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ConsumerFi Podcast: The Credit Chronometer with Joseph Cioffi

June 1, 2022

Episode 2


Joel welcomes Joseph Cioffi, Partner and Chair of the Insolvency, Creditors’ Rights & Financial Products Practice Group at Davis & Gilbert, to discuss his Subprime Auto Loan Credit Chronometer, a must-read survey that analyzes credit ratings, credit enhancements and credit quality to provide a quick view of risk in the market.


Joseph is a partner at Davidson Gilbert, New York City, where he is the chair of the insolvency creditors rights and financial products practice group. Joe has a unique perspective on credit market cycles and he shares his learnings in credit chronometer. It’s a resource dedicated to analyzing the effects of marketplace events, on future performance, specifically within the securitization markets.

Uh, I’m really excited to have Joe here, Joe, welcome to the pod. Joel, thanks so much for having me. It’s good to see you again and hear your voice again. It’s uh, it’s been a while. Appreciate the chance to talk to you. Yeah, it has been a while now, Joe, you and I met. At the NAF conference, was it last year we were doing some fraud panels and you were kind enough to join us and share your insights.

Yeah. You know, time goes by really fast and, you know, looking forward to being part of the NAF conference, the virtual conference this year. Times have certainly changed since the last time we saw each other. Um, so we’ll handle things a little differently this year, but yes, that was the fraud panel. I think that that kind of was all received at the conference.

So I’m glad we’ve been able to keep our relationship. Yeah, absolutely. I won’t steal any thunder. I’m actually going to. Be interviewing Jack, uh, tomorrow, uh, for the podcast. And we’ll get into some of the agenda items. It’ll, it’s always nice to press flesh, but we’ll, we’ll do things virtually. Yeah. Joe, can you tell us a little bit about credit chronometer and how, how you started it?

Sure. You know, it’s really been, you know, it’s a real gratifying experience, just, you know, for background, you know, we’ve been in my firm and in my practice we’ve been involved in residential mortgage backed securities for about. 17 years, you know, back from the heyday when new originations were, uh, going wild and, and, you know, just every, every wonder one would be in the game in securitization.

And, uh, we follow that whole cycle through from the strong days, uh, and the volume that was before 2007 financial crisis. And then when the financial crisis. This hit then having to deal with the distress of originators. Um, and in investments, the bankruptcies, uh, holding distress loans on the lender side, and now what’s happened over the years is all the fallout of all the litigation from investors and trustees and parties even suing each other.

All the costs of the losses that were a result of the financial crisis. And since we saw that over so many years, the idea that we had was that we’ve got an awful lot of learning in residential mortgage backed securities, which is very relatable transferrable to. Other credit markets where we can see some of the, some, some of the same issues, either in play or potentially could be at play, uh, going forward.

And we’d like to see if we could help folks through our own learning over the years, how can we help out there either, you know, work their way through problems or avoid problems going forward. And one of the key areas we looked at was subprime auto because there are some similarities there differences to be sure.

Uh, but also with the soulmate act similarities, we wanted to start talking about what we’ve seen and how it relates and try to keep people out of trouble and try to help folks. And so we started credit chronometer back in middle of 2017. It was well-received. I think we started out. Our first analysis of the sufficiency of credit enhancements was actually picked up by a Wells Fargo industry analyst who responded to it right away.

I pick the car, kick the tires, so to speak on the market and then said, you know, I think things are still okay here for now, but let’s keep an eye on it because of this lawyer happens to be right. Uh, we all have been very careful. Um, and I, I love the way that you bring forth these multiple perspectives, the different contingencies that participate in the securitizations.

And what was really telling to me when I read the report is that, uh, sometimes people move together, but a lot of times they have different, they have different, real different forecasts on where they think things are going. Yeah, no, that’s a great point, Joel, because sometimes we just tend to look at things on the surface and we’ll say, well, 80% of participants believe that the market will deteriorate.

But then if you just scratch a little bit below the surface surface, and you’ll look at the constituents, you look at the originators versus investors and trustees and servicers. You see each one has their own unique perspective. Uh, and, and what we really found over time is that. You know, back in 2019, there wasn’t that much different between our first survey in 2019.

