Black Book rolled out a new solution on Wednesday meant to mitigate the stress — perceived and actual — that lease providers might have about residual values.
Black Book release its new economic scenario-based residuals that’s now available to finance companies and other institutions with a portfolio of auto paper.
Black Book explained that editors have mapped regulatory prescribed scenarios for this new suite of residual data, enabling risk and portfolio managers to analyze how vehicle values will respond under different macroeconomic Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) scenarios as outlined by the Federal Reserve.
Black Book has historically made available to auto finance companies its projected wholesale residual values of vehicles under baseline and various scenarios. These models were built with extensive analysis of historical sales data taking into account impact from macro-economic variables, fuel prices, vehicle incentives, supply and demand in the used and new markets, and other criteria.
Editors acknowledged complying with the CCAR/DFAST requirements within existing quantitative models and a model risk management framework is one of the most daunting of the many recent challenges for financial institutions. These finance companies have completed extensive work in predicting loss probability using a credit scoring model.
However, Black Book pointed out a key component of loss in auto financing is the severity of loss that is driven by the ability to predict residual values.
Black Book believes that leveraging this new suite of collateral data with economic scenarios at a vehicle level will greatly enhance a finance company’s ability to properly assess risk, and aid in evaluating capital adequacy.
In addition to providing stress testing under CCAR/DFAST-driven scenarios including baseline, adverse and severely adverse, Black Book will also provide residual projections for custom scenarios such as a high-gas price scenario.
“Many auto lenders have greatly enhanced their ability to gain regular insight into portfolio risk, including loss severity by frequently refreshing with updated collateral values,” said Anil Goyal, senior vice president of automotive valuation and analytics at Black Book.
“In addition, using residual data that not only assess accurate forecasted trend of the collateral, but data that is also mapped to specific economic conditions, can provide deep insight on ‘what-if’ analysis of their portfolios,” Goyal continued.
Jared Kalfus, senior vice president of sales and marketing at Black Book, added, “Our scenario-based residuals are the latest enhanced data resource offered by Black Book designed to give our customers the most advanced insight into the performance of a vehicle’s value.
“Our legacy, accuracy of data and analytics innovation today combine to provide the industry’s most successful competitive edge for profit maximization,” Kalfus went on to say.
To learn more about Black Book’s new economic scenario-based residuals, call (855) 371-7532. Black Book also will be showcasing the tool , which begins on Nov. 13 in Palm Springs, Calif.