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BHPH Underwriting, Scoring, And Static Pool Analysis

Written on December 11, 2006 by Scott Carlson

Establishing underwriting criteria that maximize sales without compromising the collectability of retail installment contracts has been one of the biggest challenges for buy here, pay here dealers for many years. To make matters worse, the BHPH industry is changing complexion at a rapid pace. No longer are dealerships able to be down payment-driven businesses without compromising sales.

As big money continues to pour into this industry, the need for more sophisticated methods of evaluating potential customers and deal structure is becoming a necessity rather than a luxury. BHPH scoring models can be the solution. These models can be designed to maximize sales by focusing more on the prospective customers strengths and less on the down-payment. BHPH scoring is nothing more than the application of numeric values to standard underwriting criteria. Best case, scoring models should not be designed to eliminate repossessions. They should be built wide in scope so that they offer as many prospective customers as possible an opportunity to prove that they will pay for a vehicle.

BHPH scoring should not be confused with FICO®-, BEACON®-, or EMPIRICA®- scores. Credit bureau scores are produced from models developed to access and measure data related to past payment history, amount of debt, amount of credit used as compared to the dollar amount of credit available, length of time credit is established, number of times paid late, search for and acquisition of new credit, and types of credit established. These scores usually range from 300 to 850.

Imagine creating your own scoring model and the number 375 as it relates to your company’s ideal BHPH customer. This score considers his type of residence, length of time at residence, number of residence changes, time in area, type of job, time on job, number of job changes, monthly income, previous car credit, previous repossessions, length of credit history, and credit bureau score. Now, imagine limiting your sales to only those prospective customers that score 375 or greater during the next 30 days. The repossession rate on those accounts would be low and the accounts that do repossess should do so later in the life of the note rather than earlier because all of the customers would be stronger than your company’s ideal. Conversely, if every deal that you originated during the next 30 days scored below 375, you could expect that the repossession rate on that pool of notes would be greater and the repossessions that do occur would do so earlier in the life of those particular notes.

While scoring models can greatly enhance a dealers ability to sell more cars, they can also show a user where to limit risk if the models also work in conjunction with a static pool analysis feature. During each month, BHPH dealers originate retail installment contracts with varying ranges of risk as shown in the example given in the previous paragraph. When using a properly designed scoring and static pool analysis system dealers are able to identify the degree of those variances and the financial impact of such.

  • FAQ

    What exactly is AutoZoom's product or service?
    AutoZoom is a web-based predictive underwriting system designed to assist you with the underwriting and analysis challenges of the buy-here pay-here industry. AutoZoom has created a number of Scoring Models specifically for the sub-standard credit (buy-here pay-here) industry. AutoZoom includes management tools which utilize dashboards, charting, and exporting features to present data related to underwriting, sales, repossessions and associated cash-on-cash gains and/or losses in a very user friendly interface. Additionally, AutoZoom clients are able to issue Adverse Action Letters systematically when credit is declined.
    I already have underwriting guidelines. How is AutoZoom different?
    AutoZoom is only different in the way it applies number values to standard buy-here pay-here underwriting criteria, allowing those values to be used to make more precise and consistent underwriting decisions. AutoZoom is based on more than forty years of buy-here pay-here underwriting experience. Since buy-here pay-here underwriters typically do not use, or capture, numeric values with their credit decisions, they can know their underwriting produces good or bad results, but not why or how to improve their underwriting.
    Does AutoZoom's Predictive Underwriting make decisions for me?
    No. You are in control. AutoZoom simply provides you with numeric indicators that allow you to see more clearly the strengths and weaknesses of each prospective customer and deal structure. Someone will still need to make the final decision on each deal. Typically, upper management in your company will establish minimum AutoZoom numeric benchmarks. Underwriters then use those for approval, eliminating the need for upper management to be involved in every decision.
    Can AutoZoom help me if I am just getting started in the BHPH business?
    Yes. Any company that chooses to use AutoZoom at start-up will avoid the losses traditionally associated with the learning curve of the BHPH underwriting and deal approval process.
    How can AutoZoom help me in my business if I already consider myself a BHPH expert?
    AutoZoom has found that, regardless of level of expertise, all companies can benefit from using AutoZoom. Our larger clients have more than dozens of BHPH lots.
    More

  • Testimonials

    • Consistency is the key to stabilizing portfolio performance and ultimately increasing net profit. We have found that each underwriter brings to the table their own unique experiences and these variations in experiences can simply lead to higher default rates or missed business. AutoZoom lends itself to being an equalizer or sorts. AutoZoom’s effectiveness is not dependent upon the level of experience each underwriter possesses. AutoZoom provides a platform where the customer’s ability, stability and willingness to repay are evaluated in the same manner on each deal, providing a quantifiable mechanism for systematically assessing risk. AutoZoom takes the guess work out of the equation. We have used the model since 2006 and we continue to see improvements with our static pools and the overall performance of the portfolio. So, even if your company already has sound underwriting policies and procedures, adding an AutoZoom model should still bring about more improvements in your business.
      • Mark Bursey, Acquisitions Director
      • 9 Locations
      • 19 Years
      • Maine
    • AutoZoom is the closest thing to cloning my family's 58 years of experience in underwriting. AutoZoom has provided a method for underwriting decisions to be made with consistency and a basis of evaluating and predicting the performance of our portfolio. I have found it easier to benchmark with AutoZoom, verses someone's gut feeling. It amazes me how much better the same deal looks when we are 10 units behind for the month versus 10 units ahead. AutoZoom doesn't factor how many units we have out for the month, it only looks at the factors that indicate the probability of the customer paying.
      • Todd Smith, Owner
      • 2 Locations
      • 63 Years
      • Alabama
    • AutoZoom allows you to dig deep into your portfolio to retrieve priceless information in an easy to operate and understand format. This is the tool that will take you from the guessing game to learning the science of building a successful portfolio. The knowledge and support given by the AutoZoom team is tremendous.
      • Brad Kalivoda, Accounts Manager
      • 2 Locations
      • 10 Years
      • Texas
    • AutoZoom is by far the leader in scoring systems for BHPH. We have seen countless dealers utilize this program to help in the underwriting process. It is really the only one that provides consistent results that you can use to assist in making good underwriting decisions. We recommend AutoZoom for BHPH dealers.

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