That wasn’t that much difference between the way the groups saw the issues, but as we’ve moved forward. And now through the pandemic, you see a lot of divergence between, for example, servicers and trustees, who tend to be mainly more optimistic than investors and originators. And then even within that, you break it down a little further and you say, Trustees have their own concerns versus servicers investors have certain concerns versus originators.

It’s like, we’re all kind of, um, Dividing in a way, all these groups have somewhat dividing with their own take on the pandemic and, and, and the future. Um, and, and something we saw in the last survey too, is that it seems that when folks had a strong view of something, well, the pandemic is pushing them to an extreme, if they were ambivalent before.

Probably stayed in bivalent, but to the extent there, what we saw sorted direction, we saw that direction just really get heightened, you know, and the concerns get an height and that’s not, I guess that’s surprising or what happens when you’re, you’re pushed to the, uh, to the, to the uncertainty that we have going on right now.

Yeah. And I actually like seeing the diversity of opinion among these groups, because I, I’m kind of one of these guys, it feels like when we all move together, we turn into lemmings. I mean, we just lose a lot of the periphery. Uh, the things that matter. So within this, uh, we talked, we talked about the constituencies.

You’ve got your originators, your servicers, who are the other constituents that you survey. Yeah. So we really wanted to give a 360 degree view of the market. So we tried all the Mar all the main groups. So we talked to the, the originators, the lenders who, who will make the loans that go into the securitizations.

We talked to the investors, we talked to the servicers who may or may not be lenders themselves as well. But we talked to servicer. We talked to the trustees who represents the trust. And we talked to, well, we got broad category of other, which is made up of lawyers and consultants and advisors. And that’s where we saw some of the differentiation of opinion between them.

And then within the report, you have a couple of you, you have, you have three characteristics that you’re looking to measure, right. In terms of, uh, looking at the health or the forecast, forecasted health of the securitizations. Tell us about those three measures and how you came up with them. Okay. Uh, well the three measures are, I call it, uh, the three fees cause they, uh, their credit ratings, credit enhancements and credit quality.

So you put those three together. And we said, basically it’s like seeds to the third power because those three factors all work together in a securitization. They’re all related to each other. So what you should have in a very, a healthy, successful securitization, you should have. Credit enhancements, those protections to investors, those credit enhancements should reflect the credit ratings and the credit quality should be supported by the credit enhancements.

And the credit ratings should reflect the degree of the credit quality as in the credit enhancement. So they all play off of each other in a successful securitization. You can have a, um, Uh, circumstance where they diverge, where maybe you’d say, you’d see over time, a sponsor of securitization, their credit quality has gone down, maybe most noticeably from their, uh, from the average FICO score.

And if you don’t see credit enhancements rising to offset those that decline in credit quality, you most likely would see a decline in credit ratings. If you don’t see that decline in credit ratings, you have to assume that there’s some other. Uh, different there’s something going on in the environment that the credit rating agency sees, uh, with either the attributes of those loans or something in the, in the market that enabled them to give the same ratings with a lower credit quality and not offset by higher credit pants.

But. So that’s just directionally at a very high level, how you would expect those, uh, uh, the C3 to work together. But of course it gets very complicated on the below the surface of all the things that go into credit ratings and credit enhancements. And maybe just for the audience, just to explain a little bit about, well, credit enhancements themselves.

So, you know, credit enhancements, when we speak of them, there are different categories of them. Um, one very important category is overcollateralization, uh, or you’ll see the term OSI or O slash C. That’s basically the excess of loans that are put into a trust over and above what the investors pay for it.

The idea is that there’s a whole push in now within the securitization, but by putting in all these additional loans that there are. Default on there as well. Those loans, you still have to get through all that additional principal and all those additional payments that are coming in versus what investors paid for, that, our cushion for the trust and a cushion against investor losses or losses flowing through to them.

Um, there’s another category called excess spread, which is simply really the difference between what the interest rate is on the, on the mortgage loans coming into the trust. And what the trust pays out to the investors. Um, and there are others including the accumulation of a reserve account, um, and subordination.

So if you are a, a senior investor, you have all these subordinated tranches below you, which also protects you as well. Um, and what we found over time, too, is that in, in the residential mortgage backed securities market, especially subprime RMBS when we had the financial crisis. Uh, one of the reasons for the losses suffered by investors is that not only Wars they’re these credit enhancements that were weren’t sufficient for the widespread defaults that happen, but they’re also supposed to be equity in the property themselves, right?

