Buy Here Pay Here is going public!

Drive Time, a Buy Here Pay Here BHPH chain with 80 dealerships in 13 states, is going to raise $200 million through an initial public offering of stock.Jeffries and Stephens are the lead managers. The IPO says that it will trade under the ticker “DTA.” Read the prospectus that they submitted to the SEC here.

Drive Time sells cars and offers in-house financing through their DT Acceptance Corp. “We’re the nation’s largest auto financing company,” said my prospective dealer. Last year, Drive Time sold more than 40,000 cars and generated more than $29 million in profits. Buyers also get oil changes and other maintenance with their purchase.

Drive Time says that it will use the majority of the money to pay off outstanding debt. DT has about $1 billion in debt.  That includes some high cost subordinated debt:  DT has $38.1 million in subordinated debt outstanding (to Verde and to one of its  with a 22 percent (more…)

Mark Ernst was clear in his May 6th speech at CERCA (Council for Electronic Revenue Communication Advancement) that he intends to revisit the debt indicator.  According to Ernst,

The Debt Indicator as it is currently delivered is a public good – meaning the IRS provides this information so that  consumers can get an advantage they wouldn’t be able to get otherwise. In as much as the DI is the primary underwriting tool, that advantage should really come in the form of lower prices. But in fact prices are higher for RALs today than they were when the DI didn’t exist. That suggests that the entire value of the DI is going to industry participants and none is going to consumers when, arguably, all of its value should go to consumers.

Ernst is laying out the motive for provision of the debt indicator in the framework of a public good.  I don’t think he means to (more…)

The payday lenders are getting their money’s worth in this Congress. Last year, they made $6.1 million in contributions to Congress. That is roughly the same as JP Morgan Chase!

The Community Financial Services Association, their trade group, reported giving $2.7 million alone. Most of their attention was lavished upon Democrats in order to put off the Payday Lending Reform Act of 2009.  The bill would have capped interest rates on payday loans.

Cash America spent $270,000 in the first quarter of 2010 on lobbying.

According to their filing, they paid Kevin Kimble to work on (or “against”) the following bills:

• S. 500/HR1608, Protecting Consumer from Unreasonable Credit Rates Act of 2009
• HR 1640 Interest Rate Reduction Act
• HB 1705/S.566 Financial Product Safety Commission Act of 2009
• HR 1214, Payday Loan Reform Act of 2009;
• (more…)

Where is the outrage over LLPA and AMDC, the GSE guidelines that have placed additional costs on mortgages that are purchased on the secondary market by the agencies?

The Loan Level Pricing Adjustment (LLPA) imposes charges, ranging from 25 basis points to 200 basis points, for mortgages that have higher risk characteristics.  Those categories include loans with stated income features, investor loans, loans on multifamily units, and loans where borrowers have lower credit scores.

The Adverse Markets Delivery Charge (AMDC) fixes an additional cost on mortgages that are made in areas where real estate values have declined sharply. The application of the charge is analysed at the MSA level. That’s good, because it would be particularly onerous if it was applied on a more micro target. Imagine what would happen if the GSEs were willing to buy loans on one side of the tracks at one price, but at a higher price on “the other side of the tracks.” We would be back to redlining.

For a period, it appeared that FHA would not accept this pricing on its loans. That hinted at a major problem for private mortgage insurers. After all, this would have pushed more and more loans to FHA.

If the demand on the secondary market returned to a state where private buyers were interested, then this could become interesting again. Again, though, this seems to create a force that would prevent that. Imagine if the private buyers were back. Then, they’d be likely to get a greater share of mortgages made to borrowers with less than perfect credit. They would also be more attractive to investors, to multifamily buyers, and to people with ARMs or with stated-income loans. That’s not an attractive prospect.

Demand for mortgages, particular for mortgages on loans that are used to buy homes, is weak. The expiration of the first-time homebuyer tax credit prompted a lot of activity for lower-priced homes. That incentive is gone, now, and for homes that remain the prospects of sales are much weaker. Interest rates are very low, but down payment requirements make a big difference.

The latest reports from the Federal Reserve Bank of Richmond and the Census Bureau are not that promising.

• Inflation is flat. That reflects a stagnated economy.  Still, the reality might even be worse. The price of commodities has been soaring. The year-over-year change in the Commodity Research Bureau‘s Spot Commodity Price Index is 32.8 percent.
• The talk about a return to savings is now just talk.  While the savings rate is not zero, the latest data reports that people are now saving less than they were during the height of the last boom. The national savings rate (share of income minus consumption/income) is less than 3 percent.  Moreover, the figures for 2004 are muted, because those numbers don’t include the $3 per share dividend that Microsoft distributed to its shareholders at the end of that year. That event alone put $32 billion into the economy.
• Less than 59 percent of workers are in the labor force.
• One in seven housing units in the United States was vacant in the first quarter of 2010.

If these indicators are on the right track, then we should be skeptical of the prospects for a recovery in the near future. You would imagine that investors would notice, though. Prices for equities are very high, even after their most recent cooldown. I spoke with a mutual fund manager the other day, and his take was far from comforting. He said that he feels that investors do not really have any good choices to make. The demand for equities is largely because there is no incentive to hold cash.  Many of the bonds in the developed world are suddenly at risk.

So, is it another bubble?