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ConsumerFi Podcast: The Ins and Outs of Repo Forwarding with Resolvion’s Jose Mendiola

June 10, 2021

Episode 30


Joel is joined by President of Resolvion, Jose Mendiola, to discuss how third-party oversight was a game changer in the repo forwarding industry, how repo moratoriums impacted the entire repo ecosystem, and why consolidation in the space may cause pricing pressures down the line.

Check out the Resolvion Insights Blog for tips on how to manage a portfolio in a challenging environment.

You can meet Joel in person at the National Automotive Finance Association’s 25th Annual Non-Prime Auto Financing Conference this August 30 – September 1, 2021 in Plano, Texas. Register today!

ConsumerFi is presented by Nortridge Software: Loan Software That Accelerates Change.

And special thanks to The National Automotive Finance Association: The only trade association exclusively serving the nonprime auto finance industry.


[0 4:29:22 AM] Joel Kennedy:] You’re listening to the ConsumerFi Podcast powered by Nortridge, loan software that accelerates change.

[00:00:20] Welcome back to another exciting episode of the ConsumerFi Podcast. We are joined today by Jose Mendiola of resolve beyond Jose. Welcome to the podcast. Thanks Joel. So Jose and I have been, uh, kind of mixing it up a little bit across trade groups and meeting up when we’re at the annual NARS event.

[00:00:39] North American repossessor summit of the American recovery association, Jose. Um, for folks that don’t know you, and I think there’s probably a pretty small population, but for folks that don’t know you, can you tell us a little bit about yourself and your background? Sure.

[00:00:54] Jose Mendiola: [00:00:54] Well, first things first, Joel, thank you for, or having me on and giving us the forum to talk shop.

[00:01:01] My background is about 25 years in autofinance started in a subprime finance company, spent about 15 years there. Pretty much my professional career has been spent in autofinance. So anything from the management of a loan. Portfolio on through the last decade, which has been spent more specifically managing a national forwarder and in the recovery side of the business, in a nutshell, that’s, uh, that’s my backup

[00:01:27] Joel Kennedy: [00:01:27] outstanding.

[00:01:27] Jose Mendiola: [00:01:27] And, and, and the background of resolve beyond as a company, you you’ve you’ve, you’ve obviously had to leave a lot of, a lot of that growth and the transition. Can you give us a little bit of a history of, of resolving it? Sure we’re resolving on really is, is the evolution of, uh, of actually three, the companies that have come together over time.

[00:01:47] The oldest of which was consumer financial services, a family run business at a shelter in Connecticut that was in the commercial recovery space. At a certain point, there was a BA group out of, out of the Atlanta Georgia area [00:02:00] called Atlanta equity. They bought a, uh, an interest in the firm. I want to say it wasn’t about 2009, 2010, right around the same time that, uh, I had a startup by the name of American lending solutions with a couple of partners.

[00:02:13] And so we were on parallel tracks, I would say American lending solutions spent more time on the forwarding or early stages of recovery, as well as late skate stage. A pre and post charge-off skip where resolving on consumer financial converted its name to resolve the on. So they were primarily in the commercial space, but did have some consumer clients running parallel to us.

[00:02:36] So in 2014, we put those two companies together. Really doubled the company in size between 2014 and 2018. When we recapitalize the business, brought in a new PE group out of the San Francisco area called Santos, Barbara, Jesse SPJ and continued to grow the company. And we’re at this point looking to grow, not [00:03:00] just through organic opportunities, but also what opportunities there were in the market.

[00:03:04] Place. And so we had known, uh, Josh Elias and the group from Del Mar recovery out of, uh, the Carlsbad San Diego area. And so we put their company together with ours and they were, they were headed up by a private equity group as well called TCP. So now we’re one big happy family. It’s two private equity groups, Mike, myself, Josh.