In the collateral. They’re supposed to be lower, you know, loan to values that provided a cushion with respect to residential mortgage loans. But when the market seized and there, and. And the real estate market prices, the real estate crash that equity went out the window and all the investors had to rely on then were those credit enhancements in the deal and they just weren’t enough.

So what you’ll find in subprime auto is that the credit enhancements and overcollateralization. Directionally are much higher than they were with respect to subprime RMBS. And it’s one of the reasons why, um, if you talk to folks who were very optimistic in subprime auto, they’ll say, well, we’ve never suffered a loss.

And we don’t think we run a suffer a loss because those credit enhancements are so much higher and there’s so much higher than they were with respect to subprime residential security. So. Um, you know, we, we feel confident going forward. Now the quite big question is going to be whether or not these credit enhancements can really withstand the mother of all economic shocks that we’re going through right now.

Yeah, I’ve never really tracked the securitization markets as much as I have within the past couple years. So I’m kind of one of these, uh, guys that groks anything I see coming out from Crowell and I saw Croll did kind of an en masse broad a view said, Hey, we’re putting all these guys on watch list.

Have you been tracking that Joe as well? Yeah. You know, there, there have been, um, significant number of downgrades, slightly it’s family Crowell, um, being very active they’re they’re on their either been downgraded or they’re on watch, but downgrades, um, you know, I, I actually find that that’s heartening to see and, you know, I’m glad you know, what happened with.

Uh, ratings, uh, back in subprime RMBS days, you know, it was all after the fact, it was like just the things happen so quickly and fell apart so quickly. And it was really, you know, everyone was caught by surprise and split. The credit rating agencies are only looking at what they have in front of them today.

That’s all they can do. You can’t ask them to do anything more than that. Um, and, and, and looking at making a risk assessment and on credit quality and the credit worthiness as we stand today. But I like to see that, you know, Croll is really taking an active, um, view and, and watch of what’s going on and the potential deterioration that that could happen.

And we can get into some of the results on the survey. You can see that market participants are certainly expecting. The, you know, the, the market to deteriorate going forward. I mean, there’s, there’s no question that they’re expecting it in terms of performance question is whether or not will it just be the same story as it’s been in the past that investors get to continue to, you know, ride this out because of all those enhancements and protections in the deal.

Yeah, that’s a perfect segue, Joe. So I, um, as you know, I studied your, your latest survey, which was conducted, uh, or, or produced back in June, you know, I, I think it’s interesting for us to discuss what you had in that, uh, uh, I’ll call it kind of a baseline and it’s obviously in the middle of COVID. So there’s things that we can glean from that.

I think that it’s, it’s really relevant right now. So at the broad level, what were the major themes that you found within your 2020 survey? Well, you know, what’s important to note is that I think we, um, we, our first survey was done in the middle of 2019. And when we came out in 2020 and about, um, February, March timeframe, we thought that would be our only one second annual survey for this, you know, for, for this year.

Uh, but COVID hit just as we were closing the survey. Uh, and so we went back out to the market again, and those are the results that you’re speaking of. Uh, Joel is that’s when we went back out and we did the COVID error test. So then we could survey so that we can really compare the results in COVID or at least the early stages of COVID versus pre COVID.

And then versus today, 2019. And what we found is that in 2019 and an early. Or 2020, or right before COVID hit. Um, the real concern that, uh, all participants had was the reframe that we, we constantly heard was that subprime borrowers are vulnerable to economic shocks. Right? So even if we believe the underwriting is solid, um, and we believe the credit enhancements are protective.

The, uh, the, the subprime borrow itself is always going to be vulnerable, more vulnerable, the rest of the, um, the credit markets to, to, uh, conomic shocks. And the difference though, in our COVID error last survey is that we see a move from not just the concern about macroeconomics, but specifically about unemployment.

So that’s a, that’s a real change, right? Cause that’s something that we, we knew there was a concern out there and all of a sudden, now we know what the boogeyman has appeared and the boogeyman is unemployment. Um, and so that’s not a change in the overall direction of how participants were seeing the subprime borrowers and the market, but it was at least, you know, an awareness now of.

