LAWRENCEVILLE, Ga.—A new white paper from Black Book shows lenders how to better analyze risk to drive growth with subprime and deep subprime borrowers.
“Following the recession, and as the economy has improved, an increasing number of lenders began to offer subprime and deep subprime loans, and more independent financial institutions saw their way into the market, as well. At the same time, larger banks became full spectrum lenders that opened up space for subprime loan opportunities. While subprime and deep subprime loans have remained in check, lenders have had to grapple with ways to remain competitive and profitable in spite of any growing risks,” Black Book said.
The white paper offers specific examples showing lenders where and how collateral data can pinpoint profitable opportunities in subprime and deep subprime, while minimizing exposure to risk.
According to Black Book, when a lender is looking to evaluate the amount of risk tolerance in a long-term loan, there are four things to consider:
- How much initial loan-to-value they want to establish
- The rate of annual depreciation of the collateral
- Credit profile of customer, whether subprime or prime
- Determine if the risk-adjusted return on capital is sufficient
“Subprime and deep subprime loans have remained a profitable opportunity for lenders, particularly following the recession since the economy is stable yet there’s still a lack of understanding of layered risks associated with these credit profiles,” said Anil Goyal, executive vice president, operations at Black Book. “This white paper takes an in-depth look at different scenarios lenders face in trying to grow their portfolios profitably to remain competitive while quantifying their associated risks.”
To view Black Book’s new white paper: Subprime & Deep Subprime: How To Remain Competitive and Profitable Despite Growing Risk, click here.