[00:03:26] We’ve combined the companies. And here we are today, pre COVID managing anywhere from 60 to 70,000 recovery assignments that come through the doors on a monthly basis and anywhere from 20 to 25,000 repos outstanding,

[00:03:38] Joel Kennedy: [00:03:38] the whole, the whole repo order model. That was something that I had to kind of wrap my head around and understand pretty early on.

[00:03:45] Once I got involved at the Norris conference to understand just the history and to me, you know, it’s pretty simple. I think when you apply technology or you apply, uh, some way to kind of add some efficiency to certain functions and [00:04:00] remove the duplication of effort, it’s obviously beneficial and the market has responded.

[00:04:05] And so the, the forwarding community has. Grown. And you mentioned a couple of private equity firms that are involved in the mix, and this is something that as you and I spoke in the earlier days, you were, you were calling it out, you were forecasting, there was going to be more, more deals, more consolidation of, of companies such as yours.

[00:04:23] And you know, how would you kind of. You know, share how things have evolved within the forwarder community and, and what, what are the things that for, for finance companies or banks or credit unions that, that really use it? Like what is, what is the value prop that they’re really seeing? That’s cause obviously you’re not going to grow the market unless you grow your revenue and you grow your customer

[00:04:45] Jose Mendiola: [00:04:45] base.

[00:04:45] Right. Right. Well, uh, I think it’s important to take a step back, first of all, and understand the evolution of the forwarder and why they came about. Keep in mind that my personal involvement on the repo side of [00:05:00] the business has been in the last decade. I’d say the forwarding business has been around for about.

[00:05:05] 20 to 30 years and really started as, as a means of getting in fact, some of the early entrance into the space for a partner North America, which is a related company to ADESA and Kar auction services. And so if you think about it from that perspective of how. You know, how, how can you get more cars into the auction arena, uh, DESA, and for that matter, par and its evolution a while back along with PK Willis and a company called American recovery services, I think, uh, FRS started more as a.

[00:05:41] Traditional repo agency with a pension for skip tracing, and that’s their evolution of how they started. Uh, and again, they’ve been around both companies for an excessive 20 to 30 years, but that’s, if you look at it from that perspective on, and again, the, the original reasons of why forwarding came [00:06:00] about the evolution really took a, I would say, a 90 degree change or turn as compliance.

[00:06:06] Started to come into the environment and the CFPB. And so while you mentioned technology and efficiencies and everything else, the game changer, in my opinion, really in 2000. No nine 10 is when the CFPB started to make its noise. About third party oversight, um, an Obama administration that’s coming in and making sure that, uh, the debtors are being treated fairly and not in a disparate, uh, environment, whether at the original lending level.

[00:06:35] Or even through the recovery process. And so that in and of itself really started a new track of compliance. That lenders started to take a much keener eye to, and in my opinion really started the fast track of the evolution of the forwarder.

[00:06:49] Joel Kennedy: [00:06:49] When I think of those compliance aspects and we’re talking about the Dodd-Frank, you know, third-party oversight type thing where the way that I boil it down as it is, if you’re the, if you’re, if you’re the holder of the paper [00:07:00] and you you’ve utilized a third party, such as a recovery agent or, or a forwarder you’re, you’re on the hook for a really whatever they do.

[00:07:06] They’re, they’re kind of your agent, if you will, they are your agent in, in the eyes of the law. I would imagine that banks and credit unions perhaps would be the initial adopters. I would think that they would have the most forward looking and relatively aggressive compliance programs. So it was that kind of the initial adopters, or was it like March captives or, or other large finance companies?

[00:07:27] Yeah. You,

[00:07:28] Jose Mendiola: [00:07:28] you know, question as the pendulum slang and compliance really started, uh, coming into the marketplace, we saw an immediate, uh, heightened awareness from any one of our lenders and, and keep in mind that. You know, sometimes it’s better to be lucky than good. The timing of, of my entrance into the recovery space was right at the end of the last recession, as the CFPB was starting to make it’s noise.