An issue that everyone’s going to have to deal with specifically unemployment. Um, and going off of that concern, we saw that more than three quarters of the market across the board and, and the categories of participants think that performance is going to deteriorate going forward. Um, again, not, not a surprise given what’s happened, but I think one of the things that did, did shock us a little bit.

So is that in the covert error, we didn’t find. Uh, folks feeling so much more afraid or concerned than they were pre COVID existed. There’s a, there’s a moderation in the results. I mentioned earlier, like some folks, if they had a strong view and maybe it got stronger, but for the most part, um, we didn’t see like, uh, you know, when we look at categories of responses of how likely something is a very likely, we didn’t see on deterioration that folks were thinking of deterioration was very likely.

So it’s more than a third of the respondents were. Moderate in their response. And I think we can all say that’s a little bit surprising. Um, but you know, if you look at it in terms of the resiliency and as a buzzword for 2020, we hear a lot of resiliency. But when you look at the 2020, um, the resiliency of the market in the past, you know, I think that’s, what’s accounting for the moderation of any pessimism in this year.

Uh, and, and so that’s a recurring theme throughout all of, you know, all of our questions that we, we solve for 2020. Uh, and it’s one of the reasons where we’re going to go out again, uh, for the fourth quarter, very soon, we’re going to go out to the market and we’re going to do the same survey. Uh, maybe a little more pointed questions now and let’s see where everybody is today.

You know what let’s, let’s see how everyone’s feeling with several months into this pandemic with, you know, not really, not really a clear end in sight, right? So as we dive into the three CS, you’ve got your, your credit ratings, your credit enhancements and your credit quality. Let’s dive in a little bit on, on those three components.

So first with credit ratings, What were some of the things that you, that you saw from the most recent survey? Okay. Well, well for credit ratings, here’s a, here’s an area where you, a lot of divergency and in, in the constituents, um, no were found originators were most concerned that downgrades would occur, but the investors were the most certain that they would occur.

Right. So I think about that likely, or very likely they were the most certain that downgrades were actually going to, uh, what happened this year. Um, and then when you look at how important credit ratings might be to any participants, uh, something that was of surprise, I think if you don’t really get into the market and the, and what’s been going on in terms of litigation, you can be very surprised by this, but trustees responded that, uh, against all other groups, that credit ratings were most important to them.

Their continued participation in securitizations was more dependent on credit ratings than any other group. And, um, I’m wondering if folks can, can think of a reason why that might be because we have our own, you know, without speculation, uh, and ours is that it’s because of the legal exposure that trustees have had in the residential mortgage backed securities space know that when the right one, there was fraud claims and repurchase claims that were made on by investors on behalf of investors.

So in a repurchase claim, you know, investor goes to the trustee and says, you know, I, I want you to. Uh, forced the sponsor to buy back loans. I’ve suffered. We suffered damages here. There’ve been breaches of reps and warranties, and they have a repurchase obligation and the trustee might go out and start that litigation.

Well, those same investors turned on the trustees and said, trustees, you didn’t act fast enough. You should’ve brought three purchase actions a lot sooner than you did. You’ve reached your fiduciary duty. And I, I still, I, my I’m speculating here, but I think that, right. So I think trustees are now sensitive to credit ratings because they are an indicator of credit, quality and credit worthiness and risk profile.

So it makes it easier for them to say, like, I, I. Yeah, I’m, I’m going for the top notch deals, right. If I’m not getting into double B deals or I’m concerned about double B deals, right. And so that might be what’s going on there that trustees are most concerned about ratings and, and any other group in terms of the importance for the continue working in the area.

Yeah. And it, it, it made sense to me in the study that the servicers were the least moved out of the out of comparatively, because I think they think they’re, they’re rolling up their sleeves. They’re seeing it every day and there’s kind of nothing new under the, I think that’s absolutely right. And, you know, we had, um, uh, webcasts with someone, Sean Morgan from Westlake financial.

Uh, and I asked him that question, you know, cause that’s exactly what I was thinking as well. And he echoed that pretty clearly and they had a front row seat with control come some confidence. Right. And so if we can actually react to the, to the borrowers in real time, you know, we have, we can actually take some steps to mitigate losses to now court, you know, it’s like, we, we, we can handle this.

