The business of lending to consumers who don't qualify for bank loans continues to grow-and the next step may be a one-stop subprime loan supermarket, experts say.
Lenders and industry observers at the AIC Subprime '97 conference here were adamant about the concept's merits-and many of the more than 100 credit card, auto, and mortgage lenders attending were looking into their lending cousins' backyards.
"Think about it," said Deanna Komuves, chief executive officer of the Gateway Group, a Green Brook, N.J., financial services provider to subprime lenders. "It makes perfect sense."
For example, a home equity lender already has a captive subprime audience, she said, and can tell clients, "You love us with mortgage lending, now let me do your car loan."
The giants of the finance company world already offer several loan products. Associates Corp., for example, has home equity, auto, and consumer loan divisions. But ultimately, even small specialty finance companies may mimic banks, serving as all-product lenders for the millions of customers with blemished or nonexistent credit.
Mortgage America, a Bay City, Mich., subprime home lender, has recently begun to explore auto lending, said Ms. Komuves. The 35-branch company is mailing its customers offers of auto loans, she said.
Companies that are already successfully lending one product don't need to be taught who their customers are or how to securitize their loans, she said.
Auto lenders view the subprime mortgage market as a safer and less volatile way to serve unbanked consumers. "Home equity lending has a more tangible asset," said one subprime auto lending executive, who did not want to be identified. He came to the conference, in part, to check out the home equity market, he said.
But why does an auto lender think he can compete in the increasingly competitive home equity market?
"What makes you think I can't?" he said. There's no need to learn the market, he added. His company could just hire management with expertise in home equity lending to succeed, he said.
There are, of course, some major differences between making home, car, and credit card loans.
As home equity lenders are fond of saying, "You can't drive away with a house."
In fact, lenders here said that comparing subprime mortgage lending to subprime auto lending is like comparing A mortgage paper to B and C paper.
Lending in the two industries requires separate and specific expertise, explained George Evans, chief executive of Search Financial Services, a Dallas consumer loan originator.
"I don't think you can take people from one industry to another," Mr. Evans said. "It's like a foot doctor doing heart surgery."
Several lenders here held up Money Store's recent problems with its fledgling auto lending division as an example of the difficulties of moving from one segment to another. The Union, N.J., home equity giant announced this month that it was cutting down on auto loan originations after experiencing greater-than-expected delinquencies. "They tried to take one platform and apply it directly to a new business," said a subprime auto lending veteran.
Home equity companies like United Cos., Baton Rouge, La., and First Finance, Bloomfield Hills, Mich., are already marketing secured credit cards to their subprime mortgage borrowers.
Some executives don't think the concept will ever work. "Having been in real estate, I can tell you they're much different businesses," said Mark Wilson, chief financial officer of Peerless Financial, a subprime software specialist and high-end motorcycle lender. "It's like a cereal company thinking that because they can make cereal, they can make dog food," he said.
The major difference between home loans and auto loans is the middleman, Ms. Komuves said. The bottom line is that "auto dealers lie," she said. "They're always two steps ahead" of the lender they're feeding loans to.