[00:07:53] And while it created significant barriers to entry, if you were ready inside of the marketplace and you were [00:08:00] professional player, then that allowed for the major lenders and major captives to start to understand who are the handful. Full of players in the marketplace that I can really lean on to battle my, my, my risk appetite.

[00:08:13] And so no question. And when you look at the big players, whether it’s the captives or the major banks or the credit unions, the pendulum swung there first and slowly, but surely, you know, no different than in the world of, of risk-based lending. Those that are in the business of taking additional risks or wider swaths of risk.

[00:08:30] May have approached it differently than let’s say Wells Fargo bank. So there’s, you know, there’s not a one size fits all here, but no question, the compliance aspect definitely changed and there are several aspects of it that we can get more into the weeds on handling of personal property and different aspects of it.

[00:08:48] But the bottom line is as compliance. Subar got that raised. The first adopters of it were definitely the major players, but you’ve got secondary finance companies that are on a national level and they follow [00:09:00] what the big guys are doing from

[00:09:01] Joel Kennedy: [00:09:01] a business standpoint. Well, you know, when I think of, if I put my finance lender pants on, I think about, and I think this.

[00:09:07] It probably happens to some extent, I may have some concentrated areas where I’ll have a very good relationship with a repossessor and I can work relatively directly with them and maybe negotiate some better terms on the storage fees or transport or something like that. But then it’s a good point because you know, not everybody that let’s say I’m a heavy St.

[00:09:27] Louis lender, not everybody that I loan to is going to reside in St. Louis people move right at the pandemic has been a big example of that. And that’s, that’s actually one of the things I want to get into next. So, you know, w I guess it’s, it may not be a question, more of a point that, you know, whether you’re a large bank or a small financial services company, to me, it makes sense that you would have some mix, right?

[00:09:46] Because we’re talking about a network effect. You’re just trying to get to the licensed reprocessors that are closest to the vehicle. So you can get it because time is ticking and, and father time always runs out. As you know, Jose [00:10:00] within, you know, recovery is, is, is. Is a place where you feel it really profoundly, like we have a vehicle in shop and they’re charging you some insane fee to, to have the car stored there and you can’t, you can’t go grab it.

[00:10:10] Cause they’ve got the engine on a lift or something, you know? So it’s just, it’s kind of the wild West out there. I don’t know if sometimes a lot of the folks outside of the industry really understand how difficult it is. To, to get all this stuff done and get that all put together. But Jose, I I’ve had some, some folks that represent the recovery industry on a lesson day from the ARA.

[00:10:29] And so we’ve talked about the impact that COVID had to the overall volume and the numbers for reprocessors. On the forwarder side, you know, what has, what has been the experience? Because like, I, I think we were talking earlier, I really haven’t discussed this with any forwarders, but you’re obviously an integral part of the, of the ecosystem and you do feed through to, to repossess hers as well.

[00:10:50] And so you’re, you’re, you’re able to see a lot that right there. How did the pandemic go for your industry?

[00:10:56] Jose Mendiola: [00:10:56] It’s first of all, as we’re seeing the job market open [00:11:00] up and the economy starts to pick up, the repossession industry was hit very hard and think in terms of a borrower and demic hits in early March of last year.

[00:11:09] And the first reaction by any lender across the country was hit the brakes. Yeah. And we don’t want to be in the news. We don’t want to be repossessing in the midst of a, you know, a national pandemic and a worldwide issue that’s going on. So the brakes were completely hit. And I mentioned to you, but you know, we’re in.

[00:11:26] We’re recovering anywhere from 20 to 25,000 cars and to go from that to zero overnight. And that’s not just us, that’s us and the whole supply chain that goes along with it. Um, whether it’s the repo agents, whether it’s transport companies, the key cutters, um, everything associated with it all came to a screeching halt.

[00:11:45] And meanwhile, moratoriums were going on. Cars were at repo agent yards. Personal property had to be dealt with. Lenders wanted vehicles going to auction the auction houses were not open. So there were a myriad of issues that were going on. But most importantly, I [00:12:00] think as you take a step back and look at the number one issue, it’s the revenue component just dried up overnight.