Right. So they’re less concerned about the credit ratings. In terms of credit enhancements for your second C it looked like the respondents across all the, all the categories were relatively aligned. Yeah, I think that’s, I think that’s right, Joel. Um, you know, but for the most part, I think it’s around, you know, three quarters of the participants really, uh, think that the credit enhancements are going to have to improve in order to keep, uh, the ratings bullets.

Really interesting here though, is that so most participants think that credit enhancements are going to have to go up to get the desired ratings. And yet most participants also think that the credit enhancements are going to be sufficient.

Good enough. We want, we want all, we want all the economics, right? Yeah. It’s like, it’s the, it’s the other guy. And he, we saw this over the last three, you know, here’s what I think for myself. Here’s what I think other folks are gonna are going to, any credit ratings are maintain your credit ratings.

They’re going to have to increase credit enhancement, but we think there are, what do you think they’re sufficient? So we think they’re okay. So that we’re thinking about what the market wants. The market wants the enhancements to go up. And this one, there was, there was a split. I should take it back that they didn’t all move together.

The other group, which are the consultants and advisors, they had a much more gloomy view. Have you been able to figure out why that is? Well, it depends on who you ask since I’m part of that other group. Um, you know, and you know, just for the, for the most part. The other group in all three surveys really, uh, went along.

Like there was really no divergence to the other group versus what the other participants thought. But this question in particular, there was that going in the opposite direction. And I put that question to, uh, one of my panelists on, um, on that webinar. Um, I noticed, uh, the auto and CBRS, uh, you know, what’s going on.

Are you about to tell us that us, you know, lawyers and advisors. I don’t know what’s going on. Why is it that we’re more pessimistic than, than the actual, you know, the participants? And she was kind enough to not put it that way. And she just said, you know, we were in this and we have, we’ve seen over long time.

That the credit enhancements have held up the losses haven’t, um, flow through to investors for the most part. Um, and we see the resiliency in the market and we’re comfortable with the protections that exist right now and the folks who are not necessarily in and then crunching the numbers and all the market data.

Maybe on the surface, things look worse than they really are to those who have that experience, which I thought was a nicer way of saying, Oh, and I said, it was like w jr. On the outside. So we don’t. So we don’t understand. Yeah. Yeah. It’s like the opposite of what the servicers have. The servicers are so close to it, you know, maybe you have a fear that since you’re not in it, that it may kind of change your point of view.

And you know what so tell that’s a real, so it’s real interesting point though. It’s like the other way to look at this though, is that sometimes it makes sense and clients do this all the time. They bring in another. Set of lawyers or advisors, because she want a fresh perspective. Right? And you want somebody who’s not so close to what they’ve been doing and you give them a lot of credibility because they’re coming in with that fresh view.

So there’s another way I’ll hand it to the investor, to the, uh, the lawyers on the, the advisors that maybe they see things that the. Participants are just too close to see. I’ll leave that open. It can go either way. So then the final C is credit quality, Joe, and, um, you did a nice job of breaking out credit, extensions and layered risk.

Um, what were you seeing in that candidate? Well, yeah, you know, we, and we broke it out that way because we weren’t getting the traditional, like the concerns that you’d expect to see on subprime borrowing. Like when did you really expect to see underwriting. You know about this, this loose, you hear about loose or lacks re you know, underwriting over time, you know, the competition has increased.

And so the underwriting standards have gone down, you know, and, and this is a concern that no, one’s really saying that in the market, it all went back to, as I mentioned earlier, the economic shock is really what’s. People are concerned about. Um, and so we, we ask specifically questions, every rule related to the ability to pay, uh, like credit extensions and the fact that there’s such been more and more reliance on credit, extensions going forward.

And what do we see in for the rest of the year in 2020 with the pandemic? Do we expect that to continue? So we are definitely seeing the forecast from servicers and even originators is to do substantially more. Credit extension going forward. Uh, and that’s the benefit also for the reporting because they re know they’re reported as current performing, you know, loans through the extensions, uh, besides the public policies that are being, you know, promoted by, by, by, by granting the extensions.

And so the forecast is definitely for more, there is a question really of you believe that is a positive or a negative for the market going forward. As we saw what happened, maybe it’s. And outlier, you know, honor finance got into a bit of trouble when they had extremely high levels of credit extensions, but we’re not really seeing anybody at, at the honor financial level for the most part, participants are seeing credit extensions as a positive, like they’re kind of like necessary and a positive to get people back on track.

