does anyone know how prepayment rates should differ for Direct Loans vs Indirect Loans? and how consumer loan prepayments should compare to mortgage prepayments? any ideas? thanks guys
Mortgages tend to have greater prepayments because when you sell a house the mortgage gets paid off. There is less prepayment risk on consumer loans because not many people will sell their flat screens to pay off their cards.
lord_ek0 Wrote: ------------------------------------------------------- > Mortgages tend to have greater prepayments because > when you sell a house the mortgage gets paid off. > There is less prepayment risk on consumer loans > because not many people will sell their flat > screens to pay off their cards. True, but consumer loans are usually much smaller than mtgs, and interest rates are much higher, so people will pay off with cash when they can. People will also try to consolidate this type of debt too with those debt agencies leading to additional prepayments. I don’t see why there would be a huge prepayment difference between Indirect and Direct consumer loans. Maybe Indirect would be slightly higher since people are unlikely to have a strong relationship with that bank. I believe it would be hard to get a true apples to apples comparison. Are you talking about secured (most likely automobile) or unsecured consumer loans/LOCs?
thanks guys! im talking about both secured and unsecured loans, but i guess prepayment behavior would probably be pretty different for secured vs unsecured?
Yes. I think it would be hard to infer anything about the prepayment speed on these types of loans without knowing too much about them or if you have specific securities in mind. You can’t categorically say unsecured is faster than secured, etc.
thanks serviced by others, i think the majority of the consumer loans i would be looking at are auto loans. would it make sense that maybe direct loans have higher prepayments because of the buydown discount that ppl with indirect loans get sometime?
jimjohn Wrote: ------------------------------------------------------- > thanks serviced by others, i think the majority of > the consumer loans i would be looking at are auto > loans. would it make sense that maybe direct loans > have higher prepayments because of the buydown > discount that ppl with indirect loans get > sometime? Direct auto loans are a pretty wacky product since most people just use the indirect loan from the dealer with all the discounts they give (as you mentioned) and the fact that the dealers can take bids from multiple lenders. Direct loans are often for a private auto sale. You are right in saying that the lower initial interest rate will drive down the prepayment rates for Indirect, but there are too many other unknowns to conclude much about the average prepayment rate for direct vs. indirect. Banks will also manage these two portfolios in different ways depending on that bank’s particular strategy. That can also influence prepayment rates.
thanks!