[00:12:06] And so, you know, you take a step back from there and you start to kind of Claude to that, and there’s been a ton. Of issues that have come out of the pandemic, not just the fact that the repo business stopped overnight as it’s slowly come back. We’re probably today, depending on the company, anywhere from 50 to 70% back.

[00:12:24] And I’d say the initial concern of losing anywhere from, you know, 25 to 40% of the direct repo agents in the marketplace, we didn’t see that, you know, nonetheless, and you can think. Can the triple P programs and the repo agents were very active in getting money to stay afloat. But the repo business is not back to pretend that muck numbers and the longer we go without getting it back to the pre pandemic numbers, that health of the network should certainly be

[00:12:51] Joel Kennedy: [00:12:51] a concern out there.

[00:12:52] Yeah. But on a state-based level, I saw, I saw quite a lot. Illinois had a straight moratorium, California said. [00:13:00] Reprocessors are not considered, they’re not deemed essential employees. And even though they are involved in transportation. So if I had a bicycle store, I remained open. If I had a motorcycle repair shop, I remained open, but not.

[00:13:13] Not the ability to recover collateral for the purpose of repossession. So they were kind of iced for a little while there were through that. But I think, I think there’s still a lot of eyes on state-based looking at these how the regulators are kind of viewing reprocessors and how we’re going to kind of make moves forward because you know, Look, there’s there’s inefficiencies built in Jose there’s financial programs.

[00:13:34] You mentioned PPP. There’s also the other stimulus programs, and we know that employers in hospitality industry in particular restaurants, it’s becoming, I went to a restaurant the other day, Friday afternoon, they’re open for business. Went there, took the kids for a lunch on a Friday and. They had a sign on the door, sorry, we’re closed.

[00:13:52] We can’t get staff. And you see these signs presented on social media, et cetera. You know, I’m just kinda thinking about, you know, we have these state-based [00:14:00] impacts. We have these, these programs have, have you or others thought about or discussed, like when these things go away and once we settle in. What is the world going to look like?

[00:14:09] And what is the impact going to be like? I’m sure you get the question a lot, right? Are we going to see some kind of snake going through the garden hose or a golf ball going through the garden hose where there’s going to be a repost spike. Do you think there’s going to be one coming up? And if so, how profound do you think it could be?

[00:14:27] Jose Mendiola: [00:14:27] Yeah. And, and, and the answer that, I guess the question is, is that a V recovery versus a K recovery and, uh, you know, and, and, and how quickly the volume spikes I can tell you what we’ve learned is, is how much we don’t know. From a predicting standpoint. And, uh, you know, we we’ve all in the recovery industry, been predicting since the pandemic started.

[00:14:50] I mean, it wasn’t common that I’d have a neighbor or somebody say, you know, you must be repossessing cars left and right. We’re in the midst of pandemic. And it was quite the contrary. So while these moratoriums are [00:15:00] going on and the volumes are very. Lo, you know, the question is gonna it’s, it’s more, coupled with stimulus programs coupled with lender programs, and I’m not sure if it’s a golf ball or a basketball, that’s going to go through that garden hose.

[00:15:16] And that’s really the question. Does it happen later this year? Does it happen the first quarter of next year? Does it slowly trickle through the system? You know, my sense is as these programs start to. A baby towards the end of the year or the beginning of next year, we should start seeing repossession activity picking up again.

[00:15:34] But I was just at an executive committee meeting of indirect lenders for Absa and they’re thinking first quarter to second quarter of next year. So while the repo guys were thinking, maybe later this year into the first quarter of next year, the lenders were thinking that there could be a push into the first, the second quarter of next year.

[00:15:51] Yeah.

[00:15:51] Joel Kennedy: [00:15:51] I mean, unless, unless the lenders decide to make wholesale changes, which they kind of have during, during COVID too, you know, average days to repossess, right? [00:16:00] So if you run normally repossessing on day 60 and then pandemic, you said, well, shoot, now I’ve got through no fault of my own. I have portions of my portfolio that are 120.