And I think that assumes then that. We’re coming out of this pandemic at some point, right. And people are going to are going to be able to get back on track. We’re not going to have, we’re not going to see extensions, rolling into defaults. We’re going to see extensions coming back into, you know, performance and, you know, and things are going to get better.

The other area that we broke out is, uh, layered risks. And, and the reason we asked about that is because there’s been a lot of talk in the press about layered risk and the idea that. The longer alone is outstanding and, and, and loan terms have increased over time, um, to averages over six, seven years, more bad things can happen, but it’s just the way it is.

Right? So more risks. The longer a loan is outstanding. The greater chance of borrower loses his job or. And then X happened or I think things happen. And so, uh, we wanted to find out from participants, is it a real concern or is it really just a talking point in the press? And we found it’s, it’s a real concern, but once again, servicers just, they see it, they see it for what it is.

They see that it is a, that it is a significant concern. But they, and they have to deal with it, but they think they can. And so it’s a manageable risk. And I think that’s really important for, um, looking at indicators of health of the market. Going forward. You’ve have services are pretty confident that even with these longer loan terms, they can actually the manage the risk of defaults going, going forward.

Optimistic again. And that was it. It was an interesting point. You made about the underwriting factors kind of just not being there. And this, this extended term was second only to exogenous macro economic factors in, in their minds. That’s interest. Yeah, that’s right. It is, it is versus underwriting.

Because again, we go back to what happened when there was the, you know, the prior crisis subprime prices. A lot of people, point to the underwriting standards. Obviously the real estate market crashed. That’s something a lot to do with this, but in the press, there was a lot of talk about underwriting guidelines and w constituents that think that’s the case.

At least if there is a crisis and subprime auto, if there is a real downturn, you know, even necessarily going to hear about the underwriting standards, we’re going to hear about. The actual, the effects of what’s happened in the economy on these, um, on the, on the borrowers. And you know, and part of this, Joel is something we haven’t really touched on yet in, in the survey, but going forward, it was something we get concerned about now is the collateral values, right?

I mean, going forward, the used car market is seeing a resurgence right vehicle values are up. How does that now affect the motivation? To do extensions, incredibly expensive versus repossessing in the car. Right? There’s like water feeds the used car market. Like you can get more for use cars now. Don’t know what the market’s going to be in the future.

But right now it’s a strong market. Does that affect credit extensions going forward? I don’t know, that’s a perfect segue. I wanted to kind of pick your brain and see how much of a crystal ball we can pull out of it. In terms of looking ahead, you did a nice job of kind of capturing the overall looking ahead, picture in the report.

Can you give us kind of the bottom line for our listeners, Joe? Yeah. You know, I, I, you know, I think the bottom line is that what we’re we’re seeing today is the result of, you know, the massive uncertainty in the market. Right. So we don’t, no one really knows exactly what’s going to happen. Anybody who says they do just can’t, you know, probably not.

Right. I mean, I used to say in the past that the best thing you can do to predict the future was to know. Uh, what the other guy’s expectations are, right? If you’re, you’re an investor, you should know what the originator’s expectations are and the trustees and vice versa. If you’re an originator, you really want to stay ahead of the market.

You want to know what investors are thinking, and that’s been part of, uh, what we’ve done with credit chronometer in the past surveys is try to bring people together in that forum and get the views from all sides. But. Given these unprecedented times where we’re really faceless now is that we really don’t have, um, you really can’t predict the future just by knowing someone’s expectations, because what’s really uncertain is how everyone is going to react to what everyone else does.

Right. So you, right. So it’s all a matter of how we individually and collectively respond to what’s happening all around us. And that creates the, the, the uncertainty for all of us. And what we’ve found is that. Even with the moderation and the pessimism, most participants really believe that this COVID-19 is going to have a long-term effect on their, their interest and desire to continue to participate in sub prime auto securitizations.

It doesn’t mean anybody’s running away. That means I think a much closer look at the market, you know, and also a closer look at. Those credit enhancements to look at the credit ratings and it’s become a little bit more of a DIY world still. Right. And like, so folks can rely on themselves. There’s a lot of data out there now more than there’s ever been to be able to consider their own view versus relying on someone.

