Charge-off rates on nearly all consumer loan products ended 2020 at historical lows as Americans adjusted their spending habits taking advantage of stimulus payments and overall new-found liquidity. Creditors have benefitted from higher payer rates, therefore reducing roll rates and overall delinquencies. Therefore, there may may be a tendency for creditors to lose sight of the importance of a robust recovery strategy over the longer term. Many loans, including federal student loans, for example, have also been put into forbearance as a result of the COVID-19 pandemic.
There is certainly reason to be optimistic with this trend, but we caution against being overly Pollyannaish. Lenders should not be lulled into thinking that the era of low charge off rates is going to last forever. The serious delinquency rate on mortgages is projected to quadruple by the end of 2021 [according to CoreLogic, a provider of analytics and business intelligence data]. Other loan products that have been in forbearance during the pandemic will end and delinquency rates are expected to increase dramatically as the effect of the social stimulus programs weaken [according to TransUnion]. All data points to higher default and charge off rates on the horizon, which will likely lead to an increased need for a comprehensive debt recovery strategy to accommodate the impending volumes.
To quote Warren Buffet, “someone’s sitting in the shade today because someone planted a tree a long time ago.” Lenders should take advantage of this delinquency lull and pursue proactive collection strategies at all phases of delinquency, use all of the ‘tools in their toolkit’ including an intelligent legal strategy, where litigation recovery has historically proven to deliver the highest net return. Tactically executing a forward-thinking recovery strategy starts and stops with account level scoring, segmentation and treatment strategy selection. Directing accounts to the recovery stream that is most operationally and cost effective is a fundamental principle of sound accounts receivable management. Assisting clients with such a design and flawlessly implementing the plan is a core competency of Harvest Strategy Group.
Harvest rank scores all accounts using ProScore, its predictive and proprietary legal selection scoring model, to determine the best collection path at the account level. For over 13 years, this well proven model has evolved to mirror the current environment and has been instrumental in helping clients drive recoveries to a maximum value, while achieving and sustaining a true net lift.
We’ll be spending more time in upcoming blogs highlighting the importance a recovery specialist plays in maximizing return while mitigating risk. For more information, contact Jamie Welsh at (303) 531-0654 or Jamie.Welsh@harveststrategygroup.com.