[00:16:08] I think having contact, I think doing the skip tracing, I think a lot of that stuff is going to lead the way in terms of volume. And I hope that we have people that are pulling that together and kind of forecasting, right. That based on skip levels, you know, w what the actual repo. Levels are going to be and how they’re going to pace through.

[00:16:27] Cause I think the lenders are largely in control here. It’s a matter of, are they going to be able to maintain with carrying that many 60 to nineties or 90 to one twenties versus saying, you know, we really need to pick up these cars. And then obviously the, you know, the, the mainstream media would say, well, you know, th these vehicle values are, are high now.

[00:16:46] And so that’s an incentive to the companies to pick up the car sooner. I, I’ve not seen that Jose. I’ve not seen that at all. I think that’s a false narrative.

[00:16:54] Jose Mendiola: [00:16:54] It’s, it’s a false narrative, uh, for, for two reasons. And, and keep in mind that the [00:17:00] false narrative is with each repossession. That’s coming through the loan, that the value of the vehicle against the charge off, they have record low delinquencies right now, record low charge offs.

[00:17:10] And so while I’d love to tell you that lenders are running out the repossess. Collateral because the used car market is high. Money’s coming through the door and your delinquencies down and your charge offs, because every repo that you get is a higher value against the charge off amount. They’re running record lows right now.

[00:17:30] They’re not running to repossess. Now, you know, one of the concerns though, that that should not be overlooked is consolidation in the marketplace and what can happen if that golf ball. Or that basketball goes to the hose. And meanwhile, you’ve got some consolidation happening at the, at the repo agent level, and then that could force easily some pricing pressures down the line.

[00:17:52] And so while, while lenders are looking at how they handle their relationships with. [00:18:00] They’re forwarders or recovery agencies or repo management companies. Margins are a major concern here because as we look into the future, consolidation happens, you’re left with less repo agents, potentially in a market because the business is just, it’s taken longer to come back than it should.

[00:18:16] And that could create some pricing pressures down the line. And that’s a reality. And so while you might say, lenders are kind of thinking control the longer the volume. Doesn’t hit the market. And the more volatility there is at the agent level, that’s where the best ones that are left standing can control pricing or into the future.

[00:18:38] Well, and

[00:18:38] Joel Kennedy: [00:18:38] then if you hold off on the repossession and you don’t have customer contact, as you know, then that car is going to lose significant value and the likely, so did you actually even find the vehicle just drops as, as you let that club? I wanted to, I wanted to shift, shift our thinking for this last portion, too.

[00:18:56] Just thinking about the future and Jose you’re obviously one of the leaders in the [00:19:00] industry and you’ve, you’ve, you’ve been in the forefront, so driving a lot of this market development. And so, um, you know, Um, I’m curious, you know, do you think there’s going to be more trades of these larger operations, more consolidations and think, um, I am curious about private equity.

[00:19:16] If they’re still in love with this

[00:19:18] Jose Mendiola: [00:19:18] market. Well, it’s a counter cyclical business. And you know, if you’re a, if you’re a PE group and you’re invested in multiple business sectors, and one of your approaches is to offset the potential for any type of downturn, then you invest in the recovery space. And so my sense is that’s why it’s always been attractive, you know, as, as kind of the market heats up and you start to see originations and you start to see some of those pressures coming from the compliance sector, there are, there’s a handful of companies that are, that are really reputable and good at what they do.

[00:19:55] And so from an investment standpoint and the return standpoint, certainly you can, you [00:20:00] can look at the repo space and who the, who the clients are. And understand that you’ve got a potential for a blue chip client base. That’s not going anywhere, but you do need to understand market conditions as, uh, as originations, ebb and flow.