Else’s right. And we’ve seen this in the results too, that, uh, there’s been maybe less. Reliance on credit ratings, then there is on actual performance and the sponsors prior performance. So I think you’re just seeing people make more of their own determinations and relying on themselves. But credit ratings are still going to be no, one’s replacing the credit rating agencies and they’re still very important and they have that valuable service, but I just feel like there’s also.

Like we, we all have to take care of our own ourselves and we need to make our own decisions. If enough information, let me see. What do I think is happening? Um, more self-reliance I think is what we’re gonna, where we’re seeing indications of that. And that might, that might impact the market going forward.

Yeah. W w with the government programs as well. I know that the participants had some, some points of view on that. I think the way you and I talked about it, the other day was we’re waiting for this hangover, the other shoe to drop, because these programs, the stimulus and everything. I have never lived through anything where I saw it.

Such a massive stimulus going out to consumers in direct payments in the unemployment increases, but then also with the people funding. So to me, it’s, it’s almost like I don’t really have a good frame to think of any economist where they have like five different factors that they measure. Well, we’ve thrown in a couple new ones.

And so when you look at the performance, you have to keep that in mind. And, uh, maybe that’s maybe that’s the reason why you were seeing, can you use the words the other day, this, this, uh, moderation in pessimism can actually even be viewed as optimism? Yeah, yeah. That that’s that’s that’s right. And, uh, and you bring up an excellent point though in the government programs is that we, we did see.

And, and it sounds like it’s a bit of a contrast, right? It’s like there’s a moderation in the pessimism. And yet when we ask about going forward in the effect of the government programs, like 90% of investors expect to feel a lot of hurt. They from the government programs. Right. All the, all the focus on consumers.

Right. And, and, and the, there hasn’t been, at least in subprime auto, there hasn’t been really a lot of government relief, uh, focused in that area. So you got, yeah. You have a major portion of investors expecting that they’re going to feel the pain. Um, and actually one of the things we’ve changed for the survey going out.

Now, um, in the next few weeks is asking specifically about government programs and we know what has been the experience so far in terms of their, do they feel like it’s impaired performance at all? Does it increase their risk profile in the short term versus just more vaguely, you know, going forward?

Like have they suffered any consequences that end did they expect to suffer them? And they’re very near term standing. So you guys are initiating, you’re conducting the next, the next iteration of this. Yeah. Yeah. And sorry. I see my, uh, my, my cat has joined the podcast. Huh? As they’re wanting to do, there you go.

Uh, yes. You know, so since we, now we have 2019, we have pre COVID. We have early COVID ever results, and now it’s time to go back out. Even though we thought we were going to be doing one survey a year. We’re going to go back out in the next couple of weeks and we’re going to ask similar questions. We’ll add a few more on the government relief programs.

And you know, we’re looking forward to seeing where people are today and then we’ll, we’ll promote the, um, you know, we’ll put together results and we’ll, we’ll do a, um, Uh, recording and we’ll get it together for the NAF conference. There’ll be available for everybody and in November. And actually now, yeah, it’ll be available in November and I’ll be joined again by, um, uh, Sean Morgan from Westlake financial.

And I know, uh, the auto DBRS because they really are able to, you know, go through the, the results and take that for credit rating. Who better to hear from, uh, from, uh, a representative from VBRS on, you know, does this match what she’s, she’s always interested. She’s interested to see just how people are perceiving credit ratings, and then she can give her own view on it.

And, uh, and, and Sean does an excellent job of. I’m sure you will, again, as you did last time, uh, you know, given that insight as to why servicers are as optimistic as they’ve been really curious to see if he feels the same way today as he did, um, back in, back in June. Yeah, well, this, this was incredible, Joe.

I thank you for the time. Uh, once again is Joe Cioffi of Davis and Gilbert, and he is the brain behind credit. Chronometer a fantastic resource for the industry that takes a look at the securitizations, the multiple contingencies, and I do love the eloquence of the three C program. You came out with, Joe.

Thank you so much for being on the program. I know we’re going to hear from you. In the next iteration at the NAF conference, but I would love to have you back on after so we could keep updating the listeners. No, I’d love to do it. It’s always good to talk to you. So I appreciate that the consumer five podcast has been brought to you by Northbridge loan software.

That accelerates change. We’d also like to thank the national automotive finance association. The only trade association, exclusively serving the non-prime auto financing industry.

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