Saturday, March 24, 2012

Unemployed? Be a Repo Man!

The big-time financial institutions are paying less than ever to have vehicles repossessed in the event of a loan default.

In the movie Repo Man Otto gets fired from his boring job as a supermarket stock clerk. Depressed and broke, Otto wanders the streets until he falls in with Bud, a seasoned repossession agent (a "repo man") who is working for a small automobile repossession agency. Although Otto is initially disgusted by the concept of repossessing cars, his opinion rapidly changes when he is quickly paid in cash for his first "job". Otto soon embraces the fast life style, the drug use, the real-life car chases, the thrill of hot-wiring cars and the good pay.

But that was only a movie. And times have changed.

When the economy cratered in 2008, a record number of car owners were unable to pay their bills after borrowers had a hard time finding work. In many cases, their auto loans had been securitized and sold off to investors, à la the mortgage debacle. But recently, the number of auto repossessions has fallen due to tightening credit standards.

Tom Webb at Manheim reports that in 2011 there were 1.3 million auto repossessions, in 2010 there were 1.5 million, and in 2009 there were 1.9 million - - that's almost 5 million repos in the last 3 years after the economy collapsed in late 2008.

Compared to Repossessed Homes

RealityTrac had commented that 70% of current mortgage defaults are currently not listed in the MLS. They are kept off the books because it would impact the economy which would cause catastrophe in the stock markets and our dollar.

Recently RealtyTrac released its Year-End 2011 U.S. Foreclosure Market Report™, which shows that a total of 2.7 million foreclosure filings (default notices, scheduled auctions and bank repossessions) were reported on 1.9 million U.S. properties in 2011 alone.

Bloomberg News had reported that a record 2.87 million properties got notices of default, auction or repossession in 2010. Of those, banks have seized more than 1 million homes in 2010, according to RealtyTrac.

To postpone the pain of more foreclosures, homeowners are now being offered a chance to rent their homes before the properties are eventually sold to investors.

Meanwhile, auction houses have been busy thriving with bargain hunters on foreclosed homes. People from around the world have scooped up houses that are often sold for less than half of the value of the mortgage. (More on foreclosures, robo-signing, and the mortgage servicing settlement via the New York Times)

According to insurers, lawyers and longtime repo agents, the big-time financial institutions as a group are paying less than ever to have vehicles recovered in the event of default.

The established repo agents believe the penny-pinching banks have pitted them against one another, as reputable firms struggle to do the job on thinner margins, because those who are unemployed are willingly take on cheaper work.

Novices work on a flat-rate contingency basis: $70 for each involuntary repo, $30 for each voluntary repo, and nothing if no repo occurs. The bar to entry into the repo business is extremely low. Most states don't require special licensing or training to carry out a repossession. And they are nobody's employee, they work as an independent contractor, so are responsible for paying their own taxes.

One of the first things repo companies lost was reimbursement for mileage. Lenders used to cover the cost of travel, making long-distance repos more feasible. No more, agents say.

Lenders also used to cover the repo agency's cost of holding on to a repossessed car until it could be auctioned off. Now all too often, the agencies are storing those cars for free.

Also gone are the payments many repo companies received for cutting keys for the cars they repossessed. Now, many lenders demand that the companies cut keys gratis -- even though modern electronic keys can run several hundred dollars apiece.

Several lenders with large auto loan portfolios, including Bank of America, Santander, Ford Motor Credit and Toyota Motor Credit declined to discuss how they carry out repossessions. In most cases, lenders don't need a court order to repossess a car, as they often do if they wanted to foreclose on a house.

Big lenders like to use what's known as "forwarding companies" (a middle man) because it's more convenient: The banks can unload all their past-due accounts to a one-stop shop that takes care of finding repo agents and, in some cases, even auction off the repossessed autos - - all at one low price. (Cars, just like homes, are usually auctioned off - - sometimes near 50% less than the outstanding balances on the loans.)

Dave Jamieson at the Huffington Post shares his own personal history in an epic story on violence in the repo industry. "Repos Gone Bad: Are Big Lenders To Blame For Driveway Violence?"

To find repo-related violence, Americans need look no further than cable television. Every Wednesday night at 9 p.m., Turner Broadcasting (on truTV ) airs a program called Operation Repo.

* Editors Note: I'm only guessing here, but I suspect that the banks are first concentrating on the new and late model cars with the least amount principle paid down. And that a 10-year-old car with a 5-year loan that's half paid off may go to the bottom of the list of proprieties for a repo. Always keep your car locked in the garage ;)

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