[00:20:13] Yeah. We saw

[00:20:14] Joel Kennedy: [00:20:14] private equity really active on the, on the financing side. I think there’s a couple men still standing, but I don’t see a lot of enthusiasm to get into the operator space more so on the asset space. Right. Can we build up a portfolio and have somebody to service it? And we’ll just strip the strip, the yield.

[00:20:31] Do you think there’s going to be, do you think there’s going to be more consolidation? You know, what, what do you think you’re gonna look like for the next couple of years? So is that

[00:20:38] Jose Mendiola: [00:20:38] consolidation for sure. I think in fact, we just had a group out on the West coast that was kind of like a co-op it had put some, uh, some repo agents together that’s right.

[00:20:48] And just fell apart. And so while, while the consolidations are happening, the question is. You know, can they hold on while the business rebounds. And as long as whoever consolidates can kind of hang [00:21:00] on and get to the point where the business rebounds and ride it out, that’s fine. But, uh, what we have seen is, you know, coming together with small, locally operated agencies and having multiple agencies come together from different territories is putting.

[00:21:15] Multiple businesses together. And I can tell you, just from the standpoint of, uh, consolidating a couple of businesses along the way, you, you know, it’s, it’s, uh, it’s no walk in the park. You really have to take, uh, a conscious view of, of not just the culture, but how your business is operating. And when you put multiple businesses together, overnight, all that stuff hits at once.

[00:21:35] And so, um, the success of those consolidations are going to come, not, not just from making it happen. But ultimately how those operators, uh, stick together and see it through in the interest of, of now it’s what’s happening. I can easily see more consolidation taking place, uh, into the future. Just that makes sense.

[00:21:55] And somewhere in there, my belief system is that lenders have a preference of [00:22:00] just working with a handful of management companies, but there’s definitely a place for the direct agent and the market.

[00:22:06] Joel Kennedy: [00:22:06] I think, I think that one example that you provided, I don’t believe it was an indictment of the model itself.

[00:22:11] I think there was other issues that they had to deal through. So I, I anticipate there’s probably some also rants out there that are kind of building up to kind of cover that market. Well, or we’re just about at time here, Jose, you know, for folks that are listening and believe it or not, there’s actually, there’s actually a good bit of startup activity in Ottawa finance there’s there’s companies that are growing and winning.

[00:22:31] We’ve seen some companies go public. And do really well for folks that want to learn more about resolve Yon and what you guys do and where to apply you and how your technology works. You know what, what’s a good contact for them to, to learn

[00:22:45] Jose Mendiola: [00:22:45] more. Yeah, definitely. Our website is full of great, not just information about ourselves, but we’ve got an insights tab that really takes a focus on, on educating the industry.

[00:22:57] I’m at this point, recovering another car [00:23:00] more or less is not where it’s at for us. We want to be thought provoking leaders in the marketplace. We worked very closely with the R ARA and making sure that again, this is a business that’s long lasting for all involved, but learning more about us, go to our website, resolve the and you can certainly reach me there, but I would suggest that you take a look at that insights tab to learn more about the industry.

[00:23:20] It can take a rookie. And give them enough to be dangerous and understanding how to best manage portfolios today in a

[00:23:27] Joel Kennedy: [00:23:27] challenging environment. I love the education aspect. That’s obviously something that you and I are both very passionate about. And I really like seeing the companies that have the wherewithal to do that, to provide those types of resources, because.

[00:23:40] We’re obviously all in this together and we have long standing relationships and, and, you know, it’s just important to kind of keep the dialogue going. So, so I thank you and the resolving on team for that and do check it out. They do have really good content on there, and it’s not just veiled sales pitches.

[00:23:56] This is actual, you know, education and good information. Jose, thank you so much. Watch [00:24:00] for joining us. Once again, it’s been Jose Mendiola resolve yawn. Thanks for being on the pod today, Jose, thank you, Joe. The consumer five podcast has been brought up. Do you buy Northbridge loan software? That accelerates change?

[00:24:13] We’d also like to thank the national automotive finance association, the only trade association, exclusively serving the non-prime auto financing industry. [00:25:00]

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