The article, Worthless Auto Trade-Ins Signal Riskier Loans, by Bloomberg news, reiterates what we all have seen the last few years: vehicle depreciation is taking a heavy toll. Lender risk is on the rise as longer terms, and lower trade-in values weigh down the LTV in the beginning stages of a loan. These factors causing massive depreciation of a newer financed vehicle deteriorates any chances of being in a good position on LTV during the mid-stages of a loan.
Lenders see the same risk materialize when the collateral is totaled or stolen. Insurers are paying based on value most of the time. Lenders who use a CPI (collateral protection with tracking) plan are not typically automatically protected for Gap exposure, unlike most Blanket VSI programs where lender Gap is included. The Blanket VSI lender Gap (Modified ACV settlement) would cover the lender even if the borrower did not purchase Gap Waiver on their loan. Again, most CPI programs do not include automatic lender Gap protection.
There is a growing need for a Gap Waiver that can be sold to borrowers. Gap Waiver helps reduce the deficiency that exists after a total loss or theft when the primary insurance settlement is less than the balance, protecting both consumers and lenders.
Check out our blog post, The Power of Gap: A Claim Story, for more on GAP.