May 31, 2000
--From the Dean of Leases: bob Rodi ---Shares his experience.--
Please
share it Kit. I think it's a good story. I hope there are some younger members
of this industry reading your newsletter who might avoid a sankepit because some
of us, who have been around, will share these kinds of stories. The whole thing
about shared risk/reward is important. I just sense from the comments that your
readers make that we have something broken in our community that we better take
steps to fix... before it's too late.
BR
Dear
Kit, As always I read the replies from your faithful subscribers with interest.
As you know I am a vociferous supporter of what I call Shared Riks/Shared Reward.
I came to be an advocate of this strategy many years ago when I was a broker for
our old friends at AT&T Capital/Eaton Financial. Both of whom are only memories
to those of us who have been around more than 5 years. What did I learn? Well,
I learned that the funding source has the money. They almost always have more
money than the broker/lessor. Being that they are in the position of having the
money they make the rules. In the case of AT&T/Eaton their underwriting rules
and criteria were very lax. The word was they would buy almost anything. We were
a high volume producer. Whatever type deal they were buying that month we would
go out and find for them. We were making good money on this program even though
I knew in my heart that the credits they were buying would not pay out. I knew
in my heart that the portfolio was destined to go south. But I let my fat pocketbook
instead of my intuition guide my thinking. Credit quality wasn't much of an issue.
They were the funding source, they were accepting the risk, and they were making
all of the credit decisions, right? Oh, So wrong. When the proverbial _ _ _ _
hit the fan in that portfolio the first group to shoulder the blame were those
scum bag brokers who took advantage of that poor funding source. Brokers were
cut off left and right, without any warning. It was classic. Put a limit on points
paid. Tighten the screws on underwriting. You all know the drill. I learned later
that the delinquency in the broker portfolio was high at about 8-9%. I also learned
however that the delinquency from the vendor direct portfolio hit 22% at one point.
Much higher than the broker portfolio but the brokers still took most of the blame.
It did not matter that they made all of the credit decisions, determined the underwriting
criteria, gave us the documentation guidelines, etc. After the smoke cleared on
this situation and I had the chance to sit down and assess my business I made
a conscious decision that, no matter what, I would do whatever I could to determine
my own destiny in this business. We would do the kind of business that we were
comfortable with no matter what the funding source policy was. When the funding
sources turn on the spigot and loosen credit criteria they are trying to "buy"
more.
