins.

    LikeLike

    Reply
57. 

    lmsinca, on November 4, 2011 at 2:30 am said:

    My husband was in the same boat you guys, once the two oldest left home (the boys) he was surrounded by three teenage girls, me, and various female dogs and cats. He tried to talk me into getting a male dog when we got our puppy this year, but luckily I fell in love with another female and he couldn't break my heart, lol. I win again.

    LikeLike

    Reply